Grainger settles overbilling suit: Will pay $6 million; no admission of guilt

(Chicago Tribune (KRT) Via Acquire Media NewsEdge) Jul. 26--W.W. Grainger Inc. agreed Friday to pay $6 million to settle allegations that it repeatedly overbilled the U.S. government by submitting false claims on its supply contracts.

In settling the litigation, the Lake Forest-based industrial-supply distributor didn't admit to any wrongdoing.

The company said Friday that it had "resolved the complaint to avoid further costly legal fees."

The company had signaled that a settlement was in the works earlier this month, when it reported second-quarter results that included a 5-cents-a-share charge to establish a legal reserve regarding the case.

A former Grainger sales manager originally filed the lawsuit in federal court in Milwaukee in 2006, alleging the company had "knowingly submitted" false or fraudulent claims for payment to the government. The suit was not unsealed until late January 2008.

The suit was filed under a legal action known as "qui tam," a provision of the federal False Claims Act that lets a private citizen file a whistle-blower fraud lawsuit on behalf of the government and share in any money received. The government was a co-plaintiff in the suit filed by former employee Brian Holbrook.

The federal Justice Department said that Holbrook will receive $70,400 of the $6 million due to be paid to the government "as his statutory award."

Although Grainger's contract calls for it to provide the government with products at a fixed markup of 26 percent above the company's cost, the suit contended that the company has on numerous occasions sold the government products that were priced well in excess of the contractual add-on.

The suit also alleged that Grainger had improperly sold government agencies products obtained from places such as China and Taiwan that do not have reciprocal trade agreements with the U.S.

Terms of Grainger's contract prohibit the company from selling items from those nations to the federal government.

In a statement, Grainger President and Chief Executive James Ryan said Friday that "the government is an important customer to Grainger, and we have always taken compliance seriously."

Despite the settlement of the lawsuit, the slate has not yet been wiped perfectly clean: Grainger said the Justice Department is continuing a separate review of the company's compliance with the supply contract, and the company reiterated that its officials believe it has complied "in all material respects."

jpmiller@tribune.com

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Copyright (c) 2008, Chicago Tribune
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