Government procurement fraud litigation has escalated over the past few years due to increased government oversight. A particular target of federal procurement law is the federal False Claims Act. 28 USC government contract fraud and false claims2514. To prevail under section 2514, the government must “establish by clear and convincing evidence that the contractor knew that its submitted claims were false, and that it intended to defraud the government by submitting those claims.”

Corporate Fraud – Source of Liability under Both the FCA and the CDA: Courts have found that in some false actions “[a] certified claim may be a source of liability under both the Contract Disputes Act and the False Claims Act. Many contractors find themselves at a loss when involved in white collar crime cases.

In many situations when the Agency denies a claim, and there is an appeal filed, the Government would sometimes counterclaim with a forfeiture due to the False Claims Act.  The language from the government can be often developed in the Contracting Officer’s Final Decision. At some point, it is usually advisable to appeal the forfeiture finding or you might waive your rights.

The ability to strategize government contract fraud litigation is to be aware of the rule that  where an act was committed in regard to the very contract upon which the suit is brought, a court would more than likely rule that it does not have the right to divide the contract and allow recovery on part of it based on a quantum claim.” See  152 F.Supp. 84, 87–88 (Ct. Cl. 1957).

Government contractors that submit a certified claim under the Contract Disputes Act (“CDA”), 41 USC 604 (2006) (recodified at 41 USC 7103), the Contracting Officer may refuse to issue a final decision on these claims because the matter involved allegations of fraud.

Filing an appeal to the U.S. Court of Federal Claims may appear to be the logical step. The Agency will more than likely defend, or counterclaim,  on the premise that, the entitlement sought was based upon a  false claim. If there are numerous invoices on appeal, each claim, if based upon federal contract corporate fraud, may be subject to additional penalties.

Recovery Requirements for The Government To Litigate Its Case: To recover under the FCA, the Government must show “(1) the contractor presented or caused to be presented to an agent of the United States a claim for payment; (2) the claim was false or fraudulent; (3) the contractor knew the claim was false or fraudulent; and (4) the United States suffered damages as a result of the false or fraudulent claim.” See the case of Young-Montenay, Inc. v. United States, 15 F.3d 1040, 1043 (Fed. Cir. 1994).

The government must also establish a violation of the FCA by a preponderance of the evidence. 31 USC 3731(d). This is not a significantly high standard.

Appealing a contract claim where the Agency has already asserted a violation of the Federal False Claims Act must be handled with caution. 

Corporate Government Procurement Fraud Under the SBA 8(a) Program

A series of cases have recently developed against small businesses certified under the SBA 8(a) Program. This puts a small business in a vulnerable position because there are several pieces to the corporate fraud analysis that can cause companies to make serious, costly mistakes during appeals or present a viable defense.

For example, in a False Claims Act defense posture, some contractors may base their case on lack of subjective intent.

A common mistake made in a government procurement fraud case is that litigants have to be aware that whether they actually know about the intent to defraud the government,  when it comes to 8(a) fraud cases, 8(a) contracts are with the SBA and not directly with the Agency. Often, the mere fact that you submit an invoice for payment makes it difficult to overcome the subjective knowledge intent.

Possible Solutions to Avoid Government Procurement Fraud Allegations

As a federal contractor, the last thing you need is to face indictment for government procurement fraud under the Federal False Claims Act. You can minimize this risk by:

  • Making sure that you are performing exactly as the PWS requires;
  • Make sure that materials submitted meet the required specs;
  • Make sure that you are invoicing work that was actually done, or hours spent; and
  • Keep detailed logs of events during contract performance
  • Train your personnel in fraud prevention principles

Does a claim have to have false statements? It has been established that claims for payment submitted to the government under a fraudulently obtained contract violate the FCA, even if the claims themselves do not contain false statements. See United States ex rel. Alexander v. Dyncorp, Inc., 924 F.Supp. 292, 298 (D.D.C. 1996)

What is a misrepresentation of fact? A “misrepresentation of fact” is “a false statement of substantive fact or any conduct that leads to a belief of a substantive fact material to properly understanding of the  matter in hand, made with intent to deceive or mislead.” 41 USC 601(9) (2006) (recodified at 41 USC 7101(9)).

Good faith requirement when certifying a claim: A CDA claim requires a certification that the claimant has acted in good faith in claiming compensation for work performed. 41 USC 605(c)(1) (2006) (recodified at 41USC 7103(b)(1)). The government’s approach may be to attack your actions.

Bottom Line

When it comes to government procurement fraud claims, defending them on appeal can be tricky. The initial plan should start with taking proactive measures at the initial claims preparation stage. Also, remember the claims certification statement does have teeth when defending a federal procurement case. See also information on the Anti-Kickback Statute.

For additional help or defense in a government procurement fraud case, call us Watson & Associates at 1-866-601-5518.

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