Government procurement fraud can arise in a variety of situations. A common example occurs during the bidding phase when offerors submit untruthful information in efforts to secure a procurement fraud and termination for defaultgovernment contract, or in other situations, to get admitted into a program administered by the Small Business Administration.

In the case of  Vertex Construction & Engineering (VCE) , the Armed Services Board of Contract Appeals agreed with the government’s termination for default that resulted from VCE submitting a false electrician’s certification at the bidding stage. The certification came from the subcontractor but the court ruled that since VCE submitted the proposal, it was liable under government procurement fraud laws.

The certification came from the subcontractor but the court ruled that since VCE submitted the proposal, it was liable under government procurement fraud laws.

Government’s Failure to Discover False Information Does Not Avoid Procurement Fraud

In the VCE case, it claimed that the contracting officer’s termination for default should be overturned because the government had a duty to discover the false information and its failure should excuse the default termination. The court did not agree.

Instead, the government filed a motion for summary judgment on the grounds of fraud in the inducement, asserting the misrepresentation rendered the contract void ab initio. The court agreed.

  • The government’s duty to verify information in a bid is for its own protection.
  • Contractors cannot benefit from the agency’s failure to catch false information in bids.

Prime Contractors Must Validate Information Submitted By Subcontractors

Government procurement fraud carries harsh penalties. Submitting technical proposal where such information is false makes the awarded contract tainted with false information and therefore void.

Government contracts, and those tainted by procurement fraud impacts  the integrity of the federal contracting process and to protect the public from the corruption which might lie undetectable beneath the surface of a contract conceived in a tainted transaction.” Mississippi Valley, 364 U.S. at 564-65; see also Godley, 5 F.3d at 1475 (citing Mississippi Valley in stating that “general rule [of a government contract tainted by fraud or wrong-doing is void ab initio] protects the integrity of the federal contracting process and safeguards the public from undetectable threats to the public …”).

  • Procurement crime can come into play in situations where the contractor has been convicted in a criminal action stemming from the misrepresentation.
  • Misrepresentations in government bids can result in acquisition fraud violations due to misrepresentations.

What Can You Do to Mitigate Procurement Fraud and Terminations for Default?

To avoid procurement fraud penalties, and given the decision in the VCE case, bidders on government contracts should make sure that they can give evidence that they did in fact conduct due diligence on their subcontractors.

  • Defenses to procurement fraud would not include the expense of performing due diligence and background investigations.
  • Contractors should make sure that they have a Federal Contractor Code of Business Ethics and Conduct policies in place, and a means to confirm and investigate bidding information.
  • Have contractors to certify that all information provided in truthful.

When the agency finds out that you have submitted false information in your bid, the contracting officer would have no other choice than to issue a termination for default notice and refer the matter for possible procurement fraud proceedings.

The burden will be up to you to offer defenses and evidence about why the default termination should not stand on appeal. See more information about contract fraud and reprocurement costs. Find out more on Criminal Defense for Defrauding SBA Disadvantaged Small Business Program.

Avoid Costly Mistakes Get a Free Termination for Default Checklist

For help with allegations of government procurement fraud, call our white collar crime defense attorney at 1-866-601-5518.

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