Thousands of school districts in the country—including the DC school system—outsource food services for their school meal programs. These contracts with private vendors are subject to the DC False Claims Act, which, like the Federal False Claims Act, allows whistleblowers to bring suit in the name of the government. Such a suit was brought by a DC school system employee against Chartwells-Thompson Hospitality (Chartwells), a division of Compass Food Group USA, Inc. The DC government later intervened in the case, alleging that Chartwells charged prices that were significantly inflated when compared to the amounts projected in its bid, and that it performed poorly—repeatedly delivering food late, in insufficient quantities, and spoiled.
In settling the case, Chartwells denied any wrongdoing. DC’s Attorney General acknowledged the company’s remedial actions to address contract management problems, and, at this juncture, the company’s contract has not been terminated. However, it is unknown whether further action will be taken. According to a June 10 editorial in The Washington Post, the DC auditor has been asked for an opinion as to whether Chartwells’ actions should bar it from receiving future contracts.
This case may be a harbinger of similar cases in other jurisdictions. Following announcement of the $19.4 million settlement, the whistleblower claimed that food vendors putting profits over the well-being of students is a national concern and urged all school districts contracting with private food service companies to examine the performance of those companies under their contracts. Companies that sell food or food services to government agencies not only run the risk that complaints of this type will result in termination and non-responsibility determinations in future contract competitions, they also risk that a history of poor performance will be elevated to allegations of recklessness or fraud (which could lead to False Claims Act liability and potential debarment proceedings).
In light of the attention that the Chartwells case has received, it would be prudent for food service contractors to review their operations to ensure compliance with their contractual and regulatory obligations and look closely at complaints about their performance for potential whistleblower activity.
Under federal debarment regulations (and in jurisdictions that pattern their debarment rules after federal law), a conviction—including one based on a plea agreement or a civil judgment for fraud in connection with the performance of a public contract—is grounds for debarment and may be imputed to affiliates, including individuals and corporate affiliates. Moreover, a federal debarment has far-reaching effects, including debarment from federal non-procurement programs implemented by the states, such as assistance programs and programs subsidized by the federal government.
If a company is facing criminal charges relating to its performance of a public contract and contemplating a plea, the possibility of debarment based on a conviction should be addressed head-on. By comparison, the agency must prove the underlying misconduct in cases where it declares a company ineligible for contracts or subcontracts based on allegations brought against the company in a civil suit that was settled without an admission of liability. Although a company could be proposed for debarment after reaching a settlement without an admission of liability—as was the case here—it is less likely than if the allegations were already adjudicated and the company was found liable (or the settlement contained an admission).
Accordingly, the prospect of debarment should be considered carefully when strategizing a response to a federal or state civil False Claims Act suit.