Contractor Defense to Procurement Fraud Under the False Claims Act

One of the most reviewed cases of a federal contractor defense to procurement fraud was Daewoo Eng’g & Constr.Co. v. United States, 73 Fed. Cl. 547, 597 (2006) where the Court of  Federal Claims held that Daewoo had committed fraud under the Federal False Claims Act (FCA).

The court awarded the government $10,000 for Daewoo’s False Claims Act violation and $50,629,855.88 for Daewoo’s Contract Disputes Act violation.

Applying the elements of the Act, the court also held that because the Daewoo had committed contract fraud, its claims were forfeited under 28 USC 2514. The contractor appealed but lost.

Daewoo Engineering and Construction Co., Ltd. (“Daewoo” or “the contractor”) brought suit in the Court of Federal Claims, alleging that the United States breached a contract between Daewoo and the United States to build a road in the Republic of Palau.

The United States counterclaimed, alleging violations of the FCA., 31 USC 3729, and the Contract Disputes Act, 41 USC 604, and sought forfeiture of Daewoo’s claims because of government procurement fraud under 28 USC 2514.

Government Procurement Fraud – False Claims Act Backlash By Court

The Court of Federal Claims held that Daewoo “filed, at least, $50 million of the [$64 million certified] claim in bad faith” and consequently assessed a $50.6 million fraud penalty under the Contract Disputes Act.

Submitting higher claims amounts as a negotiation ploy can land you in a government procurement fraud predicament. The Court of Federal Claims in Daewoo ultimately found that the certified claim was simply a  “negotiating ploy,” and that Daewoo “did not honestly believe that the Government owed it the various amounts stated when it certified the claim.”

Looking at court decisions in white-collar crime cases based on government procurement fraud, the decision sent out strong warnings to contractors when using the Federal Claims Act.

• To avoid contract fraud under the False Claims Act, always substantiate your claim with ample documentation
• Make sure that you engage in meaningful communication with the contracting agency ahead of time
• Government procurement fraud cases under the FCA are predicated on the simple statement of certification
• You must show proof of actions of good faith to successfully initiate your contractor defense against procurement fraud. 

Legal Government Contract Fraud Requirements and False Claims Act Elements in Contractor Defense Cases

To support a government contract fraud claim, the agency has to prove the basic False Claims Act elements of the statute. Under the FCA, “[a]ny person who . . . knowingly presents” to the government “a false or fraudulent claim for payment or approval” “is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus three times a number of damages which the Government sustains.” 31 USC 3729 (a). Make sure your case meets the FCA Statute of Limitations requirement.

Most FCA cases include direct or affirmative false claims. A federal contractor would not knowingly submit a false claim for money or property to the United States. Government contractors have been indicted in very broad factual situations. There are four primary False Claims Act elements. You must establish:

• Claim
• Falsity
• Knowledge
• Materiality

 28 USC 2514

“A claim against the United States shall be forfeited to the United States by any person who corruptly practices or attempts to practice any fraud against the United States in the proof, statement, establishment, or allowance thereof.”

“In such cases, the United States Court of Federal Claims shall specifically find such fraud or attempt and render judgment of forfeiture.”

Possible false claims act statute of limitations available: Although the government has a substantial amount of resources, it does make mistakes under the Federal Claims Act and in some government procurement fraud cases.

To properly assert a construction contract fraud defense, especially in a false claims case, you have to show that the government has not met its burden of proof. Attacking each of the above 28 USC 2514 False Claims Act elements of the statute is key.

Looking at a possible false claims act statute of limitations can be worth the effort. The best defense against a government contract fraud case is to develop proactive contractor ethics policies and train your staff. However, if litigation arises, developing a solid contractor defense to a procurement fraud case is essential. See information about FCA civil investigative demands. 

If you are seeking legal representation in a case with issues of contractor defense to government procurement fraud, application of 28 USC 2514, from an experienced federal criminal defense attorney in an existing or imminent False Claims Act & Whistleblower case, contact Watson & Associates at 1-866-601-5518.