A Contractor Faulty Estimate Should Not Trigger False Claims Act Violation

A threshold requirement under the False Claims Act is that a “false claim” exists, that is, that the claim be objectively “false.”  Expressions of opinion, scientific judgments or statements as to conclusions about which reasonable minds may differ cannot be false as required by the False Claims Act.  United States Exrel Wang v. FMC Corp., 975 F.2d 1412, 1420-21 (9th Cir. 1992).  As the federal government long ago acknowledged:  “Contract pricing is an art.”  Many would reduce this art to routine by emphasizing the accounting view of price that price equals direct cost and overhead plus a fair profit.  If contract pricing is the art, we believe it to be, the test of a price requires more than a weighing of past and estimated costs.  Subjective evaluation is necessary because of the error inherent in estimates and because it is necessary to test for the reasonableness, economy, relevancy, probability, and materiality.  Contract Pricing Reference Guide, Vol. 1, “Price Analysis,” §9.5.1. 

Similarly, this pricing guide recognized that contract pricing deals with “estimates of future events” and that “[a]n estimate is a prediction of what the cost of future events will or should be.”  Id. At 2A4.  Given the “error inherent in estimates,” the “art” and “subjective evaluation,” and the “prediction” of future costs, the federal pricing guidelines demonstrates the judgmental estimates are inconsistent with the objective falsity standard under the False Claims Act.

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