Government Procurement Fraud Charges & Avoiding Criminal Liability

Theodore P. Watson, Esq. (Government Contract Fraud Attorney)  Government procurement fraud with any federal contract can create a nightmare for company owners and even their employees. There are several procuring agencies that must guard taxpayer dollars and make sure that the buying process and the performance of contracts are all done with integrity and honesty.

Various Department of Defense (“DOD”) pursue small businesses and larger contractors for violations of the False Claims Act resulting from various cases of procurement. Agencies include the Department of Veterans Affairs (“VA”), the Department of Housing and Urban Development (“HUD”), the National Aeronautics and Space Administration (“NASA”), and the General Services Administration (“GSA”), among other procuring agencies. Other agencies, such as the Small Business Administration (“SBA”) also enforce the various government contracting statutes that regulate small business activity and prevent procurement government contract fraud.

The government significantly increased oversight: When it comes to government procurement fraud investigations and legal consequences, companies should realize that the federal government has significantly increased its oversight for large or small businesses that show signs of purchasing fraud. Federal contractors often find themselves exposed to criminal fraud charges from either a whistleblower or some other interested party. In other situations, federal law enforcement initiates investigations. In any situation, the company is subjected to scrutiny, potential loss of revenues and criminal liability.

When it comes to government contract fraud cases, not every defendant has done something wrong. Unfortunately, federal prosecutors tend to seek out small businesses and larger companies with allegations that the prosecutors themselves may not quite understand. As a result, companies and their CEOs face serious jail time without even a chance of a plausible defense because not all criminal attorneys understand the complex areas of unique government contract laws. Solving this problem can reduce exposure to criminal liability. 

In any event, this is not a good situation to be in. Avoiding criminal liability should be a top priority for both large and small businesses involved with federal government contracts and either involved in a procurement fraud investigation or dealing with an upcoming trial.

What is Procurement Fraud?

Federal government procurement fraud occurs when a contractor, small business or large, or an individual intentionally and deliberately causes the government to pay or otherwise act based upon deception, false statements or otherwise. The person or company committing fraud in public procurement would then benefit from some type of financial gain, or loss.  In other situations, government employees may be involved in kickbacks based on gifts, cash or something else of value. Federal law enforcement agencies are heavily targeting companies suspected of committing government contract fraud. This is done via government fraud investigations, indictments, criminal liability and civil fines.

What is Criminal Liability?

Criminal responsibility refers to a person’s ability to be held to account for violating the law. Criminal accountability includes both prospective and actual blame; therefore, a person can be accused and sentenced whether they committed a crime or are suspected of having done so. The vital assumption regarding criminal responsibility is that the claimed offense contains both mental and bodily components.

How to Avoid Criminal Liability Against Procurement Fraud Charges

Depending on your specific case, avoiding criminal liability from government fraud starts with daily operations. Contractors must develop sufficient internal controls to deter employees and other subcontractors from acting recklessly and with the intent to violate procurement laws. If you are targeted for a government investigation, your best bet is to immediately retain a government contract fraud attorney that truly understands the procurement process.

Various Types of Government Contract Fraud Schemes

When you bid on, negotiate, or perform federal government contracts, you have to provide certifications and swear to the truth of the information provided. It is this information that can often lead to the development of false claims cases. Federal government contract fraud and  law enforcement agencies such as the United States Department of Justice (“DOJ”), SBA Office of Inspector General (“SBA OIG”) aggressively seek out and investigate small businesses and government contractors for the following types of procurement fraud cases:

Progress payment fraud: Progress payment fraud is present when the contractor submits an invoice for payment and fraudulently certifies that it must be paid.

Non-conforming materials: These types of procurement fraud against the government occur when contractors (mostly on construction projects) falsify documents to represent to the government that all materials meet the requirements of the contract.

Cost mischarging the government: Government contract fraud involving cost mischarging occurs when a contractor charges the government for unallowable costs, when invoices or charges are for another contract, or when a contractor overcharges the federal government. See also, 48 CFR Sect 31 These are all areas where having a government fraud attorney can reduce the impact when the government brings a case for contractor overcharging for materials.

Defective pricing: Government contract fraud cases occur when the contractor submits and false information about the costs and pricing during contract performance. Many contractors, both small and large, find themselves defending criminal cases and facing indictment.

Violation of SBA Regulations and Small Business Fraud

Many small businesses find themselves defending against fraud charges because of business control and pass-through schemes, defective joint venture and mentor protégé arrangements etc. For these types of complex and tricky cases, getting the right government procurement fraud defense lawyer is critical because the DOJ and SBA have unlimited resources to investigate and charge contractors. Without knowing how the regulations work, a traditional fraud criminal defense lawyer will be at a disadvantage when defending against this type of government case.

Consequences of Government Fraud : Penalties and other legal consequences for government contract fraud investigations can cause a person to serve jail time or even have to go through a civil trial to fines in the hundreds of thousands or even in the millions. If you are a party to a civil lawsuit for corruption in the procurement process, the burden of proof is a lot lower than in a criminal case. Government attorneys look at the viability of other types of cases. Avoiding liability starts with protecting your statutory and constitutional rights upfront. The consequences of government procurement fraud in a Federal False Claims Act case can cripple your company because both a whistleblower or the government can take shots at you or your company. Having the right legal defense counsel that understands the substantive issues can benefit the overall outcome and even lower any potential consequences through negotiations or trials. See information on GSA procurement fraud.

Are You Involved in a Federal Procurement Fraud Investigation? Many things can lead to a government procurement investigation. Common issues that can trigger such an adverse action include tips that your company does not meet the small business size standards, submission of inaccurate invoices by the prime contractor or subcontractor, consistent complaints from contractors not getting paid, and false certifications.

• When you seek defense counsel, you also want to make sure that you have a government contractor fraud lawyer that understands the FAR rules and small business programs. This is true regardless of if you are facing and SBA inspector general inquiry or a congressional investigation.
• Avoiding criminal liability means cooperating with government agents while also protecting your right against self-incrimination.

Government Contract Fraud &. Purchasing Fraud Schemes – Conspiracy and Collusion Criminal Charges: In federal procurement, most procurement and purchasing fraud schemes involve some level of conspiracy or collusion. This is the approach that the government typically takes. In addition to wire fraud, many small businesses or large DOD contractors often find themselves under indictment for criminal conspiracy and some level of collusion with federal officials leading to kickbacks and other charges.

• Avoiding conspiracy and criminal charges involving federal government contracts means attacking the government underlying crime. Many federal prosecutors make allegations in their court documents. However, they can find themselves at a great disadvantage at trial.
• An example is avoiding conspiracy to defraud the government by alleged violations of the SBA (a) Program but the prosecutor is totally incorrect about what is a disadvantaged person or what constitutes ‘control’ in relation to SBA affiliation rules. Defeating charges for purchasing fraud schemes starts with developing a sound legal defense.

Defending a Procurement Fraud Case – Disadvantage for Small Businesses

 Small business government contractors are more exposed to the consequences of government procurement fraud simply because they do not have experienced legal staff on board that understands the brutal rules that can criminally implicate the corporation.  When US attorneys come knocking on their door, many contractors tend to seek out and hire defense attorneys not familiar with the federal procurement system and the complex laws associated with them. As a result, the federal law enforcement agency has an upper hand and can force settlements and pleas.

An example is when the government’s attorney alleges that your SDVOSB business has violated the limitations in subcontracting regulations but fails to realize that contracts under the simplified acquisition limitation do not require complying with the subcontract limitations rules. Without the right government contract fraud lawyer on their team, individuals or corporations find themselves entering a plea when there was nothing legally wrong.

In addition, small businesses are also at a disadvantage because they do not have the basic internal policies and controls implemented. Avoiding criminal liability can start with having the basic tools implemented and training internal staff.

When the feds come knocking on the door it is usually too late. Despite the fact that a simple mistake could be made, the common approach is to pursue criminal charges and then use any credible mitigating circumstances at the end to reduce a criminal sentence. See information about SDVOSB fraud and small business fraud cases.

Examples of Government Contract Fraud Schemes

Embezzlement: Stealing money or property by a person who is in a position of trust, such as an employee or an agent. Embezzlers typically come into possession of money or property legally but take it fraudulently. Embezzlement is a white-collar crime and involves no physical violence. Embezzlement charges may be filed for almost any amount, but the amount of money taken usually determines the charge. High-profile embezzlement cases can involve the misappropriation of millions of dollars.

Fraudulent Invoices: Contractor submitting fraudulent invoices that may include false pricing and billing for substandard products or services. This is probably the most common issue that initiates an investigation for contract fraud schemes.

Government Contract  Fraud and False Claims: Procurement fraud schemes come in various forms. Contractors investigated or indicted for mischarging for cost or labor can be held for violating the False Claims Act. Criminal penalties can also be implemented for knowingly charging customers higher rates or costs than contracted for.

Bid Rigging: Bid rigging in government contracting occurs when there is some form of price-fixing when a public contract is somehow promised before the solicitation is published or evaluated. Bid rigging also leads to other criminal procurement fraud charges such as conspiracy or collusion and false claims violations.

How to Avoid Criminal Liability? Avoiding criminal liability in a government contract fraud case first starts with your internal policing before a procurement investigation starts.  Contractors should be consistently reviewing their internal policies and controls. However, this is not always a realistic request for many small businesses. A more realistic approach is that when you find out that your or your company is being investigated,   your procurement fraud attorney should assessment the criminal elements of the crime and immediately assess at the beginning of the investigation whether or not the federal prosecutor’s case is weak.   If the initial evidence is weak, then the lawyer will conduct a separate internal corporate investigation. Being able to push back early during the investigation state can minimize criminal liability.

Contact Our Government Procurement Fraud Defense Lawyers

If you are an individual or business facing a procurement investigation or criminal charges for federal government procurement fraud and looking to avoid criminal liability, call Watson & Associates LLC federal criminal procurement contract fraud criminal defense lawyers for a FREE Initial Consultation to see how we can minimize the consequences. Call 1-866-601-5518.