Violations of Manufacturing Restrictions

What are Violations of Manufacturing Restrictions?

A contractor can defraud the Government by knowingly providing goods that were procured in violation of the Buy American Act and the U.S. Trade Agreements Act, if the Government would not have purchased the goods from that contractor if it had known of the violations.

Qui tam actions may be brought against companies who knowingly violate the Buy American Act. To help ensure that United States taxpayer dollars are spent in a manner that promotes American businesses whenever possible, the Buy American Act, 41 U.S.C.A. §10a-d., gives a preference for American goods in federal procurements. “The Act” requires the federal government to purchase domestic “articles, material and supplies” when they are acquired for public use, except if a specific exemption applies. The Federal Acquisition Regulations (FARs), part 25, contain detailed rules for determining whether a part should be considered to have domestic or foreign origin for purposes of the Buy American Act.

There are many broad exemptions to the Act. For example, the Act does not apply if the purchasing agency determines “it to be inconsistent with the public interest, or the cost to be unreasonable.” 41 USC §10a. Furthermore, under the U.S. Trade Agreements Act of 1979, the President is authorized to waive any procurement law or regulation (including the Buy American Act) that would accord foreign products less favorable treatment than that given to domestic products. 19 U.S.C.A. §2511. Under the North American Free Trade Agreement, purchases from Canada and Mexico are exempt from the Buy American Act’s prohibitions. Other treaties and agreements also place limitation on the Act’s applicability.

U.S. Trade Agreements Act

Government suppliers entering into Multiple Award Schedule contracts to sell products to government purchasers under the Federal Supply Schedule must agree to comply with the U.S. Trade Agreements Act of 1979, 19 U.S.C. § 2501, et. seq. Under the terms of the Trade Agreements Act, vendors who sell foreign-made products to the Government can only sell such products that are made, or “substantially transformed,” in countries with reciprocal trade agreements with the United States.

Qui tam whistleblowers and the United States have brought several successful False Claims Act lawsuits arising from violations of the Buy American Act and the U.S. Trade Agreements Act. In some of these False Claims Act cases, contractors sold the government parts and supplies that were manufactured in China, in violation of the laws of the United States and the terms of their federal contracts. For examples, several well-known suppliers of office products have settled qui tam False Claims Act lawsuits alleging that they unlawfully supplied goods under the Federal Supply Schedule that were manufactured in China. These suppliers include Staples ($7.4 million settlement), Office Depot ($4.75 million settlement) and Office Max ($9.8 million settlement).

Department of Defense Restrictions

Additional manufacturing restrictions may apply to contractors providing certain products to the United States. For example, under the National Defense Authorization Act, the Department of Defense may restrict the procurement of ammunitions that are critical to our national defense to sources within the national technology and industrial base (i.e., United States and Canada) when it is necessary to create or maintain a domestic capability for their production. 10 U.S.C.A. § 2505.

VSG’s Qui Tam Attorneys Are Experienced in Fraud Cases Arising From Manufacturing Restriction Violations

VSG’s qui tam lawyers have pursued False Claims Act cases alleging violations of the Buy American Act, the U.S. Trade Agreements Act, and the National Defense Authorization Act. For example, in a qui tam whistleblower case brought by VSG partner Janet Goldstein, a government contractor paid over $5 million to settle allegations that it sold supplies manufactured in China to the United States in violation of its contractual obligations to adhere to the Buy American Act.