On the issue of False Claims Act liability, there are varying opinions about liability of main contractor for subcontractor. The bottom line is that both prime contractors and independent contractors can be liable under the Federal False Claims Act. The DOJ and various agency IG offices have increased the level of investigations and are targeting both prime and subcontractors under the ACT.
Both prime and independent contractors with a viable subcontractor agreement should be aware of the requirement to cooperate with federal investigators without sacrificing their constitutional rights.
Although the federal government does not have traditional privity of contract with subcontractors, the statutory hook under the False Claims Act allows the agency to reach subcontractors. This does not mean that the prime contractor escapes liability. In fact, the government investigations office can proceed against both the prime and subcontractor.
False Claims Act -Prime General Contractors Liability and Subcontractor Liability
False Claims Act liability targets both prime General Contractors and liability for subcontractors who do business with the government. The Statute creates contractual liability against any person:
- who knowingly submits, or
- causes to be submitted, a false or fraudulent claim with
- intent to procure payment or approval from the government.
Anyone Submitting a False Claims is Liable
“Any person”: Emphasis on ANY. This can be any person, organization, corporation, LLC, subcontractor or prime contractor. If you can contract to do business with the federal government, you can be any person subject to liability under the Act.
“Knowingly”: Government contractors under the Federal False Claims Act are deemed to knowingly submit a false claim when they submit a claim they actually know is false, or they deliberately or recklessly disregard the truth or falsity of the claim.
- Failure to conduct due diligence can create contractual liability;
- Actual knowledge of the false claim is not required.
“Causes to be submitted”: This language is invoked when a false claim is submitted to General Contractors to deliver to the government or given directly to the government. This when independent contractor False Claims Act liability becomes most obvious.
- Liability of main contractor for subcontractor under the Act is very fact specific
- Defending a False Claims Act case means understanding the details.
Is Your Government Contracts Subcontractor Agreement Viable?
Many general contractors that have federal government contracts tend to think that since the subcontractor has obviously liability that the government investigators and law enforcement should not pursue the general contractor. Nothing can be far from the truth in the legal world.
- The first line of thinking is what does your subcontractor agreement state?
- The federal government can hold the general contractor liable. The question becomes what rights do you have against the subcontractor?
Privity is Not Required Under the False Claims Act Contractual Liability for Subcontractors: The subcontractor in this scenario is solely responsible for this submission even if there is not in privity of contract with the government.
“False or Fraudulent Claim”: A claim is false or fraudulent when it is inaccurate, or if it bills for work not performed or products not used.
- Some contracts require that the products or services comply with state and federal regulations before payment or approval.
- If so, a subcontractor submitting a claim for payment of work or products that do not comply with the regulations is also a violation of the FCA.
“Intent to procure payment or approval”: This element is satisfied if subcontractors submit, or cause a false claim to be submitted, intends for that claim to be used for, or supplied to, the government for payment or approval.
False Claims Contractual Claim & Liability of Main Contractor for Subcontractor
As General Contractors, subcontractor False Claims Act penalties and responsibility can also be imputed to you as the prime. This is especially true when you have knowledge of the sub’s false claim or conspire with the sub to submit a false claim.
Most general contractors become subject to strict investigations because they do not put measures in place to make sure that the subcontractor is in compliance with the subcontractor agreement. By the time an investigation is launched, the damage may have already been done. The only thing left would be the contractor negotiate more favorable terms with the government.
- An independent contractor will be liable for the prime’s false claims submission if it conspired with the prime to make a false claim.
- Courts generally look to the specific act and assess penalties only against the persons whom actually created the false claim.
False Claims Act Penalties
Prime General Contractors and subcontractor False Claims Act penalties for a conviction under this Act are not trivial.
- “Any person, who is convicted under the civil False Claims Act, is liable to the United States Government for a civil penalty of not less than $5,000, and
- not more than $10,000, plus
- 3 times the amount of damages which the Government sustains because of the act of that person.”
Drafting accurate bids for government contracts, and implementing procedural safeguards to address prime and subcontractor False Claims Act liability can mean the difference between liability and dismissal of your case.
For immediate help in a pending government investigation involving with False Claims Act and subcontractor liability, contact the government false claims act attorneys at Watson & Associates. Call 1-866-601-5518.