Free Published Opinion - District Court of Federal Claims - federal

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 1 of 49

In the United States Court of Federal Claims
No. 99-279C (With Which Nos. 99-529C, 99-530C, 00-531C, 03-1537C, 05-804C, 06-173C, 06-174C, 06175C, 06-176C, 06-177C, 06-178C, 06-179C, 06-180C, and 06-181C Are Consolidated) Filed January 26, 2007* Revised and Filed June 29, 2007 TO BE PUBLISHED ******************************************* * Anti-Kickback Act of 1986, * 41 U.S.C. §§ 51-58; MORSE DIESEL INTERNATIONAL, INC., * False Claims Act, d/b/a AMEC CONSTRUCTION * 31 U.S.C. § 3729(a)(1), (a)(2); MANAGEMENT, INC., * Forfeiture of Fraudulent Claims Act, * 28 U.S.C. § 2514; Plaintiff, * Major Fraud Against the United * States, 18 U.S.C. §§ 2, 1031(a); * Tucker Act, 28 U.S.C. § 1491; v. * 18 U.S.C. § 287 (criminal false, * fictitious or fraudulent claims); * 31 U.S.C. § 3905(a), (b); THE UNITED STATES, * FAR 52.232-5, Payments Under * Fixed-Price Construction Defendant. * Contracts; * FAR 52.232-27, Prompt Payment * for Construction Contracts; * RCFC 12(b)(6), Motion to Dismiss; * RCFC 56(c), Motion for Partial * Summary Judgment. ******************************************* James D. Wareham, Paul, Hastings, Janofsky & Walker LLP, Washington, D.C., counsel for Plaintiff.** Domenique Grace Kirchner, United States Department of Justice, Washington, D.C., counsel for Defendant. The court wishes to take this occasion to recognize the significant contribution of Mr. David M. Cohen, Director of the Commercial Litigation Branch, Civil Division of the United States Department of Justice in this case. On this date, Mr. Cohen is retiring after thirty-five years of public service. His skill as an advocate and stewardship of the United States Department of Justice will be missed by the court. On November 7, 2005, Paul, Hastings, Janofsky & Walker, LLP, was substituted as counsel for Plaintiff. The record in this case, however, was made by prior counsel: Pecar & Abramson, P.C.; McManus, Schor, Asmar & Darden, L.L.P.; Arent Fox, PLLC; and Greensfelder, Hemker & Gale.
** *

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 2 of 49

MEMORANDUM OPINION AND ORDER REGARDING COUNTERCLAIMS. BRADEN, Judge This Memorandum Opinion and Order holds that the defendant ("Government") is entitled to summary judgment, as a matter of law, on counterclaims asserted under: the Anti-Kickback Act of 1986, 41 U.S.C. §§ 51-58 and the False Claims Act, 31 U.S.C. § 3729(a)(1), (a)(2). In addition, the court herein, holds that Plaintiff violated the Forfeiture of Fraudulent Claims Act, 28 U.S.C. § 2514, and thereby has forfeited claims in the amount of $54,314,299.16 asserted in this case, as consolidated. A trial on the amount of damages due for violations of 41 U.S.C. §§ 51-58 and 31 U.S.C. § 3729 (a)(1), (a)(2) will be set during a conference call to be scheduled on February 8, 2007. An outline of this Memorandum Opinion and Order follows: I. Factual Background. A. B. Plaintiff's Corporate History. The Government Contracts At Issue. 1. The St. Louis Federal Courthouse. a. b. 2. 3. Phase I ­ Contract No. GS06P94GYC0037. Phase II ­ Contract No. GS06P95GZC0501.

The San Francisco Customs House ­ Contract No. GS09P95KTC0010. The Sacramento Courthouse And Federal Building ­ Contract No. GS09P95KTC0032.

C.

Facts Relevant To Government's Motion For Partial Summary Judgment. 1. 2. Overview. Plaintiff's Specific Conduct Regarding The Government Contracts At Issue. a. The St. Louis Federal Courthouse. i. Phase I Contract No. GS06P94GYC0037.

2

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 3 of 49

ii. b.

Phase II Contract No. GS06P95GZC0501. Customs House Contract No.

The San Francisco GS09P95KTC0010.

c.

The Sacramento Courthouse And Federal Building Contract No. GS09P95KTC0032.

II. III.

Proceedings In The United States Court Of Federal Claims. Proceedings In United States District Courts. A. B. In The United States District Court For The Eastern District Of Missouri. In The United States District Court For The Eastern District Of California.

IV.

Discussion. A. B. C. Jurisdiction. Standing. Standard Of Review Judgment ­ RCFC 56(c). On Cross-Motions For Partial Summary

D.

The Court's Resolution Of The Government's Motion For Partial Summary Judgment. 1. 2. Regarding The Anti-Kickback Act Of 1986 ­ Seventh Counterclaim. Regarding The False Claims Act Counterclaim ­ First And Second Counterclaims. a. b. The False Claims Act. The Parties' Arguments. i. ii. The Government's Contentions. Plaintiff's Response.

3

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 4 of 49

c.

The Court Has Determined That Plaintiff's Progress Payment Application For Performance And Payment Bonds Premiums And Certifications Violated The False Claims Act.

3.

Regarding The Forfeiture Of Fraudulent Claims Act ­ Sixth Counterclaim. a. b. The Forfeiture Of Fraudulent Claims Act. The Parties' Arguments. i. ii. c. The Government's Contentions. Plaintiff's Response.

The Court Has Determined That Plaintiff Practiced Or Attempted To Practice Fraud Against The United States In Violation Of The Forfeiture Of Fraud Act. i. ii. iii. iv. v. vi. vii. viii. vix. x. xi. xii. Case No. 99-279C Case No. 99-529C Case No. 99-530C Case No. 00-531C Case No. 03-1537C Case No. 05-804C Case No. 06-173C Case No. 06-174C Case No. 06-175C Case No. 06-176C Case No. 06-177C Case No. 06-178C

4

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 5 of 49

xiii. xiv. xv. d.

Case No. 06-179C Case No. 06-180C Case No. 06-181C

The Court Has Determined That The Forfeitures Of Plaintiff's Claims In This Case, As Consolidated, Do Not Violate The Eighth Amendment To The United States Constitution.

5.

Regarding The Breach Of Contract ­ Fifth Counterclaim. a. b. Breach of Contract. The Parties' Arguments. i. ii. c. The Government's Contentions. Plaintiff's Response.

The Court Does Not Have Jurisdiction Over The Government's Breach Of Contract Counterclaim.

V.

Conclusion. * * *

I.

Factual Background.1
1

The facts discussed herein were derived from the: May 5, 1999 Complaint filed in No. 99279C; United States ("the Government")'s July 23, 1999 Answer; the Government's November 8, 1999 Affirmative Defenses and Counterclaims ("Gov't First Counterclaims"); the Government's May 5, 2000 Additional Counterclaims (involving doorframes) and Special Plea in Fraud; Plaintiff's January 10, 2001 Answer to May 5, 2000 Government's Counterclaims; the Government's May 10, 2001 (First) Amended Counterclaims; Plaintiff's November 1, 2001 Motion to Dismiss the Government's Seventh Counterclaim ("Nov. 1, 2001 Pl. Mot. to Dismiss"); the Government's November 20, 2001 (Second) Amended Counterclaims ("Sec. Am. Counterclaims");the Government's December 7, 2001 Opposition to Plaintiff's November 1, 2001 Motion to Dismiss Regarding the Seventh Counterclaim ("Gov't Opp.") and Motion for Partial Summary Judgment ("Gov't M.S.J. I."), together with the Exhibits 1-19 thereto ("Gov't Ex. __"); the Government's December 7, 2001 Proposed Findings of Uncontroverted Fact ("Gov't PF"); Plaintiff's February 27, 2002 Reply to Government's Opposition and Response to Partial Summary Judgment ("Pl. Reply and Opp."), together with Plaintiff's Response to Government's Proposed Findings ("Pl. R. to Gov't 5

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 6 of 49

A.

Plaintiff's Corporate History.

Plaintiff's Corporate history is complex, but important in this case. On January 10, 1990, AMEC Projects, Inc.2 and Morse Diesel, Inc. entered into a joint venture, known as Morse Diesel

PF") and Plaintiff's Proposed Findings of Uncontroverted and Controverted Facts Precluding Summary Judgment ("Pl. PF"); Plaintiff's March 18, 2002 Answer to Government's Second Amended Counterclaims; the Government's July 9, 2002 Reply to Plaintiff's February 27, 2002 Opposition (Gov't Reply I"), together with Appendix Exhibits 20-38 ("Gov't Reply Ex. ___") and the Government's July 9, 2002 Response to Plaintiff's February 27, 2002 Statement of Genuine Issues ("7/9/02 Gov't Resp.") and Proposed Findings of Uncontroverted Fact ("7/9/02 Gov't PF"); Plaintiff's June 12, 2002 Amended and Supplemental Answers to Government's Request for Admissions and Third Set of Interrogatories; Plaintiff's August 14, 2002 Responses to the Government's Second Request for Admissions, Fourth Set of Interrogatories, and Request for Production of Documents; Plaintiff's August 21, 2002 Surreply ("Pl. Surreply") and Exhibit A ("Pl. Ex. A"); the Government's October 7, 2002 Sur-Rebuttal and Opposition to Plaintiff's Motion for Summary Judgment Regarding the Seventh Counterclaim ("Gov't S.R. and Opp."), together with Exhibits 39-51 ("Gov't S.R. Ex. ___"); the Government's October 23, 2002 Third Amended Counterclaims ("Third Am. Counterclaims"); Plaintiff's November 27, 2002 Amended Answer to the Government's October 23, 2002 Amended Counterclaim ("Pl. Am. Answer"); the Government's April 29, 2003 Motion for Partial Summary Judgment ("Gov't M.S.J. II"); May 8, 2003 Government Appendix - 1-3 Volumes ("A1-1047"); Plaintiff's August 29, 2003 Opposition to the Government's April 29, 2003 Motion for Partial Summary Judgment ("Pl. S.J. Opp. II"); Plaintiff's August 29, 2003 Appendix - Volumes 4-6 ("A1048-1950"); Plaintiff's September 5, 2003 Opposition to Government's Motion for Partial Summary Judgment ("Pl. S.J. Op.") and Response to Government's Proposed Findings of Uncontroverted Fact ("Pl. Add'l PF"), together with three volumes of Exhibits ("Pl. Ex. ___"); the Government's November 21, 2003 Answer and Counterclaim in Case No. 031537C; Plaintiff's January 12, 2004 Answer to Government's November 21, 2003 Counterclaims; the Government's January 16, 2004 Reply ("Gov't Reply II) and Appendix - Volume 7 ("A19512249");the Government's January 20, 2004 Rebuttal to Plaintiff's Response to Government's Proposed Findings of Uncontroverted Facts ("1/20/04 Gov't Rebuttal to Pl. Add'l PF");the Government's January 23, 2004 Reply Memorandum ("Gov't Reply II"); Plaintiff's January 23, 2004 Response to the Government's Proposed Findings of Uncontroverted Fact ("Pl. Resp. to Gov't PF"); February 20, 2004 Transcript of Oral Argument; March 1, 2004 Supplemental Declaration of James Brogan ("Brogan Decl."); Plaintiff's August 30, 2004 Submission In Opposition ("Pl. Supp. Opp."); the Government's October 1, 2004 Response ("Gov't Supp. Resp."); Plaintiff's August 12, 2005 Memorandum and Exhibits ("Pl. Aug. 12, 2005 Mem."); the Government's August 15, 2005 (Fourth) Amended Counterclaims ("Fourth Am. Counterclaims"); and Plaintiff's August 30, 2005 Answer to Fourth Am. Counterclaims. AMEC, p.l.c. is an international project management and engineering services company, traded on the London Stock Exchange, with 2005 revenues of £4,942.5 million and an adjusted pretax profit of £124.1 million. See AMEC, p.l.c. 2005 ANNUAL REPORT at 1. AMEC Holdings, Inc. 6
2

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 7 of 49

International, Inc., a New York partnership. See A420, 720, 845, 847, 874, 2041. This joint venture was "primarily engaged in the construction of commercial, industrial, municipal, airport, and health care facilities, as well as consulting services for various aspects of construction activities, with locations throughout the United States." A2057. According to Plaintiff's prior counsel, this joint venture resulted from a search by Morse Diesel, Inc., "for a partner that had a large asset base and would pledge those assets on [Morse Diesel, Inc.'s] behalf to enable the company to obtain bonds on larger and more jobs, and obtain them at favorable rates." A420; see also A873, 889, 1451-52. AMEC, p.l.c., "a key part of the joint venture . . . agreed to provide indemnities to sureties on behalf of the joint venture." Id.; see also A846. (AMEC, p.l.c. contributed bonding capacity), 1416-17. In addition, AMEC, p.l.c., through unknown subsidiaries, contributed $5 million in cash to the joint venture. See A873, 1417. Apparently pleased with the performance and business prospects of the joint venture, on January 31, 1995, retroactive to January 1, 1995, AMEC Construction Services, Inc.3 acquired Morse Diesel, Inc.'s 50% ownership in the joint venture and Morse Diesel International, Inc., became a wholly-owned subsidiary of AMEC Holdings, Inc.,4 which was a wholly-owned subsidiary of AMEC Property & Overseas Investments, Ltd.,5 which was a whollyowned subsidiary of AMEC, p.l.c. Id.; see also A874, 1033-35, 2066, 2075. As of January 1, 1995, AMEC, p.l.c. was entitled to all of Morse Diesel International, Inc.'s profits for fiscal year 1995. See A1033-35. On April 20, 2000, the President and CEO of AMEC, Inc.,6 an "indirect subsidiary of AMEC Property & Overseas Investments, Ltd.," became Chairman of Morse Diesel International, Inc. See A421. By August 2001, Morse Diesel International, Inc. also was doing business as AMEC Construction Management, Inc. ("ACMI"), with principal offices located in New York City. See A122, 125, 762-67.

was an indirectly-owned subsidiary of AMEC, p.l.c. and a "holding company for business ventures in the United States[.]" A420; see also A847. AMEC, p.l.c. was a 100% owner of the following companies: The Fisk Group; Worsham Sprinkler Co., Inc., Matthew Hall & Co., Inc.; Barnard and Burk Group, Inc.; and Fire Protection Industries, Inc. See A721. AMEC, p.l.c. also owned 20% of Power Corp. Id. Another company, AMEC Patson was an investment subsidiary of AMEC p.l.c.. Id. Sometime before January 31, 1995, AMEC Projects, Inc. and AMEC Engineering, Inc. were merged into AMEC Construction Services, Inc. See A721. AMEC Projects, Inc. was a subsidiary of AMEC Holdings, Inc. See A847. Both companies shared offices and employees. See A721 AMEC Property & Overseas Investments, Ltd., is a "United Kingdom" corporation and "holding company for business ventures in the United States, Canada and elsewhere." A420. AMEC, Inc. is the "successor corporation to Agra, Inc., a global engineering design, environmental, technology based construction company that merged with AMEC, p.l.c. in April 2000. See A421. 7
6 5 4 3

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 8 of 49

On or about May 6, 2004, ACMI sold certain assets of ACMI's southeastern operations to Facchina-McGaughan LLC, a joint venture formed by Mr. Paul V. Facchina, Sr. of LaPlata, Maryland, the owner of Facchina Construction Company, Inc., and Mr. A.S. McGaughan, Jr., the former head of ACMI's Southeastern Division. See http://www.amec.com/news/ mediareleasedetails.asp?pageid=34&mediaID= 881 at 1-2; see also http://www.southeast. construction.com/news/florida/archive/0407.asp (last visited Jan. 25, 2007). AMEC p.l.c., however, apparently continues to own ACMI which is an ongoing business, although it has had a negative net worth position since 2002. See Pl. Aug. 12, 2005 Mem. at 2. Since, Morse Diesel International, Inc., d/b/a AMEC Construction Management, Inc. has been incorporated and/or conducted business and/or invoked the jurisdiction of several federal forums under the following names: Morse Diesel, Inc.; Morse Diesel International, Inc., a New York general partnership; Morse Diesel International, Inc. associated with CMR Construction, Inc. (A 298, 769, 1520-21); AMEC Construction Management, Inc. (A122, 842); and Huber, T.D.S., P&D, Morse Diesel Joint Venture (A737-60), hereinafter, the court will refer to the aforementioned entities as "Plaintiff." B. The Government Contracts At Issue. 1. The St. Louis Federal Courthouse. a. Phase I ­ Contract No. GS06P94GYC0037.

On July 15, 1994, the General Services Administration ("GSA") awarded the joint venture, Plaintiff Contract No. GS06P94GYC0037 to excavate the building site and construct the foundation and core wall for the Thomas F. Eagleton Federal Courthouse in St. Louis, Missouri ("St. Louis Federal Courthouse"). See A2-3; see also Fourth Am. Counterclaims ¶ 6;7 Pl. R. to Gov't PF ¶ 1. The contract was awarded on a fixed-price basis for $20,343,186 ("Phase I Contract"). Id.; see also A1057. (Laskowske Dec. ¶ 5). On or about July 19, 1994, the Seaboard Surety Company of Bedminster, New Jersey, St. Paul Fire and Marine Insurance Company of New York, and American Home Assurance Company of New York collectively issued a performance bond for Contract No. GS06P94GYC0037 in the amount of $118,907.00. See A1922-23.

The August 16, 1994 GSA Form 2419 Certification states that the Contract No. GS06P94GYC0037 was awarded to "Morse Diesel International in association with CMR Construction, Inc." The record provides no information about CMR Construction, Inc. or its "association" with Plaintiff. 8

7

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 9 of 49

b.

Phase II ­ Contract No. GS06P95GZC0501.

The Bid Package for Contract No. GS06P95GZC0501 to complete construction of the St. Louis Federal Courthouse at a fixed-price of $165,102,792 ("Phase II Contract") included the text of Federal Acquisition Regulation ("FAR") 52.232-5 (Payments Under Fixed Price Construction Contracts) and FAR 52.232-27 (Prompt Payment For Construction Contracts). See A522-24. On September 28, 1995, GSA awarded the contract to Plaintiff. See A1057. The Invitation for Bid on Phase II included Option 8 for the build-out of Level II, with a separate price of $1,900,000. See Compl. ¶ 4 at 2. On October 18, 1995, GSA issued a Notice to Proceed with Phase II to Plaintiff but since the site would not be available until March 8, 1996, preliminary work was to be undertaken offsite. Id. ¶ 6 at 2. In June 1996, however, GSA informed Plaintiff of the decision to delete the Option 8 build-out and revised plans for Phase II. Id. ¶ 7 at 2-3. In July 1996, GSA issued a Request for Change Proposal P-24 and Price to Be Determined Later Notice for P-24, with a $0 designation. Id. ¶ 9 at 3. GSA advised Plaintiff that the $1,900,000 amount included in Option 8 for the Phase I Contract price should be deleted from the $165,102,792 fixed-price for Phase II and that the reduction would be treated as a "partial termination for convenience of the Government." Id.; see also Pl. R. to Gov't PF ¶ 1 (admitting the Phase II Contract was for $165,102,792). In November 1996, Plaintiff sent GSA a proposal, pursuant to the Changes Clause of the Phase II Contract, proposing to reduce the contract price by $1,397,305, an amount that was "equal to the costs [Plaintiff] would have incurred to perform the work deleted by P-24," but which compensated Plaintiff for preliminary work done on Option 8 for the period October 18, 1995 and July 1996, when the Request for Change Proposal was issued. Id. ¶ 10 at 3. On November 26, 1996, GSA requested that Plaintiff submit a revised price proposal. See Compl. ¶ 11 at 3. In December 1996, Plaintiff resubmitted the "original price proposal with an explanation and justification for calculating the adjustment under the Changes Clause." Id. ¶ 12 at 3. On February 13, 1997, GSA issued a Notice of Partial Termination regarding the Option 8 Level II build-out and announced GSA's intent to deduct $1,900,000 from the $165,102,792 Phase II fixed-price contract. Id. ¶¶ 13-14 at 4. On February 21, 1997, Plaintiff rejected GSA's Notice of Partial Termination. Id. ¶ 15 at 4. Although Plaintiff apparently thought there was an apparent agreement on a "deduction less than the bid Option 8," on July 25, 1997, GSA rejected the "negotiated credit amount, reaffirmed the February 13, 1997 Notice of Partial Termination, and advised Plaintiff to submit a price proposal, pursuant to the Termination for Convenience Clause. Id. ¶ 16 at 4. On July 28, 1997, GSA issued a Change Proposal P-98 reinstating Option 8, but for a different configuration. Id. ¶ 17 at 4. In response, Plaintiff submitted a proposed price for the reconfigured work. Id. On January 30, 1998, Plaintiff informed GSA that the $1,397,305 proposed price reduction was Plaintiff's Termination of Convenience proposal, if GSA decided to proceed in this manner, rather than treating the situation as a "work scope" change. Id. ¶ 18 at 4-5. GSA appears to have ignored Plaintiff's proposal and issued a unilateral modification of PCG8 on March 10, 1998 to 9

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 10 of 49

decrease the Phase II Contract price by $1,900,000. Id. ¶ 19 at 5. On April 9, 1998, Plaintiff submitted a certified claim to GSA in the amount of $467,659. Id. ¶ 20 at 5; see also A825-26. On May 12, 1998, a GSA Contracting Officer issued a Final Decision denying Plaintiff's claim and request to consider the deduction as a change of work, rather than a partial Termination for Convenience. Id. at ¶ 21 at 5; see also A821-23. On June 16, 1999, GSA sent Plaintiff a Notice of Termination for default, pursuant to FAR 52.249-10 Default (Fixed Price Construction). See A82831, 1190-92. 2. The San Francisco Customs House ­ Contract No. GS09P95KTC0010.

The GSA Notice Concerning Solicitation Contract No. GS09P95KTC0010 also included the text of FAR 52.232-5 (Payments Under Fixed-Price Construction Contracts). On February 15, 1995, GSA awarded Plaintiff Contract No. GS09P95KTC0010 to conduct seismic and electrical upgrades at the United States Customs House in San Francisco at a fixed price of $12,220,188. See A140, 529-31, 543. In addition, the May 23, 1995 GSA Form Construction Contract Payment Voucher referenced FAR 52.232-5 (Payments Under Fixed-Price Construction Contracts) and FAR 52.232-27 (Prompt Payment for Construction Contracts). See A525-28. 3. The Sacramento Courthouse And Federal Building ­ Contract No. GS09P95KTC0032.

On July 19, 1995, GSA awarded Plaintiff Contract No. GS09P95KTC0032 to construct the core and shell of the United States Courthouse and Federal Building in Sacramento at a fixed price of $92,609,000. See A182-84, 580. C. Facts Relevant To Government's Motion For Partial Summary Judgment. 1. Overview.

From approximately 1990 to January 1995, Plaintiff was a joint venture: 50% of which was owned by AMEC Holdings, Inc., a wholly owned United States subsidiary of a United Kingdom corporation known as AMEC, p.l.c. See Fourth Am. Counterclaims ¶ 111; see also Gov't PF ¶ 8 at 3. AMEC, p.l.c.'s contribution to the joint venture was to provide indemnification to sureties for any losses that Plaintiff might incur for performance and payment bonds issued to Plaintiff. See A846, 884, 889. AMEC, p.l.c.'s indemnification appeared to be provided at a cost: [P]art of the partnership agreement . . . was that when [Plaintiff] issued bonds, [Plaintiff] would charge double the premium for the bond, the sureties portion would be paid to them, and the other portion was to be collected as payment . . . for the indemnity that AMEC gave to the general partnership.

10

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 11 of 49

A889; see also A119 (AMEC's indemnification was an "additional cost that was charged into [MDI's] job"); A1014 (Morse Diesel paid a fee to AMEC for the bonds), A1019, 2185 ("[T]wice the cost of the payment and performance bonds . . . [was included] because `they wanted use to support the cost of it and we provided the support backup to the project team.'"). Initially, AMEC, p.l.c. negotiated with Seaboard Surety Company, also known as Saint Paul Fire and Marine Insurance Company ("Seaboard/St.Paul"), to obtain a multimillion dollar bond line of credit that could be drawn down by Plaintiff but, in fact, was indemnified by AMEC, p.l.c. and "certain deep pocket AMEC subsidiaries." A846. Before bidding on any contract requiring a bond, however, Plaintiff was required to seek prior approval of AMEC, p.l.c. or one of its affiliates. See A847, 873, 884; see also Gov't Opp. Ex. 4. Without AMEC, p.l.c.'s approval, Plaintiff could not have obtained a bond. See A874. AMEC, p.l.c. had the right to approve Plaintiff's choice of bond broker. See Gov't Opp. Ex. 2 at 79-80. Plaintiff's Director of Risk Management testified that: "In order for AMEC to provide approval to the bond or provide the surety program that Morse Diesel needed, AMEC asked Morse Diesel . . . to bill bond costs at twice the normal amount. So that half the amount . . . would be what was paid to the sureties, and the other half was an amount collected in order to pay AMEC . . . for the use of its equity . . . ([MDI's] Executive Vice President and . . . the [C]hariman of the Company . . . Those two guys would have been ultimate decision-makers - . . . [they] would have their marching orders prior to that with AMEC."); A1448, 1450; see also Pl. R. to Gov't PF ¶ 9 (MDI contends that the bond brokers were not MDI's brokers, but "AMEC's brokers."). At a February 17, 1993 AMEC, p.l.c. Board of Directors' meeting, it was decided that Plaintiff would cease doing business with Seaboard/Saint Paul and instead deal exclusively with and split future fee commissions earned on Plaintiff's bonding with Willis Corroon, Construction Services Company ("Willis Corroon"), which had a prior business relationship with Morse Diesel, Inc. See A79, 848 (Bardsley Dep. at 78-82); see also Gov't Opp. Ex. 6. Thereafter, AMEC, p.l.c. was to be paid 50% of the fee commissions earned by Willis Corroon on Plaintiff's contracts in exchange for an exclusive arrangement for Plaintiff's bond business, including at least the bonds required in connection with Phase I of the St. Louis Federal Courthouse, San Francisco Customs House, and Sacramento Courthouse projects. See Gov't Opp. Ex. 2 at 183-84, 101-02; Gov't Opp. Ex. 5 at 79-80, 92-94; but see Pl. R. to Gov't PF ¶ 10 ("From 1990 to 1998 Willis Corroon was not the exclusive broker for surety business. Willis Corroon was a co-broker with a UK broker for AMEC . . . which received 50% of the income from the brokerage services.") (citing Ex. 2 Bardsley Dep. at 75-77; Ex. 5 Romano Dep. at 79-80). Willis Corroon did not require advance payment from MDI to provide payment and performance bonds. See A2184. This initial commission-splitting agreement was in force until mid-1995, when Plaintiff obtained AMEC, p.l.c.'s approval to appoint RHH, subsequently known as AON, as Plaintiff's new exclusive bond dealer. See Gov't PF ¶¶ 18-19; see also Gov't Opp. Ex. 2 (Bardsley at 131); Second Am. Counterclaims ¶ 116 at 37. Many of the RHH/AON employees previously worked at Willis Corroon and participated in the prior fee commission-splitting agreement that was continued by RHH/AON. See A1004; see also Gov't Opp. Ex. 2 at 86, 112-13; Second Am. Counterclaims ¶ 17 at 37. As Plaintiff's Director of Risk Management testified: "That was a business practice for Morse 11

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 12 of 49

Diesel. We always obtained payment from our clients for our bond premiums before we paid the surety."); see A384 at 27-28, 193-94; see also A903, 908, 917, 929, 969-70, 994, 1002 (Plaintiff typically "stretched payments [to sureties] out to four to six months."). With Plaintiff's knowledge and approval, RHH and Willis Corroon split commissions on the bonds provided to Plaintiff with AMEC, p.l.c. at least with regard to: the July 5, 1994 Phase I Contract on the St. Louis Federal Courthouse; the September 28, 1985 Phase II Contract on the St. Louis Federal Courthouse; February 15, 1995 upgrades performed on the U.S. Customs House in San Francisco; and the July 19, 1995 construction of the United States Courthouse and Federal Building in Sacramento. See Gov't PF ¶ 19; see also Gov't Opp. Ex. 5 (Romano Dep. at 81); Gov't Opp. Ex. 12. These commission rebates were transferred by Willis Corroon "into the contract books by account of AMEC p.l.c." Ex. 2 at 104. MDI has admitted that "the AMEC Indemnity" amount was for AMEC p.l.c.'s assumption of the risk of exposing its balance sheet to the risks of performance on MDI contracts . . . the amount was appropriately included in revenue as profit." A104-104a (Request for Admissions). Plaintiff also characterized these payments as a "discounted or `preferred fee' . . . because of AMEC's volume of business." Pl. R. to Gov't PF at ¶14 (citing Ex. 2 (Bardsley Dep. at 114-15)). Plaintiff conceded, however, that "[as a] result of the commercial partnership . . . [Plaintiff] received very good rates, and likely receive the lowest available rates in the industry[.]" Id. (citing Ex. 2 (Bardsley Dep. at 114-15)); see also Ex. 5 (Romano Dep. at 95) (referring to November 1, 1999 letter to William Keating at KPMG where Romano stated, "because of AMEC p.l.c.'s indemnity and surety relationships, MDI was able to obtain favorable rates."). On February 18, 1999, GSA's Office of Investigations, Office of the Inspector General reported that "[Plaintiff] used falsified invoices and [made] false certifications to obtain payments for bonds. MDI was required to pay for the bonds prior to billing GSA. T[hey] also did not make an effort to pay for the bonds immediately after receiving payment from GSA. Plaintiff also billed for alleged surety cost to AMEC. No payments to AMEC were made, thus Plaintiff front-loaded the entire amount. Plaintiff used this ruse to obtain contract funds prior to the completion of the contract. The damage to GSA is the loss of the funds and interest on the funds." A1188.2. 2. Plaintiff's Specific Conduct Regarding The Government Contracts At Issue. a. The St. Louis Federal Courthouse. i. Phase I Contract No. GS06P94GYC0037.

On July 13, 1994, Willis Corroon advised Plaintiff's Director of Risk Assessment of the execution of a $20,343,186 performance bond and $2,500,000 payment bond on Phase I of the St. Louis Federal Courthouse. See A459, 1922. That letter also stated that Willis Corroon's "invoice for the premium of $118,907.00 will follow under separate cover." A459; see also A1421. On July 14, 1994, Willis Corroon invoiced Plaintiff for performance and payment bonds in the amount of $118,907 for Phase I of the St. Louis Courthouse. See A1548, 1924. 12

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 13 of 49

On July 15, 1994, Plaintiff's Vice President, forwarded a GSA Agenda for a pre-construction meeting entitled, Site & Foundation Package No. 1 Pre Construction Meeting Agenda, to Plaintiff's Executive Vice President and Contractor Administrator, among others, for their "perusal," that included the topic "Paid Bond Receipts (CRSS) A. Paid Bond Receipt for payment of bond must be submitted with first payment receipt or payment request will be rejected and returned to contractor." A460-63; see also A270, 272 at ¶ 9. On July 19, 1994, Plaintiff's Vice President and Contract Administrator attended a GSA pre-construction meeting where they were informed that receipts were required to be submitted with a payment application for bond payments made. See A270; see also Pl. Add'l PF ¶ 5 (not contesting A270); A281, 284, 937, 939. On June 6, 1994, Plaintiff's Executive Vice President informed the Vice President that the bond premium would include an "AMEC surcharge" of 1.17% or $234,125 for one year or $262,230 for two years. See A458. Without the AMEC "surcharge," the rate would be 0.59% or $117,863 for one year or $131,110 for two years. Id. On July 26, 1994, at the request of Plaintiff's Director of Risk Finance, the Vice President/Comptroller processed a journal entry of $118,907.00 "to 2F02 for the bond cost of the St. Louis Courthouse project (#3262000). This cost is to be billed to the owner in the next requisition." A410-11; see also A924, 2186. In her affidavit, however, she admitted that she "never entered the `AMEC Indemnity' on the Phase I St. Louis Courthouse project in my accounting system. There are no journal entries in any MDI accounting records for the $118,907 `indemnity' amount. I never saw an AMEC Indemnity Agreement or any documents concerning an AMEC Indemnity Agreement for the St. Louis Courthouse project." A386; see also A1194. On July 22, 1994, Plaintiff's Director of Risk Management forwarded correspondence to Plaintiff's Contract Administrator including a fax coversheet that requested: "Let me know when we've received payment for Bond Cost, so I can set-up Willis invoice for payment." A464; see also A900, 937, 939, 2186. The attached correspondence indicated that a July 21, 1994 letter from Norman Critchlow, was sent to Plaintiff's Executive Vice President, enclosing "Willis Corroon's invoice for the noted bonds." See A308, 465; see also A2184. On July 28, 1994, Plaintiff's Project Manager for the Phase I Contract and other Plaintiff representatives met with GSA to discuss the requirement for pay applications, including the need to evidence payment for any bond premiums requested. See A1009. On August 9, 1994, Plaintiff submitted a draft of a first pay application for Phase I requesting a payment of $237,814 for bond costs. See A270-71, 288-94.8 The draft application included a July 21, 1994 letter from Norman Critchlow, a senior executive at AMEC Holdings, Inc., to Plaintiff's Executive Vice President, entitled "United States Courthouse Site and Foundation Package No. 1 Contract Value: $20,343,186 Performance and Payment Bond." A514. The letter advised that "Per agreement between MDI and AMEC Holdings, the cost for AMEC's indemnity support to the sureties for MDI's surety program is $118,907." Id. A summary of the "bond costs" was recited, as follows:

A June 6, 1994, Plaintiff's Bond Rate Worksheet estimated the bond premium for the U.S. Courthouse, St. Louis "with AMEC surcharge 1.17%" would be $234,125 for the first year. See A458; see also A2188. The first year premium would be $117,063 "without AMEC surcharge .059%." Id. 13

8

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 14 of 49

Seaboard ­ Performance and Payment Bond American Home ­ Performance and Payment Bond AMEC Holdings ­ Indemnity to Surety Total bond cost Id.

$

$

62,299 56,608 118,907 237,814

In addition, the July 21, 1994 letter enclosed Willis Corroon Invoice No. 0219908, dated July 14, 1994, in the amount of $118,907. See A291-92. As Plaintiff's Director of Risk Management testified: "I would have provided [the July 11, 1994 letter] at [Plaintiff's Contractor Administrator's] request." A2185. In fact, Plaintiff's Director of Risk Management was asked "for support documentation for the bond costs for the project," which is why [Plaintiff's Director of Risk Management] provided the surety invoices and "Norm[an Critchlow] provided the ­ what we call the indemnity letter." A2185. Plaintiff's Contract Administrator confirmed that the AMEC "indemnity support" was "another part of the bond cost." A1486-87. On August 12, 1994, GSA's Construction Manager met with Plaintiff's Contractor Administrator and Plaintiff's Project Manager for the Phase I contract to inform them that the documentation that Plaintiff provided with the draft payment application was insufficient, because no proof was provided that the bond costs actually were paid. See A271 at ¶8, A933 at 22-23, A1009-10 at 19-21, A1481 at 68, A1531-32 at 19-22. On or about August 16-17, 1994, Plaintiff's Vice President, filed a progress pay application to GSA regarding the Phase I Contract, including a certification for a $237,814 bond claim alleged to have been paid by a July 14, 1994 Willis Corroon invoice. See A77, 281, 298-301, 460-63, 900, 1534, 1539, 1558.9 The GSA Form 2419 Certification of Progress Payment Under Fixed-Price Construction Contracts, incorporating FAR 52.232-5, stated that the amounts requested "are only for performance in accordance with the specifications, terms, and conditions of the contract[.]" (emphasis added). Gov't Ex. 15 (GSA51001706). A paid bond receipt was not submitted with the final application. See A271-72, 308-10, 313-16. On August 17, 1994, Plaintiff's Risk Manager sent a fax to Willis Carroon requesting an "invoice [that states] that the bill has been paid[.] Naturally we will forward payment to Willis as promptly as possible upon receipt of payment from the GSA." A468 at 40; see also A900 at 168, A1001 at 58. The Willis Corroon invoice marked paid was forwarded to Plaintiff's Project Manager for the Phase I Contract. See A914. On August 19, 1994, Invoice No. 0219908 regarding the Phase I Contract was marked paid by the Executive Vice President of Willis Corroon, at the request of Plaintiff's Contract Administrator who then forwarded the invoice to GSA. See A1000-01. GSA, however, also considered this documentation to be inadequate. See A271, 913-14, 1011, 1168, 2187.

Plaintiff admits that at least one employee read Paragraph 9 of the Phase I Contract before the August 16, 1994 progress payment application and certification were submitted to GSA. See A80 (Request for Admissions 35), A99 (Request for Admissions 2), A103 (Request for Admissions No. 16). 14

9

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 15 of 49

On August 23, 1994, Plaintiff submitted a revised payment application reflecting that the requested bond premium had been reduced from $237,814 to $118,907, together with two certifications that "all amounts have been paid by the Contractor[.]" See A272, ¶9; A298-314; see also A77 (Plaintiff's Vice President was authorized to sign the certificate on behalf of Plaintiff). On August 24, 1994, a senior executive at AMEX Holdings Inc. sent a letter to Plaintiff's Executive Vice President, stating: "Further to AMEC Holdings letter dated July 21, 1994, we confirm that AMEC Holdings Indemnity to Surety in the sum of $118,907.00 has been paid by Morse Diesel International." A471; see also A919-20 (discussing that the $118,907 was not intended as a thirdparty payable by Plaintiff); A 953-54. On August 25, 1994, Plaintiff's Contract Administrator sent a letter to GSA attaching an invoice, dated July 14, 1994, Reference No. 0219908 from Willis Corroon and stamped "paid." See A473 (attaching A474), A886-88 (Ford Dep. at 82-88) (Plaintiff's Director of Risk Management testifying that when he requested the invoice stamped as paid, he knew that the invoice in fact was not paid); see also A489. Based on additional representations by Plaintiff's Project Manager that the $118,907 had been paid to Willis Corroon on September 14, 1994,10 on October 3, 1994, GSA paid Plaintiff for the $118,907 claim.11 See A81, 272, 901, 1194. Plaintiff did not pay Willis Corroon until November 30, 1994. Id. During this period, Plaintiff also submitted a second progress pay application to GSA regarding the Phase I Contract, including another certification by Plaintiff's Vice President, dated September 12, 1994, that included an additional $118,907 in bonding costs, supported by two letters from Norman Critchlow, that this amount of "AMEC indemnity" was paid to AMEC. Id. ¶ 17; see also A78; A85 (Request for Admissions 57), A878. At his deposition, Mr. Critchlow was asked about the statement in one of

A handwritten note from Plaintiff's Director of Risk Management to Willis Carron dated August 17, 1999, however, stated: "Please see copy of invoice from Willis for P&P bond premium. We are attempting to get paid. We've submitted the invoice to the owner (GSA) and they want to know that the bill had been paid. Could you provide a letter to [Plaintiff's Executive Vice President] of our Chicago office which references the project and this invoice and shows that the bill had been paid. Naturally, we will forward payment to Willis as promptly as possible upon receipt of payment from the GSA. Please advise if you can assist." An additional notation indicated: "Sent `Pd.' Invoice to K. Ford." An August 20, 1994 note to Plaintiff's San Francisco Accounting Office from Plaintiff's Project Manager for Phase I stated "RE: GSA Courthouse Application For Payment. 1. Any signs of `paid receipts' for bonds?" A469. On August 22, 1994, Plaintiff's Project Manager, edited a document listing items of "mobilization," "estimated total," and "end of July billing" for the "U.S. Courthouse Job." A1540. The "mobilization" item for the bond was estimated to be $237,814, of which $118,907 was to have been billed by the end of July. Id.; see also A1542. On August 22, 1994, Plaintiff's San Francisco Accounting Office responded to Plaintiff's Project Manager for Phase I: "Anticipate documentation for bonds to be received today or tomorrow." A470. See A511-13 (indicating that the "Surety Rates from Willis Corroon" included the "Total Seaboard [Surety Company] & AIU [American Home Assurance] Bond Premium for this Project: [was] $118,907." It is not clear from the record whether Willis Corroon and/or any of Plaintiff's parent entities had any corporate and/or other relationship with Seaboard and/or AIU.). 15
11

10

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 16 of 49

the letters that reported: "Per agreement between MDI and AMEC Holdings, Inc., the cost for AMEC's indemnity support to the surety for MDI surety is 118,907 dollars." A878; see also A465. He testified: "if one looks at the numbers, that indemnity to surety is exactly equal to the payment in performance bond sums to Seaboard in American Home, and I can only, with hindsight, relate it back to the fact that there was an earlier reference to doubling the bond premiums for the AMEC indemnity." A878 (referring to a "1990 board meeting."); A879-80. In fact, Plaintiff did not pay AMEC Holdings, Inc. for this bond. Id. In addition, Plaintiff admitted that, Plaintiff intended GSA to rely on this documentation as evidence that the bond premiums on the Phase I Contract were paid. See A81 (Request for Admissions No. 37), A164-65, 272 (Haddock Dec. ¶ 9); A295 (Haddock Ex. C), 308, 886-88, 906, 2187, 2197 at 83-85. On September 14, 1994, Plaintiff submitted a second payment application for the Phase I Contract, again certified by Plaintiff's Vice President of Operations, that included $118,907 in bond costs. See A73, A320-28. The second application also included an August 24, 1994 letter from Norman Critchlow, AMEC Holdings, to David Hoffman, stating that the "AMEC Holdings indemnity to surety in the amount $118,907 had been paid." See A326. Based on this documentation, GSA paid Plaintiff the total $330,039.00 amount requested, including $118,907 for the bond premiums. See A275, 342-43. On September 12, 1994, Morse Diesel International/CMR Construction, Inc. advised GSA of a revised bond rate from 1.1% to .54%, together with other revisions. See A1520-21; see also A 612. A handwritten note, dated November 16, 1994, on the July, 1994 Willis Corroon invoice, establishes that, in fact no payment was made by Plaintiff on August 24, 1994. See A1924. On November 22, 1994, Plaintiff paid Willis Corroon $141,407, $118,907 of which represented the bond cost for Phase I of the St. Louis Courthouse project. See A387, 412, 1002; but see A1168 (GSA Form 9505-A Report of Inspector General stating that Willis Corroon was paid on November 30, 1994); see also A1924 (indicating that on 11/16/94 Willis Corroon had not been paid $118,907 for Invoice No. 0219908, dated July 14, 1994); A1927. Accordingly, Plaintiff's Controller for Project Accounting testified that: "[a]ny statement or invoice provided to indicate that MDI had paid its surety brokerage part of the premiums for performance and payment bonds on the St. Louis Courthouse Phase I project before November 22, 1994 is false. Any statement or invoice provided to indicate that MDI had paid its surety broker $118,907 for the premiums for performance and payment bonds on the St. Louis Courthouse Phase I project before November 22, 1994 is false." A387; see also A930. On November 14, 2000, the head of Accounting in San Francisco received an Employee Reprimand for having knowledge that in Phase I of the St. Louis Courthouse, Plaintiff "submitted pay requisitions seeking reimbursement for payments . . . for a parent company indemnity." A930. On February 19, 2001, however, this individual took issue with the reprimand stating: At the time that AMEC costs were billed to GSA, I was instructed directly by a member of Senior Management . . . to invoice them. I therefore felt I had no one in 16

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 17 of 49

Senior Management to approach and discuss the details of this transaction. The work place environment within the Accounting portion of [Plaintiff] during this period of time was not conducive to employee questioning their superior. On numerous occasions I questioned ethical business practices and/or/ transaction that were being done by [Plaintiff] to this same individual, and was told that if "I didn't want to do the job, he would find someone who would." A931. On November 14, 2000, the Audit Coordinator also received an Employee Reprimand for having submitted an invoice on Phase I "for [Plaintiff's] bond premium which had been stamped paid" and submitted as a supplement to [Plaintiff's] certified payment requisition for which Plaintiff "sought reimbursement for that bond premium in order to induce the GSA to make payment." A 518; see also A1509 at 67. This individual also took issue with the reprimand stating his [date] letter was "merely a `transmittal' letter enclosing information received for New York corporate who controlled the payment of Insurance and Bond invoices." A579; see also A1509 at 67. On November 14, 2000, Vice President, Operations Manager also received an Employee Reprimand regarding Phase I and II for having "signed the certificates with exercising the proper care and due diligence to ensure that the statements contained in them were true." A520-21. This individual also disagreed stating: "I signed certificates based on confirmation and information received and prepared by the [Plaintiff's] accounting staff that the input/billings enclosed with the Certificates were true and accurate." A521; see also A1508 at 64-65, A1516 at 138 (Vice President, Operations Manager testified that he did not review the invoices for the bonds). ii. Phase II Contract No. GS06P95GZC0501.

On or about August 17, 1995, Plaintiff prepared a bid for the St. Louis Courthouse Phase II with a $845,824 bond premium, that did not include the AMEC surcharge. See A903 (Ford Dep. at 195); Contract No. GS06P95GZ0501; but see A1945 (noting that the bid included a bond amount of $923,900). On September 28, 1995, Plaintiff informed RHH that Plaintiff needed payment and performance bonds to issue by October 6, 1995. See A905 (Ford Dep. at 200). On October 6, 1995, Seaboard Surety Company issued a performance and payment bond in the amount of $165,102,792 for the St. Louis Courthouse Phase II. See A1948. On October 18, 1995, GSA convened a pre-construction meeting for the St. Louis Courthouse Phase II at which Plaintiff's representatives attended, including the Vice President and Operations Manager, Gerald Parham, the MDI Project Executive for Phase II, and Paul Laskowske, the MDI Project Manager for Phase II. See A275, 344-54 (Haddock Decl. ¶ 14). At that meeting and a follow-up on October 31, 1995, Plaintiff's representatives again were informed that bond receipts evidencing payment must be received with payment applications. Id. On October 31, 1995, Plaintiff submitted a draft first Payment Application for the Phase II Contract for $1,400,146, of which $923,900 was for bond costs. See A275 (Haddock Decl. ¶ 15). The draft enclosed copies of invoices from Rollins Hudig 17

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 18 of 49

Hall, dated October 26, 1995, however, the invoices were not marked as paid. See 276 (Haddock Decl. ¶ 15), A356-58, 905. The Construction Manager informed Plaintiff that GSA required paid invoices to be submitted and advised GSA that Plaintiff would be submitting that back up documentation. See A276-77 (Haddock Decl. ¶ 15), 1169-70. On November 3, 1995, documents were forwarded to the GSA Contracting Officer by the site Project Manager with a note that stated: "1. Bond: Appears to be 0.56% of Contract Total, MDI is working on getting a stamped `Paid' copy." A355; see also A276 (Haddock Decl. ¶ 15), 1939 (John Walsh, GSA Office of the Inspector General, testified that before he received a November 8, 1996, memo from Plaintiff's Director of Risk Management, Mr. Walsh did believe that the bond invoices stamped paid were accurate.). On November 29, 1995, Plaintiff submitted a first progress payment application for the Phase II Contract certified by Plaintiff's Vice President and Operations Manager, in the amount of $1,003,352.65, including $923,900 for bond premiums. See A276 (Haddock Decl. ¶ 15), 369-80. The payment request was accompanied by invoices from Rollins Hudig Hall stamped "Paid November 21, 1995." Id.; A379-380. On December 1, 1995, Plaintiff's first payment application for Phase II was forwarded to GSA, together with stamped "Paid" invoices. See A369-80. On December 6, 1995, GSA authorized payment to Plaintiff for $1,003,352.65, including $923,900.00 for bond premiums. See A381-82. On or about November 21, 1995, one of Plaintiff's employees in the insurance and bonding office, located in New York, called a representative of Rollins Hudig Hall, Plaintiff's bonding and insurance agent, and asked that the representative stamp an invoice for the bond premium as paid when, in fact, it had not been paid to that date and deliver it to Plaintiff's office. See A118 (Stipulation of Facts ¶ 1), A907 (Ford Dep. at 244-46), A927 (Estock Dep. at 489-91) (no journal entry was made regarding the AMEC indemnification amount charged), A935 (Haddock Dep. at 70). On November 28, 1995, Plaintiff's Vice President and Operations Manager submitted a first application to GSA for payment of $1,003,352.65 on the Phase II Contract, including $923,900 for bonds together with certifications of the accuracy of the "paid" invoice. See A78, 1169, 1171-80; see also A118 (Stipulation of Facts ¶ 2). The GSA Form 2419 Certification of Progress Payment Under Fixed-Price Construction Contracts, incorporating FAR 52.232-5, stated that the amounts requested "are only for performance in accordance with the specifications, terms, and conditions of the contract[.]" (emphasis added). Gov't Ex. 15 (MDI 9776530). Subsequently, Plaintiff admitted that as of November 28, 1995, at least one company employee knew that Plaintiff had not paid its surety bond premiums on the Phase I Contract. See A100 (Request for Admissions No. 9). In fact, Plaintiff did not pay Rollins Hudig Hall for the bond premium until February 6, 1996 and "was not entitled to be reimbursed by the Government for this amount under the contract until after the premium was in fact paid." A119 (Stipulation of Facts ¶ 4); A1948 (Rollins Hudig Hall Invoice No. 477707, dated 1/16/96, in the amount of $492,838 with note "OK KLL 1/31/96 . . . please pay ASAP"); see also A1949 (Rollins Hudig Hall Invoice No. 477708, dated 1/16/96 in the amount of $431,062 for performance and payment bond with note "Please Pay ASAP OK KLL 1/31/96"), A2134. On December 18, 1995, Plaintiff was paid "based on the `paid' invoice and the certification (which were material to the [GSA] in its determination to pay)[.]" A119 (Stipulation of Facts ¶ 3). On January, 16 1996, RHH provided Plaintiff an invoice for a performance and payment bond in the amount of $492,838. See A1948. On January 16, 1996, RHH provided an invoice to Plaintiff for

18

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 19 of 49

a "Performance & Payment Bond" in the amount of $431,062, regarding the American Home Assurance Company 10/6/95 premium. See A1949. On December 12, 2000, Plaintiff entered into a Plea Agreement and Stipulation of Facts to the effect that "[i]n exchange for a plea of guilty [to Major Fraud Against the United States, Aiding and Abetting, 180 U.S.C. §§ 1031(a) and 2] the United States Attorney for the Eastern District of Missouri agrees that it will not criminally prosecute within the Eastern District of Missouri this Defendant . . . for any criminal violations . . . as a result of the investigation into the Defendant's conduct during the period August 19, 1994 to date [December 12, 2000] related to the Defendant's contracts with the GSA designated GS06P94GYC0037 and GS06P95GZC0501[.]" A114. b. The San Francisco GS09P95KTC0010. Customs House Contract No.

On April 25, 1995, Plaintiff submitted an Application and Certificate for Payment to GSA for $170,979, including $75,246 for "bond premiums." See A140, 533, 537-39, 547-48, 1406-07 (Cooney Dep. at 135-36). The Certification, dated April 27, 1995, was signed by Plaintiff's Vice President and Territory Manager, representing in effect that all amounts submitted had been paid by the contractor. See A538. Around this time, Plaintiff's Director of Risk Management telephoned Willis Corroon and directed that the broker stamp the bond invoice as paid, as of May 12, 1995, and send it to Plaintiff, although he knew that the bond payment in fact had not been made. See A14041, A890-92 (Ford Dep. at 103-14). On May 12, 1995, Plaintiff's Project Manager for the San Francisco contract, provided GSA with a February 23, 1995 invoice no. 0222719 for $75,246.00 marked "Paid 5/12/95 Dennis M. O'Brien, EVP [Willis Corroon]." See A140-41, 536, 553-61, 892 (Ford Dep. at 113-14), 903 (Ford Dep. at 192-93), 1005-06 (O'Brien Dep. at 75-81), 1411 (Cooney Dep. at 144-45). On May 19, 1995, Plaintiff's Vice President and Territory Manager signed another Certification in support of Plaintiff's first application to GSA for payment in the San Francisco contract. See A559; see also A78. On May 21, 1995, a GSA FAR 2419 certification, signed by Plaintiff's Project Manager for the San Francisco contract, was forwarded to GSA in support of the first payment application to the effect that Plaintiff complied with FAR 52.232-5 (Payments Under Fixed-Price Construction Contracts). See A534; see also A79. On May 24, 1995, GSA authorized payment for the entire amount requested, however, Plaintiff did not pay Willis Corroon until July 20, 1995. See A386, 562; see also A141 (Factual Basis for Plea Stating that MDI paid Willis Corroon on or about July 27, 1995); but see A2198 (Plaintiff's Director of Risk Management testified that Plaintiff was paid by GSA on 6/12/95), A141 (Factual Basis for Plea Stating that Plaintiff received payment on June 9, 1995); A561-62.12

On February 2, 2001, Plaintiff's Vice President/Territory Manager was issued an Employee Reprimand Form, because he signed a requisition and certification that the invoice was paid, when it was not. See A563. Cooney did not believe the reprimand was appropriate, because " I followed company policy in ascertaining that the requisition had been properly submitted by the project manager and received and forwarded to me by the accounting office." See A564. 19

12

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 20 of 49

Plaintiff admitted that prior to April 25, 1995, when it submitted the first payment application in the San Francisco Customs House Contract, "certain company personnel" knew that the Phase I Contract GSA required evidence of payment of surety bond premiums prior to reimbursing Plaintiff for such premiums and that at least one company employee knew that Plaintiff had not paid surety bond premiums on the San Francisco Customs House Contract. See A101 (Request for Admissions Nos. 11-12); see also A103 (Request for Admissions No. 16), A577. In addition, Plaintiff's Controller for Project Accounting submitted an affidavit in this case to the effect that: "[a]ny statement that the $75,246 bond premium amount for the San Francisco Customs House project was paid prior to July 20, 1995 is false." A386 (Meltzer Decl. ¶ 26), 1939 (Walsh Dep. at 193). c. The Sacramento Courthouse And Federal Building Contract No. GS09P95KTC0032.

On June 5, 1995, Plaintiff prepared a bid package breakout that reflected a final bond cost for the Sacramento Courthouse of $487,262. See A1732. On June 16, 1995, the Plaintiff's head of Accounting for San Francisco, Plaintiff's Vice President/Controller and Senior Vice President were advised by Norman G. Farnella to "work closely with the project team in developing a cash flow schedule that maximizes the advance cash payments received by [Plaintiff] . . . More important is scheduling cash draws from the owner that have the maximum amount of justifiable costs front end loaded as possible." A579. On July 19, 1995, Plaintiff was advised that it was awarded the contract on the Sacramento Courthouse. See A1015 (Rau Dep. at 18). On July 20, 1995, Willis Corroon also submitted a $92,610,500 a performance bond and $2,500,000 payment bond for the GS-09P-95-KTC-0032 contract. See A589. The transmittal note, forwarded to Plaintiff's Vice President/Territory Manager and Director of Risk Management, also stated that Willis Corroon would "invoice for the premium of $517,419.00 . . . under separate cover." Id. On July 24, 1995, Plaintiff's Vice President/Territory Manager submitted performance and payment bond to GSA reflecting that the amount of the bond premium was $517,491. See A157-78, 185-89. The information about the bond costs initially were generated by Plaintiff's Director of Risk Management who communicated that information to Plaintiff's Vice President/Controller. See A383 (Meltzer Decl. ¶ 3), 389-92, 893 (Ford Dep. at 121-24). Subsequently on numerous occasions, the relevant GSA Contracting Officer advised at least Plaintiff's Project Manager, Operations Manager, and Vice President/Territory Manager that Plaintiff was required to have paid bond costs before requesting reimbursement from GSA. See A140-41, 178-179 (Chin Decl. ¶ 5-10), 190-216, 572, 611-15, 1021 (Reinholtz Dep. at 78-81), 1398-1402 (Cooney Dep. at 111-13, 126); but see A588 (memo from "T" to "Ben" advising "[w]hen we submit our first Progress payment to the GSA we need to include the Bond Surcharge for AMEC of 50%."); 2195 (Ford Dep. at 147-48). An August 9, 1995 Pre-Construction Conference Report, included an instruction regarding "Payments to Contractors." A591-609; see also A598 (requiring certification of payment to subcontractors and suppliers). Per an August 15, 1995 memo from Plaintiff's Vice President instructing the head of

20

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 21 of 49

Accounting in San Francisco to "have Tony [Cooney/Plaintiff's Vice President/Territory Manager] or Peter [Rau/Operation's Manager] sign the invoice." A618. At the August 9, 1995, Pre-Construction Conference GSA informed Plaintiff it would review MDI's proposed first billing for "Bonds, Issuance, Mobilization . . . without a schedule of values." A613; see also A193, 196, 1021-22 (Reinholtz Dep.), 1025. On August 21, 1995, Plaintiff's internal memo regarding the Sacramento Courthouse reports that, "[MDI's Operations Manager] has reallocated approximately $5.4 million to trade codes that will be billed during the first 40% of the project. MDI will begin to accumulate advance billings with the first requisition of approximately $2.0 million. Included in the first requisition . . . is $600,000 in extra bond fee[.]" A1029. On August 31, 1995, Plaintiff's head of Accounting for San Francisco forwarded Plaintiff's Senior Vice President and Plaintiff's Operations Manager, a draft of the initial payment application for review. See A1657-58. On September 13, 1995, Plaintiff submitted a payment application and GSA Form 184A Schedule of Values to GSA. See A179, 217-236. The GSA Contracting Officer noticed a discrepancy in the bond cost listed as $1,087,262, was different from the $517,491 amount listed on the original bond premiums. See A179, 858 (Chin Dep. at 51-53); compare A185-89 with A217. The GSA Contracting Officer and Plaintiff's Construction Manager had several discussions about Plaintiff's lack of backup documentation for cost reimbursements claimed. See A179. Plaintiff submitted similar certificates to GSA regarding the Sacramento Courthouse Contract. On September 5, 1995, Plaintiff submitted a Payment Request for the month of August 1995, including $1,087,262.00 for bond payments. See A640-41, 1400-01, 1631-32. This included remittance to AMEC for the "indemnity amount of $569,771" and payment to "Seaboard Surety/Saint Paul American Home [of] $517,491." See A671; A871 (Cooney Dep. at 124); see also A1456-57 (Ford. Dep.). On September 5, 1995, Norman Critchlow also advised Plaintiff's Vice President by letter that: "Per the agreement between Morse Diesel International, Inc. and AMEC, plc . . . Please remit AMEC's portion to my attention and remit the surety's portion to Willis Corroon." A671; see also A1398-99 (Cooney Dep. at 110-13), 2192-95 (Ford Dep at 130-33, 136).13 On September 11, 1995, the Project Coordinator also asked for documentation for the $1,233,502 insurance amount claimed. See A646. On September 12, 1995, Plaintiff's Vice President faxed the head of Accounting in San Francisco the September 12, 1995 request and asked for advice on how to proceed. See A647. In response to a GSA request for further verification, a September 5, 1995 letter from AMEC Holdings, Inc. was provided indicating that although the actual cost of the bond was $517,491, the $569,771 remainder was for an unspecified indemnity paid to sureties by AMEC on MDI's behalf. See A145-46, 179-80, 240-41, 860 (Chin Dep, at 59-61, 69-73), 862, 895-97. On September 14, 1995, a GSA Form 2419, Certification of Progress Payments, was prepared and signed by Plaintiff's Vice President to obtain reimbursement for a $1,087,262 bond payment made to AMEC Holdings, Inc. and $1,233,502 for insurance. See A150-55, 635-36, 666, 852, 1023. On September 21, 1995, Plaintiff's Vice President signed another GSA Form 2419 for submission to GSA, certifying that Plaintiff's application for payment of $4,190,808, including $1,087,202 for bond payments complied with FAR 52.232-5 Payments Under Fixed-Price Plaintiff's Director of Risk Management testified that he signed this letter on Mr. Critchlow's behalf. See A2192-94. 21
13

Case 1:99-cv-00279-SGB

Document 278-2

Filed 06/29/2007

Page 22 of 49

Construction Contracts. See A79, 140-41, 151-52, 154-55, 179-80, 245-49, 851, 854, 1257-61, but compare A1635 (GSA Form 2419 for Contract GS-09P-95-KTC-0032 dated September 14, 1995 and signed by Plaintiff's Vice President), with A1614 (GSA Form 2419 for Contract GS-09P-95KTC-0032 dated September 21, 1995 and signed by Plaintiff's Vice President), 1668. The GSA Contracting Officer, however, declined to approve the application because Plaintiff did not submit a paid invoice for the bonds and there was a discrepancy in the bond costs. See A851-54; see also A857-58, A861-62. On September 26, 1995, Plaintiff faxed GSA a September 5, 1995 letter and invoices reflecting payment for the bonds and insurance. See A670, A853-54, A860-62; see also A1445-46 (Reinholtz Dep. at 489-90 confirming that Plaintiff submitted pay requisitions to GSA including an indemnity, although the indemnity was not paid).14 Although payment of the $1,087,262 was authorized by GSA, there is no evidence in the record that Plaintiff ever reimbursed AMEC. See A145, 156 (September 5, 1995 letter from AMEC Holdings, Inc. requested payment of $569,771 for "AMEC Indemnity"); A385 (Meltzer Decl. ¶¶ 19-20 stating that the $569,771indemnity was never paid and this amount was not "an actual bond cost" on the Sacramento Courthouse project); A860 (GSA authorized payment on September 25, 1995), A895 (GSA made payment on October 5, 1995), A1255, 2169-70. Although the $517,491 bond was issued by Willis Corroon on July 27, 1995, payment was not made by Plaintiff until November 21, 1995. See A38486, A894. Plaintiff admits that one of its attorneys read Paragraph 93 of the Contract before MDI submitted the September 21, 1995 payment application to GSA. See A84 (Request for Admissions Nos. 51-52). In addition, Plaintiff admits that, as of September 21, 1995, at least one company employee knew that the surety bond premiums on the Sacramento Courthouse Contract had not been paid. See A103 (Request for Admissions No. 17). On or about August 31, 1995, a Confidential Memorandum was provided to Plaintiff's Senior Vice President regarding the Sacramento Courthouse Project that stated "Peter [Rau/Operation's Manager] has reallocated approximately $5.4 million to trade codes that will be billed during the first 40% of the project." See A1029. Plaintiff's Vice President/Controller for Project Accounts, provided an Affidavit on June 14, 2001 stating: To the extent that any other amounts were billed to [GSA] as bond costs, in addition to the $517,491 bond premium amount, the amount should have been treated, for accounting purposes, as advance billings. Payments received from [GSA] in excess of actual costs and profit were available to be invested. A383; see also A396, A893-94 (Ford Dep. at 121-24).

On March 14, 2000, Plaintiff's Vice President received an Employee Reprimand Form for failure to exercise "proper care and due diligence" regarding the certifications submitted to GSA on the Sacramento Courthouse. See A675. He disagreed with the reprimand claiming that the payment requisitions were prepared by the project accountant. Id.; see also A676. 22

14

Case 1:99-cv-00279-SGB

Documen