Federal government contract fraud prosecutors are pursuing defense contractor fraud defendants at full speed in the last 5-7 years. The companies involved are alleged to have committed a series of procurement fraud activities. The criminal defendants, which could be the company or the CEO or both, very seldom have any idea of the charges and become confused about the allegations.
By the time a government investigation starts, the government attorneys may have already accumulated a wealth of information about the case and are ready to move forward. See information about signs of being under investigation.
What is Government Contract Fraud?
The United States Federal Government contracts with commercial sector companies for a variety of products and services ranging from IT services and products, medical and professional services and construction and high-tech complex equipment. If a company or individual breaks the law, falsify documents or misrepresents information to in turn get a benefit or payment from the government, then there is a good case for procurement fraud. The slightest fact of deception, concealment or intent to defraud the government may fill the definition of government contract fraud.
How Does a Government Contractor Fraud Case Begin?
During the performance stage, something may alert the contracting officer that something unusual is going on. It could be that your invoice seems drastically unusual; there are too many requests for changes and requests for equitable adjustment, or the Contracting Officer Representative may report gossip about relationships between your company and another small business. The problem is that you may not get a direct call from the contracting officer. Instead, he or she may call the Inspector General (IG) Office, Department of Justice (DOJ), Small Business Administration (SBA) or another government contractor fraud office. In turn, a government investigation of your company begins. Being investigated or charged with defense contractor fraud can be an embarrassing situation to be in. However, you still have to deal with the situation.
Common Types Government Contract Fraud Cases
The last 8-10 years have produced indictments and criminal charges in common types of government contract fraud cases. One of the most common involved small business fraud. Specifically, defense contractors or commonly investigated and charged with violating SBA programs such as the SBA 8(a) BD Program; SBA HUBZone Fraud allegations, or activity involving the Service Disabled Veteran Owned Small Business Program (SDVOSB).
In these types of cases, activities investigation can involve a series of substantive issues: They include: small businesses involved is pass-through fraud schemes where the government alleges that the contractor is not complying with the Federal Acquisition Regulations (FAR) by not performing the prime contractors statutory amount of work; small business fraud alleging that the prime contractor has misrepresented information during the application for SBA small business status; affiliation violations which lead to allegations of procurement fraud.
There are situations where the government somehow believes that you have committed fraud because you do not comply with the specific small business size standards. In these types of cases, the SBA IG Office will attempt to conduct a size determination of your company.
If for some reason, the IG concludes that you are not a small business, then you can bet that a subsequent civil or criminal contractor fraud case will begin. This is where having the right procurement fraud defense attorney will be important.
Costly mistakes to avoid when allegations of small business size standard fraud begin
When you believe or know that your company is under investigation for small business fraud or government contract fraud, you want to make sure that you are in fact compliant with SBA size standards. This is not as simple as it may look. Sometimes, even the SBA does not interpret their own small business size standards, but will charge you for violating the rules based on SBA affiliation.
Many companies will simply wait out the investigation to see what happens next. This can be a serious mistake because at this stage the government’s case is already well on the way. A common mistake is to simply disagree with the SBA and not conduct your own due diligence. Understanding the small business fraud because of allegations of violating the small business size standards can be a confusing and complex legal issue, you want to make sure that your teaming and subcontracting relationships meet the statutory regulations.
Not understanding how affiliation occurs, or knowing the exceptions to revenue calculations can put you at a great disadvantage.
Are you planning on just hiring a traditional criminal defense attorney?
Detecting contractor fraud is a priority for the federal government. Therefore, if your company is targeted for government contract fraud, you may be ready to call a local criminal defense law firm to represent you. Although this is a wise choice, small businesses often make the mistake of not developing the right defense team.
Government contract law is very complex and contains hundreds of situations where the IG team of DOJ can formulate a federal case against you. However, a criminal defense attorney must also understand the complex issues about small business fraud that the government is charging you with.
For example, in many cases, the underlying facts would suggest that your company in not in control of the contract, or that your company has created a pass-through fraud scheme because you are not complying with the limitation on subcontracting laws. These are unique cases based on unique facts. These are not situations that a traditional criminal defense attorney would experience on a daily basis. Therefore, you want to make sure that you have legal counsel on your team that understands the substantive issues that occur in procurement law. See information about How to Minimize Criminal Liability in Government Contract Fraud and Procurement Investigations
Other Common Federal Contract Fraud Cases
Other situations that could trigger civil or criminal contractor fraud cases on a federal project can include
- Falsifying or misrepresenting information on government contract proposals
- Buying substandard materials that what was agreed upon in the contract
- Violating the Buy American Act
- Overbilling or submitting fraudulent invoices
- Invoicing for expenses not incurred as part of the contract
- False invoices for work that was never performed
- Falsifying data
- Substituting approved materials with unauthorized products
- Misrepresenting your performance and progress status to continue receiving Government funds
- Charging labor rates other than those stated or negotiated for in a government contract; and
- Influencing government employees to award a grant or contract to a particular company, family member, or friend.
As is the case in small business fraud and SBA fraud contracts, there are also common allegations in fraud of bribery, kickbacks, gratuities, and conflicts of interest involving government employees connected with federal contracts. All of these types of cases command immediate legal defense attorneys on your team that can immediately assess the seriousness of your case.
What are things you should immediately do if investigated for procurement fraud?
If you are a small business or large contractor being investigated for defense contractor fraud, all companies sometimes make deadly mistakes by either not taking immediate action or in their legal approach.
Oftentimes, the immediate action depends on the final goal sought. For example, sometimes companies realize that the investigation office, IG or DOJ, may very well have evidence against the company or its employees that may not be favorable. In this situation, you would want to develop the strongest position you can upfront. Only this way can put you in the best position to negotiate a better outcome.
- Develop your strongest position first and don’t simply go along with the pace that the government sets
- Make sure you have legal counsel that understands government contracts and SBA small business law
Immediately seek counsel to protect your rights. You, and the company, have constitutional and statutory rights. You want to immediately protect them.
If you are approached by federal investigators or law enforcement, you want to be cooperative. However, you want to have advice of counsel before interviewing. Once you have waived any rights you have, it is sometimes difficult to overcome the headache that follows.
- You also want to conduct an internal investigation to immediately address any allegations or correct problems.
Procurement Fraud & Mandatory Disclosure Rule
Federal government contracts impose a significant amount of responsibilities and compliance mandates on your business. For example, the Department of Justice (“DOJ”) and Congress have put regulations in place on November 12, 2008 amending the Federal Acquisition Regulation (“FAR”) that mandate federal government contractors to self-disclose credible evidence of certain violations of law and significant overpayments in connection with the award or performance of a federal contract or subcontract.
In other words, you are responsible for policing your company operations and reporting any information or “credible evidence” of criminal activity. This requirement includes contractor fraud civil or criminal.
- If any information can lead to suspension or debarment, then you might have a duty to disclose.
Procurement fraud and the Mandatory Disclosure Rule go hand in hand because if during a federal government investigation, there is evidence showing that either a company officer or other management was aware of any type of company fraud, then your company may have to answer for it.
Federal Acquisition Regulation
As of December 12, 2008, Federal Acquisition Regulation (“FAR”) amendments require your company self-disclose your own or your employees’ violations of criminal conduct, relating to fraud, conflict of interest, bribery or gratuities, or the FCA. The offenses must have occurred “in connection with the award, performance, or closeout” of the contract or subcontract. These are concerns that you should have when conducting internal investigations or even when some level of evidence is presented on a day-to-day basis. False statements are the most commonly charged offense in procurement fraud cases, and are used to penalize common forms of fraudulent procurement activity.
Government Contract Fraud & Suspension and Debarment Disclosure Requirement
Suspension and debarment regulations are areas that many companies do not realize can haunt you even if you successfully negotiate a fine or reduce the criminal penalty. If your company is being investigated for government procurement fraud, then also be mindful that you can still be subjected to suspension and debarment regulations. Whether or not your criminal defense attorney is experienced in this area of law is yet another question for you to consider. Basic Tips on How to Respond to Federal Government Investigations.
As a government contractor, you want to protect your legal interest at all angles and not just the investigative levels. Your company can still be on the hook. If you are suspended or debarred, then you will face another crucial blow. Is your team experienced to handle all of these issues?
Did you know that the Federal Acquisition Regulation places examples or causes for which the government has authority to suspend or debar a contractor? As amended, the FAR puts forth language that your company may be suspended or debarred for: the knowing failure of a contractor’s principals to timely disclose credible evidence of a Federal criminal violation, a False Claims Act violation or a significant overpayment are causes for suspension and debarment. See Contractor Faces Service Disabled Veteran Fraud and False Claims Act Criminal Liability
Do You Have Contractor Fraud Defense Attorneys That Can Help?
Did you know that procurement fraud investigation and defense contractor fraud indictments can start with whistleblowers under your own roof?
Many government contractor fraud cases result from insiders or subcontractors blowing the whistle on you? What do you do when this happens? First, you cannot retaliate against the whistleblower. That would only add to the nightmare and create more lawsuits.
As stated earlier, whistleblower cases can stem from common areas such as falsifying your small business status, pass-through contract schemes, violating the limitation on subcontracting laws, providing false information to the government in order to get government contracts and more.
- If you are a small business, seek defense counsel that understands the rules
- Get counsel that understands the FAR requirements and SBA small business rules
- If you are a HUBZone or SBA 8(a) contractor, see government contract fraud defense attorneys that understand the regulations and develop a strategy to minimize criminal and civil liability.
For immediate help with legal defense of a defense contractor fraud investigation, or procurement fraud case, call Watson & Associates’ government contractor fraud defense attorneys and False Claims Act defense lawyers.
Free Confidential Initial Consultation. Call Toll Free 1-866-601-5518. We help federal contractors in all states and overseas.