Jessica Tillipman and I co-teach the George Washington University Law School anti-corruption seminar in which the D.C. Metro enforcement action she wrote about will likely be a case study. I thought I would weigh in to offer some additional background information.
Interested Agencies: The Justice Department press release on the settlement is here and the Department of Transportation Office of Inspector General (OIG) press release is here. While the press releases are largely redundant, for our students (and our colleagues abroad) it’s worth noting that there are typically a large number of offices involved in these fraud investigations.
Holding State and Local Governments Liable to the Federal Government: As Jessica pointed out, this case raises important policy questions. Notably, as a result of this settlement, WMATA — a chronically underfunded regional agency — will be paying the federal government over $4 million. Although this seems a pittance compared to WMATA’s annual budget of $2.7 billion, money is money — and these are local taxpayer funds that will not now be available to improve services for Washington’s commuters. As one of those frustrated consumers, this makes me angry, and it raises anew the question of whether state and local government agencies should be held liable under the False Claims Act.
Enforcing Federal Grant Requirements – Aggressively: The case is also important because it turns on federal enforcement of federal grant requirements, regarding open competition and conflicts of interest. (The Federal Transit Administration (FTA) grant rules at the center of this case are here, and they’re discussed in detail in the Frequently Asked Questions posted by the FTA here.)
While this is not the first fraud claim to turn on alleged organizational conflicts of interest, see, e.g., United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908 (4th Cir. 2003), the willingness of the federal government to enforce its somewhat mushy grant rules aggressively against its grantees is an important development. Many federal grant rules contain minimum standards for procurements run under those grants; see, for example, the Office of Management & Budget’s recent “Omni” Circular governing federal grants (issued in the Federal Register on December 26, 2013, 78 Fed. Reg. 78589).
If the federal government intends to use the False Claims Act to enforce federal rules regarding how federal grant dollars are spent through state and local procurements, this is an important new direction. Because federal grants — over $600 billion annually — play such an important role in state and local procurement, enforcing the federal grant rules’ minimum procurement requirements could help harmonize, and regularize, what is otherwise a very balkanized patchwork of state and local procurement rules across the country.
Christopher R. Yukins is the Lynn David Research Professor in Government Procurement Law and Co-Director, Government Procurement Law Program, at The George Washington University Law School. He can be contacted here.