What is the government contract fraud investigation process? By understanding the basic rules of engagement, federal contractors can minimize criminal liability and hefty fines.
By Theodore Watson, Esq. The procurement fraud investigation process often starts at the contracting officer (CO) level either during the award or performance stages. Under FAR Part 3, if the CO suspects that the contractor violates the required standard of conduct, violation by the contractor of FAR 52.203-16, Preventing Personal Conflicts of Interest, the contracting officer shall contact the designated agency legal lawyer for advice and/or recommendations on a course of action.
In addition, under FAR. 3.104-7 violations or possible violations – when the contracting officer receives or obtains information of an actual or possible violation of 41 U.S.C. 2102, 2103, or 2104, he or she must determine if the reported violation or possible violation has any impact on the pending award or selection of the contractor. See FAR 3.104-7(a).
If the contracting officer believes that there is no evidence of procurement fraud or any impact on the procurement, then the contracting officer must forward the information concerning the violation or possible violation, along with his or her documentation supporting a determination, to an individual designated in accordance with agency procedures. This becomes especially important during litigation of a bid protest or when the facts are so critical that they can impact the public interest to such a degree that a Court may have to issue a Temporary Restraining Order (TRO). Unfortunately, the contracting officer cannot simply turn a blind eye when there is evidence of government contract fraud. He or she must act by referring the matter to the appropriate law enforcement agency.
How does the FAR 3.104 Requirement Impact Contractor Procurement Fraud Investigations?
Many federal contractors, due to the subjective nature of the CO’s “conclusion” may now become subject to a government investigation for procurement fraud. A question may arise as to whether the CO has abused his or her authority by injecting a biased opinion knowing that the contractor’s company could face criminal liability. Has the contracting officer retaliated against the contractor? These are all questions raised at the beginning. However, issues can be further reviewed during an agency investigation.
Although bad faith cases are difficult to prove in the federal procurement process, there could be specific facts to support a case that the contracting officer acted against the public interest because there was no credible evidence in the record to support a federal government contract investigation, to begin with. This FAR requirement can seriously impact a small business or large DOD contractor that is subject to a procurement fraud investigation.
More on the contracting officer’s “discretion”
One important point is that the criminal case against your company could very well be triggered by the contracting officer’s initial conclusion. For example, during a bid protest litigation, the FAR allows for some checks and balances. For example, the contracting officer must initiate some level of documentation and present it to another level for concurrence of non-concurrence. See FAR 3.104-7(a). Yet when there is a criminal trial, very little emphasis is placed on the contracting officer.
The bottom line is that when the contracting officer believes that there is evidence of government contract fraud, conflict of interest, or procurement integrity issues, he or she should refer the case to the respective law enforcement agency to prosecute or commence a federal OIG investigation. This can become the contractor’s worst nightmare.
Fact-specific situations in construction fraud investigations
When a company is part of a federal construction fraud investigation, the case becomes very complex. The industry practices, FAR requirements and allegations by federal law enforcement can create problematic situations. Besides being innocent until proven guilty, the reality is that the construction firm is actual on the defense at the beginning of the investigation. Having a construction investigation lawyer that understands procurement regulations can be beneficial to the company. See important information about cooperating and proffer agreements.
The procurement & government contract investigation process
Every government contract investigation for procurement fraud starts with the initial evidence and allegations. The investigation at some point almost always leads to allegations of violating the Federal False Claims Act. The respective agency initially gathers basic information and then develops a process that may take months or even years to accomplish. Investigators talk to many people, including contractor employees, agency contracting personnel and even family members. It is questionable sometimes whether federal investigators truly understand the underlying substantive regulations. For example, some procurement fraud investigations related to service-disabled veteran-owned small business fraud investigations (SDVOSB fraud) begin on the premise that the veteran’s SDVOSB’s status is based upon fraudulent claims or representations to the government.
Circumstantial evidence is usually the government’s case. However, courts should also look at the fact that the SDVOSB member has to go through rigorous tests and examinations to reach the percentage of disability.
On the other hand, procurement investigations based on small business fraud stem from violations of the limitations on subcontracting rules under 48 CFR 19.1407 – Limitations on subcontracting and nonmanufacturer rule and 13 CFR 125.6. When defending a case involving procurement fraud allegations and government contracting violations, defense lawyers and courts should also look into what initial facts were present; whether the investigator drew reasonable conclusions and whether the federal prosecutors actually balanced their decisions to move forward with an indictment or criminal charge on the underlying application of controlling regulations. See How to Defend a Qui Tam Lawsuit Involving Government Contracts?
Impact on Government Contractors
When small businesses and federal contractors as a whole face criminal liability for fraud allegations and government contracting violations, the charge is often based on presumed neglect by a federal investigator of the fundamental rule that the investigator must also know the rules and learn the elements of proof for the suspected offenses and the elements of proof for each of the suspected offenses.
A federal investigator should know at every stage of a criminal or civil case what evidence he needs to obtain to prove an offense. Yet, individuals and companies face the grim result that their life, liberty and property and other constitutional rights are up for grabs. See What Happens After Government Contractors Receive a Grand Jury Indictment.
Why do federal law enforcement agencies insist on conducting government investigations?
Federal government investigations are conducted to protect the public interest and taxpayer dollars. There is much emphasis on these points when press releases are published. However, there is arguably less emphasis placed on the constitutional rights of individuals and contractor firms.
Looking at the number of government contract investigations that are terminated for lack of evidence can raise questions. It appears that once a federal investigation starts, there are very few cases that are thrown out. Federal attorneys will usually take the case to trial or attempt to offer a plea to the defendant.
Contractors and individuals must test the underlying procurement statutes that form the basis of criminal liability to see whether there is true merit to the prosecutor’s claim.
There are many rules that regulate federal procurement programs and the contracting process. However, there have not been many efforts to align those statutes with the criminal process. Yet, many federal prosecutors cite those regulations as part of indictments and bring cases against contractor defendants.
When should you know that you may be under government investigation?
. They include:
• Employees asking unusual questions about an ongoing contract.
• The contracting officer has sent a letter inquiring about specific regulations
• A federal investigator leaves a business card asking you to call them
• A complete stranger approaches you in a public place and strikes up a conversation that leads to one about government contracts.
Mistakes that companies make when being investigated for procurement fraud
Avoiding costly mistakes is the primary focus for any individual or government contractor that is subjected to a procurement fraud investigation.
The first mistake is speaking openly to federal agents without an attorney. The problem is that although you may firmly believe that you have done nothing wrong, the reality is that you can inadvertently mention a fact that can later come back to haunt you.
The second mistake made is that contractors wait until the process has gone on for months before contacting a government contract fraud attorney or procurement lawyer that understands the rules.
Another concern is that some companies or individuals do not assess the strength of the government’s case (regardless of actual guilt or innocence). Instead, the defense lawyer may simply look at one side of the case – yours.
How can courts help in the criminal litigation process for federal procurement fraud?
As discussed before, when it comes to cases involving substantive application of government procurement regulations, the criminal process and procedural rules do not integrate the application of law that governs SBA small business programs, SDVOSB regulations and FAR regulations.
The federal prosecutor will make allegations in the case pleadings. However, during trial or indictments, there are no proffers as to what the underlying regulations really mean. Therefore, the courts and juries sometimes make decisions on what the prosecutor generally says.
For example, where government investigations are based on limitations in subcontracting violations, SBA small business size limitations of SDVOSB status, the defendant does not get the benefit of citing OHA cases or any other court decisions that decide these very issues every day.
When companies hire a government contract fraud attorney, they should make sure that the defendant’s case analysis includes a detailed computation of the very law that the federal prosecutor is basing his or her case on. See information about three defenses for criminal liability for government contractors.
- Courts should place the burden on federal lawyers to explain in detail how the procurement rules really work since it is the prosecutor that filed the case.
- Courts should also allow the individual or government contractor defendant to challenge the government’s witnesses to extract evidence of statements that can disprove the government’s case.
- Since the defendant faces deprivation of life, liberty or property, defendants should be allowed to conduct proper discovery that probes into either (1) the contracting officer’s decision to refer the case for investigation; (2) the SBA’s assessment of any alleged violations of small business size regulations or regulations governing the 8(a) BD Program or HUBZone Program (3) The VA’s contribution to facts supporting the government’s case.
- Courts should focus more on the defendant’s constitutional rights to participate in the government contracting programs and any statements that now can stand to incarcerate contractors or their executives.
How can small businesses minimize criminal liability during government contract fraud and procurement investigations?
1. Conduct internal investigations and audits to make sure that they are in compliance with small business size regulations
2. Develop internal policies and controls to ensure complying with limitations on subcontracting regulations
3. Develop mandatory disclosure policies for incidents as you discover them
Tips to Avoiding criminal liability in federal procurement investigations
1. Tell the truth
When you decide to respond to federal subpoenas or be interviewed by federal agents or lawyers, you cannot lie. This can cause additional criminal liability for each lie you tell. Assuming that you have a defense attorney present (strongly suggested), you can certainly say that you do not recall a specific fact or do not know the answer to a question. However, those answers must be truthful.
2. Hire a procurement fraud investigation attorney that understands government contract law
Unfortunately, many government contractor defendants hire local criminal defense attorneys that are not familiar with federal procurement regulations. This can be the ‘kiss of death’ since the government’s entire case is built on a foundation of fraud allegations and government contracting violations (this includes mail and wire fraud.) When you retain a procurement fraud investigation defense attorney, ensure that this person has some experience with the underlying substantive law and dealing with high profile cases.
3. Evaluate your response to government subpoenas
Make sure that the documents you provide to the federal government do not contain self-incriminating statements. Almost any procurement investigation process includes the government’s subpoena and request for documents. You must diligently comply with these requests. However, when looking at most government fraud cases, it is true that documents, emails or other communication submitted to the government can include incriminating statements. Your government contract fraud defense attorney should be allowed to review these documents to protect your constitutional rights.
4. Always assume that federal prosecutors already have the information that they ask you for
This goes without saying. When the government issues a subpoena during a contract and procurement fraud investigation, you must answer honestly and truthfully. Government lawyers are well aware of the theory of not asking a question that they don’t already know the answer to. During government contract fraud cases, federal attorneys have virtually unlimited resources. Chances are they already have search warrants with the information sought, have already interviewed other witnesses, or have obtained copies of emails from other witnesses. Therefore, you cannot hide documents or pick and choose what documents you want to provide to the government.
5. Understand that you have constitutional rights
This is the bedrock of the procurement investigation process. Although federal law enforcement agencies have wide latitude during the ‘investigation’ stage, a criminal defendant still has constitutional rights. As a potential target or defendant in government contract fraud cases, you must know what those rights are. Although you may not have a constitutional right to an attorney until formal charges are brought, you certainly have rights against self-incrimination during the investigative process ( this is where Miranda rights are given)
Should you admit guilt to federal prosecutors?
The straightforward answer is no. As mentioned above, you have a right to be protected against self-incrimination. However, if you sign a plea with the prosecutor in a high profile government contract fraud case, then you may have an obligation to tell all (depending on the contents of your plea agreement.)
How does a plea bargain impact your future as a government contractor?
When you sign a plea agreement with federal prosecutors in a procurement fraud investigation or a case involving criminal liability for a government contractor, chances are that the government will also initiate suspension and debarment proceedings against you or your company. This will have a grave impact on your ability to conduct business with the government in the future.
The plea bargain for a government contractor essentially requires you to admit to criminal wrongdoing such as theft of government funds, conspiracy to defraud the government, or some other form of fraud allegations and government contracting violations. You do not get to have a trial on the merits.
Common reasons why government contractors and individuals are charged with criminal liability during the procurement investigation process
There are several situations showing why government contractors are charged with criminal liability during the procurement investigation process. A common reason includes government employees, military personnel or contractor personnel pleading to criminal conflict of interest charges.
- Hiding documents and destroying information on computers
- Making incriminating statements to colleagues ( who are actually working for the federal government via plea etc)
- Not being truthful during interviews
- Hiring legal counsel not familiar with the relevant procurement regulations.
Call our government contract fraud attorneys for immediate help
If you are a government contractor seeking legal advice or representation in a construction contract investigation or service contract investigation, to defend against procurement fraud allegations and government contract fraud false claims, call our government investigation lawyers at 1-866-601-5518 or contact us online.