Company Pays $12 Million to Settle False Claims Suit

The Small Business Innovation Research (SBIR) program is a highly competitive program that encourages domestic small businesses to engage in Federal Research and Development that has the potential for commercialization. Through a competitive awards-based program, SBIR enables small business to explore their technological potential and provides the incentive to profit from its commercialization. By including qualified small businesses in the nation's R&D arena, high-tech innovation is stimulated and the US gains entrepreneurial spirit as it meets its specific research and development needs.

The SBIR program has been referred to as America's seed fund. Each year, Federal agencies with R&D budgets that exceed $100 million are required to allocate 3.2 percent of their R&D budgets to these program. That works out to about $4 billion per year. Currently, eleven Federal agencies participate in the program and there are more than 300 active companies in the program.

As the name suggests, these awards are set aside for small businesses. In the context of SBIRs, small business must be organized "for profit", have 500 or few employees, and must be owned at least 50 percent by individuals who are U.S. citizens. Also, work must be performed in the U.S.

There are plenty of companies who (try and) abuse the system. Recently, the Justice Department announced that one firm has agreed to pay more than $12 million to settle false claims allegations regarding its eligibility for SBIR contracts.

TrellisWare Technologies of San Diego agreed to pay $12 million to settle allegations that it was ineligible for numerous SBIR contracts it had entered into with the Defense Department. Although on the surface it appeared that TrellisWare was a small business, turns out that it was a majority owned subsidiary of ViaSat, Inc, a global telecommunications company (and decidedly not a small business).

TrellisWare falsely self-certified that it was a small business and was able to garner multiple SBIR contracts over a seven-year period. Someone caught on, the Government began an investigation, and discovered the relationship between TrellisWare and ViaSat. No one has questioned the value of TrellisWare's research. Obviously, the Government believed in its value because it continued to award the company additional SBIR work. The problem was that the funds were diverted from the SBIR's intended beneficiaries.

Companies need to exercise due diligence when self-certifying eligibility for any Government program. The consequences of falsely certifying eligibility can be severe.