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.
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 and procurement 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 investigation or dealing with an upcoming trial.
What is Procurement Fraud?
Federal government contract and procurement fraud occur 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 contract and procurement fraud. This is done via government fraud investigations, indictments, criminal liability and civil fines.
Various Types of Government Contract Fraud and Procurement 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 procurement fraud and law enforcement agencies such as the Department of Justice (“DOJ”), SBA Office of Inspector General (“SBA OIG”) aggressively seek out and investigate small business and government contractors for the following types of criminal and civil fraud cases:
Progress payment fraud
Progress payment government contract fraud is present when the contractor submits an invoice for payment and fraudulently certifies that it must be paid.
Non-conforming materials fraud
These types of government procurement frauds 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 procurement fraud attorney can reduce the impact when the government brings a case for contractor overcharging for materials.
Government procurement 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 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.
Government Procurement Investigations
The federal government usually commences a procurement fraud investigation ( SBA Inspector General or DOJ law enforcement) way before the contractor knows it. Sometimes a year or more. Contractors targeted in a purchasing fraud investigation for corruption in the procurement process should immediately seek legal counsel.
Why is this? Because the federal investigation offices tend to have a substantial amount of resources over what the contractor has. Although all potential targets should cooperate with federal investigators, there are also constitutional rights that must be protected. Having a government contracting fraud attorney on board that understands the process, can be beneficial in protecting your rights.
- Potential defendants in a criminal case, often wait until charges are brought to retain a defense lawyer.
- By this time, the government has already developed its case and potential witnesses well in advance. This places a contractor at a great disadvantage.
Consequences of Government Procurement 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 you statutory and constitutional rights up front. 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 trial.
Are You Involved in a Government 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.
Purchasing 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 Government 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.
Other types 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.
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.
Accounting and mischarge procurement fraud schemes: When small businesses and other contractors knowingly charge unallowable costs to the government, concealing or misrepresenting them as allowable costs, or otherwise hiding them in an effort to deceive the government, companies will face criminal liability for government contract fraud.
False certifications: This is common with small businesses providing false information for entry into the various federal small business programs with the intent of getting government contracts..
Kickbacks: Paying kickbacks, bribes, or improper gratuities that are expressly prohibited by statute in order to secure Government contracts.
Labor mischarge contract fraud schemes: Where federal contracts include payment for labor costs, a contractor may be tempted to falsify the numbers of staff employed. This can be especially true for federal construction contracts. This type of contract and procurement fraud scheme can lead the IG and DOJ to prosecute small businesses and federal contractors for procurement fraud. If your company is an SBA 8(a) certified company or HUBZone, you can also find your company defending a suspension and debarment case and termination for default. Learn about FAR 52.212-3 Offeror Representations and Certifications Form Reps and Certs.
How to Prevent Government Contract Fraud?
Learning how to prevent procurement fraud would start with an understanding of what can be the red flags for government investigators. Companies should look at their internal policies and controls. Second, corporations must train their employees on the crucial aspects of the contracting clauses that are incorporated into the contract.
Record keeping is an indicator that many investigators look at. To prevent government procurement fraud, or the appearance of your company is a high risk to the government, develop a sound process and record-keeping initiatives in the company. Companies should also not assume that they can charge the federal government a higher price for goods but then submit lower-quality products in return. This would certainly be a red flag to look further for procurement fraud. Another way to prevent procurement fraud is to understand the rules against kickbacks and gifts to government personnel. Last, but not least, develop a sound quality control process that starts when the contract starts all the way to closeout. Important aspects of the procurement process such as shipping or buying from overseas countries can raise issues of Buy American Act fraud. See Tips on Finding a Criminal Defense Attorney to Handle Your Government Contracts Case.
Government Investigations & SBA 8(a)Fraud Schemes
Many small businesses involved in the 8(a) BD Program find themselves facing criminal liability and procurement fraud investigations for violating the SBA small business program. Oftentimes, former 8(a) companies are charged with conspiracy to defraud the government because after graduation they help other 8(a) companies to develop business strategies to get federal government contracts.
There are many government contract fraud cases where defendants are at odds and simply do not understand how to defend the case. The best way to minimize liability in a criminal case involving fraud in the SBA 8(a) Program is to have an SBA lawyer on your defense team that understands the rules.
Avoiding criminal fraud liability and facing criminal charges means finding a government procurement fraud lawyer that understands how the 8a program laws work and whether the government’s charges hold merit.
- Not all criminal defense attorneys understand the substantive nuances of the SBA 8a Program. Without such representation, your company may find itself at the government’s mercy during a procurement fraud investigation.
Service Disabled Veteran SDVOSB Fraud Schemes
Another category where the federal government is seeking out small businesses for having procurement fraud schemes is the service-disabled veteran-owned small business program (SDVOSB fraud). Whether you are self-certified or certified through the Veteran Administration. Small contractors are usually charged with pass-through procurement schemes, violation of the limitations on subcontracting rules, or some other form of conspiracy or false representation to the government.
If you are providing goods and services to the federal government and are facing criminal liability for government procurement fraud, you should seek immediate help before the investigation gets too far gone. Having an attorney that understands the FAR regulations, and SBA regulations regarding mentor protege relationships, teaming, and joint venture regulations.
HUBZone Procurement Fraud Investigations
The SBA HUBZone program provides federal contracting assistance to qualified small businesses located in historically underutilized business zones. To qualify as a HUBZone small business, you must show that at least 35 percent of your company’s employees must reside in a HUBZone. Companies involved in HUBZone contract and government procurement fraud cases may find themselves charged with falsifying information to the SBA or a specific federal agency.
Whether or not the company actually meets the HUBZone employee requirements can be one of the many legal issues that come up. However, being investigated for having a HUBZone fraud scheme can involve many other issues such as pass-through contract schemes, limitation on subcontracting rule violations and more. If your business meets SBA qualification, it’s eligible to get federal contracts specifically set aside for HUBZone businesses and gets a price preference when bidding on federal contracts subject to open competition. In order to remain in the HUBZone program, your small business must apply for recertification by the Small Business Administration every three years.
If you are involved in a HUBZOne fraud investigation case, find a government contract small business lawyer that understands the program. Without it, you may be at substantial risk of getting a criminal conviction.
Contracting Officer Referral For Fraudulent Contract Claims
Most government contract claims are covered under the Contract Disputes Act. However, the contracting officer cannot decide on claims or resolve them if such resolution includes penalties or forfeitures that are governed by the statute of limitation. This level of government contract fraud leaves the contracting officer no other choice than to refer the matter to the “agency official responsible for investigating fraud.” See FAR 33.209.
If you are a government contractor and the agency has denied your claim and the only explanation is fraudulent invoices, you should seek the immediate help of a government contract claims lawyer. The same applies to an appeal of the contracting officer’s final decision, where the government attorneys counterclaim based upon fraud.
Can a contractor be criminally charged? Yes. In most cases, after the DOJ or some other federal law enforcement agency investigates the allegations, contractors are indicted and often criminally charged. This can cause significant hardship to the company. As the case develops it is important to assess the facts and build a solid legal defense quickly. Waiting until there is a lawsuit can put the company at a great disadvantage. Having the right government investigations lawyer on board can make a huge difference in the outcome of your case.
Develop Government Contractor Fraud Prevention Policies: The best way to avoid criminal liability is to develop and comply with the company’s internal policies and controls. Many companies, especially small businesses, do not have sufficient protection and fraud prevention measures in place. Having a viable policy in place can help your company in a proposed suspension and debarment proceeding.
Mandatory Self Disclosure Under Federal Acquisition Regulation (“FAR”): The Federal Acquisition Regulation requires federal government contractors to self-disclose actions for themselves or its employees and occurrences of criminal conduct (whether you may think it is or not), fraudulent actions, conflict of interest situations, a fraudulent activity involving bribery or gratuities, Buy American Act violations and various other actions. All self-disclosed actions must be directly related to the government contract whether at the bidding or performance stages.
How to Avoid Criminal Liability? Avoiding criminal liability in a government contract fraud case. first starts with your internal policing before an 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 Criminal 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.