Hardware distributor agrees to $6.25 million false claims settlement

A national hardware distributor has agreed to pay $6.25 million to settle claims that it overcharged the government on a General Services Administration Multiple Awards Schedule contract, the Justice Department announced on Thursday.

Fastenal Co. of Winona, Minn., was facing a federal false claims lawsuit for failing to provide the government with the best possible price on a hardware contract first signed with GSA in 2000. The company discontinued the contract in 2005.

GSA's inspector general had accused Fastenal of failing to provide agency contracting officials with current, accurate and complete information regarding its commercial sales practices, including discounts for nongovernmental customers. To be granted a Multiple Awards Schedule contract, companies must agree to disclose their commercial pricing policies and practices.

"Misrepresentations during contract negotiations undermine the integrity of the government procurement process," said Tony West, assistant attorney general for the Justice Department's civil division. "The Justice Department is acting to ensure that government purchasers of commercial products can be certain that they are getting the prices to which they are entitled."

The investigation was prompted by a 2005-2006 post-award audit by GSA's inspector general looking into allegations that Fastenal was providing better discounts to its other customers, in violation of the price reduction clause of its GSA contract. The clause requires companies to give the government at least as good of a price as its best commercial customer.

The settlement also resolves allegations that Fastenal improperly assessed delivery and sales tax charges, causing the government to overpay. In addition, prosecutors accused the company of violating the 1979 Trade Agreements Act, which prohibits businesses from selling products to the government that were manufactured in nations without a trade agreement with the United States; in this case, China.

Last July, Justice told Fastenal that it planned to file a federal false claims suit if Fastenal did not pay $9.5 million. The company countered with a $750,000 settlement offer, which the government rejected at the time, according to documents Fastenal filed with the Securities and Exchange Commission in 2010.

"This case is another demonstration of the value of OIG audits in helping to uncover fraud on government programs," GSA Inspector General Brian Miller said.

Fastenal, which sells a host of hardware, electrical and plumbing supplies, denies the allegations.

"We continue to believe that we complied with our obligation under the GSA contract in all material respects," the company said in a statement. "However, we felt a continuation of our dispute with the DOJ and GSA was not the best use of our resources."

The Justice Department secured $3 billion in false claims settlements and judgments from civil lawsuits in fiscal 2010, most often involving companies attempting to defraud the federal government, according to data the Obama administration released last November. The financial recoveries were the second highest in the nation's history and represented a 25 percent increase from fiscal 2009.