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(A version of this article appears in the California
Construction Law Reporter, published by the West Group.)
By James E. Acret
The
California Department of General Services issued an invitation
for bids to obtain 500,000 infant training cups. Attachment
1 specified that the bidder was required to obtain a 3 percent
participation by disabled veteran business enterprises.
Three bids were received. The low bid ($325,000) was rejected
for failure to meet the spec. Allied was second low at $350,000
but did not comply with Attachment 1. ACS bid $465,000 and
indicated it would obtain the cups from either Allied or
El Nino. ACS complied with Attachment 1. Evidence showed
that El Nino neither manufactured cups nor was authorized
to do business in California. The state then cancelled the
solicitation and contracted directly with Allied as "sole
source." Allied delivered the 500,000 cups and submitted
an invoice for $350,000 plus tax, which the state paid it.
ACS
then filed an action under the False Claims Act. The attorney
general intervened and ultimately filed a motion to dismiss,
which the trial court granted. The Court of Appeals affirmed.
American Contract Services v. Allied Mold & Die,
Inc., ___ Cal.App.4th ___, ___ Cal.Rptr.2d ___, 2001
DJDAR 13197 (2001).
The
Court of Appeals held that Public Contract Code §12652
subdivision (c) (1), upon which plaintiff relied, did not
apply. Section 12652 subdivision (e) (2) (A) requires "good
cause" for dismissal. What may be "good cause"
depends on circumstances. The attorney general, as a public
prosecutor, is charged with doing justice to all involved.
Good cause exists when 1) a valid governmental purpose
is identified and 2) there is a rational relation
between the action and the accomplishment of the purpose.
When a false claims action in which the attorney general
has intervened appears to have to little or no merit, good
cause for dismissal is established.
It
is true that Public Contract Code §10301 requires that
contracts of more than $10,000 be entered into with the
lowest responsible bidder meeting specifications. It is
also true that Executive Order No. W-103-94 states that
no "sole source" contract is authorized except
in case of emergency and requires all "sole source"
contracts to be approved by the cabinet level agency secretary
as well as by the Department of General Services.
But
whether the contract was properly awarded need not be decided
in this action. There can be no knowing presentation of
a false claim when government is fully aware of the facts
surrounding the claim and approves it. Here, the claims
for payment may have been defective, but the defect was
known to and initiated by the state. The state alone decided
to abort the bidding the process and to invoke sole sourcing.
Even if this was improper, Allied did nothing more than
acquiesce in the government's proposal, and the state paid
the invoice with full knowledge of the circumstances. The
False Claims Act is not an appropriate vehicle for policing
technical compliance with administrative regulations.
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©2002 Howrey LLP
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