3/27/2015 Mitigation of Exposure to False Claims on Cost or Pricing - PDF document

3/27/2015 Mitigation of Exposure to False Claims on Cost or Pricing Issues Presented by Matthew R. Krafft Senior Managing Director – Construction, Environmental and Government Contracts Group March 13, 2015 FTI Consulting, Inc. – Who We Are FTI Consulting: A Leader Among Leaders FCN 1982 4,300+ $1.4 BLN Publicly traded Market capitalization (1) Year founded Employees worldwide 2 Nobel 400+ 81 16 Laureates Senior Managing Directors Offices in 81 cities around Experts in 16 industry the globe specialties 10/10 95/100 55/100 Advisor to world’s top 10 Advisor to 95 of the 55 of Fortune 100 bank holding companies world’s top 100 law firms corporations are clients (1)Total Shares outstanding times the closing share price as of September 30, 2014. 3 1

3/27/2015 Three Pillars of Strength Industry Expertise Aerospace & Defense Government & Public Mining Contracts Agriculture Real Estate Automotive Healthcare & Life Sciences Retail & Consumer Products Hospitality, Gaming & Leisure Construction & Environmental Telecom, Media & Technology Information Technology Energy, Power & Products Transportation Insurance Financial Institutions Geographic Coverage Specialist Skills Asia Pacific Europe, Middle Latin America North America East, Africa Beijing Bogotá Boston Bankruptcy Process Forensic Accounting Abu Dhabi Hong Kong Buenos Aires Chicago Computer Forensics Global Risk and Investigations Brussels Singapore Mexico City Los Angeles Corporate Communications International Arbitration Cape Town Sydney Panama City New York City e-discovery Transaction Advisory Tokyo London São Paulo San Francisco Financial Communications Valuation Paris 4 FTI Consulting Segments and Practices Economic Strategic Corporate Finance/ Forensic & Restructuring Consulting Litigation Consulting Communications Technology Bankruptcy Support Services Antitrust & Competition Business Insurance Claims Corporate Communications Computer Forensics & Economics Investigations Interim Management Compliance, Monitoring & Creative Engagement and Business Valuation Receivership Digital Communications Discovery Consulting Investment Banking Center for Healthcare Construction,& Crisis Communications e-discovery Software & Litigation Support Economics and Policy Environmental and Services Government Contract Employee Engagement and Office of the CFO Intellectual Property Solutions Change Communications Performance Improvement International Arbitration Dispute Advisory Services Financial Communications Private Equity Advisory Labor & Employment Financial & Data Enterprise Litigation Communications Analytics Restructuring/Turnaround Public Policy M&A Communications Services Financial Services Regulated Industries Public Affairs Transaction Advisory Services Forensic Accounting & Securities Litigation & Risk Advisory Services Restructuring and Financial Valuation & Financial Advisory Management Issues Services Global Risk & Investigations Practice Shareholder Activism and Proxy Advisory Health Solutions Strategy Consulting & Insurance Research Intellectual Property Trial Services 5 FTI Construction, Environmental and Government Contracts (CEGC) Introduction Clients Geography FTI CEGC ■ North and South America ■ Public and Private has the ■ ■ Europe Owners and Contractors capability to ■ ■ Asia Construction Attorneys mobilize ■ ■ Middle East Government Agencies globally to analyze, Industries Services evaluate ■ ■ Construction Advisory Infrastructure and advise ■ Risk Management Strategies ■ Transportation ■ Program Management and Project Monitoring on every ■ Oil and Gas, Pipelines ■ Labor and Productivity Analysis phase of ■ Power Generation ■ CPM Scheduling and Schedule Analysis ■ Healthcare design and ■ ■ Hospitality and Gaming Accounting and Cost Analysis construction ■ ■ Environmental Project Auditing , for both ■ ■ Damages Qualification Mining and Metals public and ■ ■ Claims Preparation and Analysis Industrial private ■ ■ Dispute Resolution Institutional entities . ■ ■ Expert Testimony Education Facilities ■ Government Contracts ■ Fraud Investigations and Forensic Accounting 6 2

3/27/2015 FTI Consulting, Inc. – Construction Solutions - Offices United States International Atlanta, GA Abu Dhabi, UAE Denver, CO Doha, Qatar Great Neck, NY Dubai, UAE Houston, TX Hong Kong Los Angeles, CA London, United Kingdom Miami, FL Northampton, United Kingdom New York, NY Perth, Australia Rockville, MD Rio de Janeiro, Brazil San Francisco, CA Sao Paulo, Brazil Seattle, WA Singapore Washington, DC Stirling, Scotland 7 False Claims Act False Claims Act Overview – Historical Context •The American Civil War (1861–1865) was marked by fraud on all levels, both in the Union north and the Confederate south. During the war, unscrupulous contractors sold the Union Army decrepit horses and mules in ill health, faulty rifles and ammunition, and rancid rations and provisions, among other unscrupulous actions.[1] In response, Congress passed the False Claims Act on March 2, 1863. •The law includes a "qui tam" provision that allows people who are not affiliated with the government to file actions on behalf of the government (informally called "whistleblowing"). Persons filing under the Act stand to receive a portion (usually about 15–25 percent) of any recovered damages. 9 1. From Wikipedia, the free encyclopedia 3

3/27/2015 Substantive Violations of the FCA ■ Submitting a false or fraudulent claim for payment or approval. ■ Making or using a false record or statement material to a false or fraudulent claim. ■ Conspiracy to violate the FCA. ■ Keeping government money or avoiding an obligation owed to the government (reverse false claim) – Overpayments are “obligations” to the government 10 Truth in Negotiations Act (TINA) Truth In Negotiations Act Overview – Historical Context “TINA”, was enacted on September 10, 1962. Federal Law whose purpose is to protect the Government from defective pricing when negotiating Contracts with an award value of $700,000 or more. Requires the contractor to submit cost or pricing data that is certified to be Accurate, Complete and Current as of the date of agreement on price. Provides for flowdowns to subcontractors. 12 4

3/27/2015 Certification Language – FAR Part 15 “This is to certify that, to the best of my knowledge and belief, the cost or pricing data (as Defined in Section 15.401 of the Federal Acquisition Regulation (FAR) and required under FAR Subsection15.403-4) submitted, either actually or by specific identification in writing, to the contracting officer or to the contracting officer‘s representative in support of [THIS PROPOSAL] are accurate, complete, and current as of [THE DATE OF AGREEMENT UPON PRICE]. This certification includes the cost or pricing data supporting any advance agreements and forward pricing rate agreements between the offeror and the government that are part of the proposal.” 13 False Claims Act Compared to Truth in Negotiations Act (TINA) False Claims Compared to Defective Pricing •The concept of Defective Pricing and False Claims closely related; •Do not need to have a certification to have a False Claim allegation; •Not necessary for claim to have been paid. •Concept of ‘reckless disregard’ can be used as the basis for a False Claim allegation; •FCA provides for treble damages plus civil penalty of $5,500 - $11,000 per violation. •Permits whistle-blowers (qui tam relators) to bring action in return for a share of the recovery. 15 5

3/27/2015 False Claims Compared to Defective Pricing (Cont’d) Price Reduction Clause (FAR 52.215-10) for “defective pricing” when: ■ The Contractor does not submit accurate, complete or current cost or price data. ■ The Government has relied on the defective data in determining the contract price. The Government is entitled to interest and penalties 16 FAR Part 15 Contracting by Negotiation FAR Part 15 – Contracting by Negotiation � Codifies the Truth in Negotiations Act � Requires submission of “cost or pricing data” � Data must be “accurate, complete and current” � Must be “as of the date of agreement on price” (the handshake date) 18 6