IBM Loses Bid to Dismiss Allegations that it Defrauded the Department of Homeland Security

Whistle 2An Illinois federal court rejected IBM Corporation’s (“IBM”) motion to dismiss a relator’s False Claims Act case accusing it of conspiring with other companies to submit approximately $50 million worth of fraudulent claims for a U.S. Department of Homeland Security (“DHS”) emergency response project. Although it went awry, “Project Shield” was to provide emergency response vehicles with mobile platforms to instantly connect them to a central database in the event of a terrorist attack or natural disaster. Relator Michael McGee filed the complaint on behalf of the federal government and the state of Illinois after his company, Responder Systems, LLC, was solicited and hired as a subcontractor to fix the mobile platforms’ functionality issues. IBM had argued in its motion for dismissal that news reports about the project and a federal audit bar McGee’s claims through the public disclosure provision of the Act. But the court determined that McGee was in fact an original source of the information, having direct and independent knowledge of the alleged fraud that he shared with government officials prior to filing the complaint.

In the aftermath of the terrorist attacks of September 11, 2001, DHS initiated a grant program to provide municipal emergency response vehicles with interoperable video, voice, and data “mobile platform” systems. Technology Alternatives Incorporated (“TAI”) designed such a mobile platform system, and in early 2003, the company contacted the Deputy Director of Wide Area Networks/IT for Cook County, in an effort to convince him to have the county apply for a DHS grant in the hopes that TAI’s mobile platform system would be used. The Deputy Director, Dudley Donelson, allegedly agreed to apply for the grant on the condition that TAI include Public Safety Communications (“PSC”), a company in which Donelson had a financial interest, in any resulting contracts awarded from the grant. TAI agreed to this condition despite knowing that neither PSC, nor any of its employees, were qualified to do the work that would be required under the contracts, and knowing that TAI and other companies would actually be the ones performing the required work. TAI assisted Donelson in completing the grant application that provided for the exclusive utilization of TAI’s equipment and in July 2003, Cook County was awarded the DHS grant.

Thereafter, TAI and Donelson allegedly arranged a “Homeland Security Summit,” whereby potential prime contractors would learn more about the project. The summit was also used to convey the message to potential contractors that including TAI and PSC as subcontractors in their bids would increase their chances of being awarded a contract. But TAI, PSC, and Donelson were allegedly concerned that PSC’s lack of technical expertise could result in a prime contractor’s proposal being rejected by the county, so TAI and Donelson recruited Wireless Information Technologies Enterprise (“WIT”), a more established tech company, to join their conspiracy and “front” for PSC in the proposal documents. WIT agreed to list PSC officers as WIT personnel and agreed to subcontract its work to PSC in exchange for kickbacks from PSC’s project billings. To memorialize their relationship, TAI, PSC, and WIT entered into a teaming agreement in December of 2003. McGee alleged, however, that this agreement was in fact a bid-rigging agreement whereby PSC, TAI, and WIT ensured their participation in the project through Donelson’s influence with the County, and despite PSC’s inability to actually perform the work.

IBM was awarded the prime contract for Phase I of the project. In the bid that IBM submitted for the role of prime contractor, IBM stated that TAI’s mobile platform was a “proven solution,” despite knowing that this was not the case and that the platforms required significant work prior to becoming operational. In furtherance of their agreement, in September 2004, IBM entered into a subcontract agreement with TAI whereby TAI agreed to supply, install, and maintain its mobile platform for Phase I of the Project. Despite knowing that the mobile platforms were not functioning properly, TAI installed 47 platforms into municipal vehicles. In September 2005, IBM conducted a survey of 46 of the installed platforms. Only 17 were functional. Despite its awareness of the functionality problems, and the fact that TAI had installed only 47 of the 80 platforms contracted for, IBM accepted TAI’s work and allegedly paid them 99% of their total contract price. IBM thus paid TAI for non-functional platform as well as for work that was not performed. IBM subsequently passed these fraudulent costs along to the county for repayment.

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