Wireless Carriers Pay $138.7 Million to Settle Claims of Overcharging Hundreds of State and Local Entities Under Cooperative Purchasing Contracts

Constantine Cannon represented whistleblower OnTheGo Wireless, LLC, as well as 30 California political subdivisions in litigation that resulted in recoveries under the state False Claims Acts of California and Nevada from the nation’s four largest wireless carriers: Verizon Wireless, AT&T Mobility, Sprint, and T-Mobile.  With California court approval of the AT&T and Verizon settlements on September 24, 2020, recoveries from the four defendants total $138.7 million.  The $125.76 million recovered in the California litigation makes this the second largest non-healthcare recovery under the California False Claims Act.

The litigation arose from a series of cooperative purchasing contracts under which different government entities in different jurisdictions could purchase wireless services under the same terms and conditions set forth in a master contract negotiated by a lead government agency.

Relator OnTheGo alleged that the wireless carrier defendants contracted to deliver wireless services to government entities at the “lowest cost available” via “rate plan optimization,” but then knowingly failed to provide the required rate plan optimization.  As a result, plaintiffs alleged, government entities were overcharged and the defendants violated applicable state False Claims Acts.  The contracts in question were negotiated by the State of California in 2005 and the State of Nevada in 2006 and 2012, on behalf of the Western States Contracting Alliance, known as WSCA (now NASPO Valuepoint).

Plaintiffs allege that the rate plan optimization provisions of the California and WSCA contracts, and agreements between the defendants and government entities pursuant to those contracts, required the wireless carriers to “ensure that each subscriber is utilizing the most appropriate plan” based on the subscriber’s use of wireless services. Rate plan optimization – identifying the specific rate plan for each individual user that will result in the lowest cost when considering actual usage patterns – is a sophisticated method of reducing wireless costs that, if performed, would have saved the government entities 20% or more on their wireless services costs.

Rate plan optimization is well-understood in the telecommunications expense management industry, and the wireless carriers regularly engage in the process for their Fortune 500 customers. However, because rate plan optimization saves money for customers, it lowers revenue for the carriers.  OnTheGo and the Intervenors contend that by failing to provide rate-plan optimization on the agreed quarterly basis, the wireless carriers wrongfully overbilled the government entities and failed to provide service at the lowest cost available.

Cooperative Purchasing Contracts Present Unique Opportunities for Fraud, and Unique Challenges in Litigation

Cooperative purchasing allows government entities to take advantage of their collective market power to secure better prices and standardized terms on commercial goods and services.  This can be particularly valuable in procurements that require technical expertise, as the lead agency takes responsibility for developing contractual requirements, reviewing bids, and negotiating the master contract.  As a result, other government entities purchasing under the contract do not themselves have to become technical experts on the procurement matter.

Such standardized contracts benefit the vendors as well, who avoid the burden of the competitive bidding process and having to negotiate separate contracts with thousands of different government entities.

Moreover, for vendors, such contracts give them access to substantial markets.  In 2016, the four wireless carrier defendants reported nationwide sales under the WSCA/NASPO contracts of more than $7.2 billion dollars. Eager to have access to the state and local government market (as well as eager to market individual lines with affiliate discounts to government employees), the carriers entered into the master contracts.

Plaintiffs contended that while the carriers agreed to provide wireless rate plan optimization when they responded to the master contract RFPs, they then knowingly failed to provide rate plan optimization to the government customers who purchased under those contracts.  As a result, government entities in numerous different jurisdictions were allegedly overcharged.

In California alone, Relator sought damages on behalf of the State of California and nearly 300 political subdivisions: cities, counties, educational institutions, special districts, and others, ranging from the County of Los Angeles to the Goleta Sanitary District.

In addition to claiming that the master contracts did not require what plaintiffs contended they required, the existence of hundreds of different government entity customers allowed defendants to argue that different government entities had waived the contractual requirements, that the requirements were not material to the different government entities, or that individual government purchasers were otherwise not entitled to the rate plan optimization provisions of the master contracts.

With cases in different jurisdictions, four defendants among the largest corporations in the world, and hundreds of government purchasers, the litigation was hard-fought, with millions of documents produced, over 100 depositions taken, and extensive expert work required.

Our Team’s Experience in Government Contract Fraud that Damages State and Local Entities

While cooperative purchasing fraud and other state and local government contract fraud poses unique challenges, the whistleblower attorneys at Constantine Cannon have been involved in some of the most significant multi-jurisdiction and multi-entity government contract fraud False Claims Act cases, representing both whistleblowers and government entities.

In the wireless cases, defendants were alleged to have failed to comply with contractual terms that affected the price that government customers paid.  Government contract fraud can also arise where a defendant fails to comply with “best pricing” provisions, which were at issue in a case brought by whistleblower client David Sherwin against Office Depot, which settled for $68.5 million.  False Claims Act liability can also arise from a defendant’s failure to comply with contract specifications or the delivery of sub-standard or defective goods to government purchasers.  Whistleblower client Nora Armenta alleged that defendants Tyco and others sold waterworks parts to municipal water systems that were made with 40% more lead than allowed by industry standards, recovering over $60 million for defrauded municipalities. Or, the breach may be highly technical, as it was in a case against the Los Angeles Department of Water and Power involving utility cost accounting that resulted in a settlement valued at $160 million on behalf of entities including the State of California, the County of Los Angeles and the Los Angeles Unified School District.

For individuals with knowledge of fraud that affects government purchases in multiple jurisdictions, it can be difficult to know where to start if considering filing a qui tam case.  What government agencies were involved?  What contracts are involved?  How can damages be measured?  Whistleblower attorneys with experience in these kinds of cases help whistleblowers develop their cases and avoid pitfalls.

Taking on the large and well-resourced defendants who are often involved in such contracts also poses challenges.  While the courage and initiative of a whistleblower starts a False Claims Act case, the commitment of government intervenors can be critical in pursuing such litigation.  False Claims laws create a public-private partnership, with whistleblower rewards offering incentives for individuals with evidence of fraud to report the fraud and assist the government’s efforts to secure recoveries for taxpayers.

Read More:

• Press Release: Verizon and AT&T Agree to Pay $127 Million to Settle California and Nevada Whistleblower Cases, Bringing Total Recoveries to $138.7 Million
• Constantine Cannon Celebrates a Record-Shattering Year of Whistleblower Rewards
• The Constantine Cannon Wireless Team: Wayne Lamprey, Anne Hayes Hartman, and Ari Yampolsky
• Government Contract Fraud
• Fraud in GSA Contracts: How to Report it Under the False Claims Act for a Whistleblower Reward
• State False Claims Acts
• Whistleblower FAQs
• Contact us for a confidential consultation

Tagged in: Contract Non-Compliance, FCA State, Government Procurement Fraud,