Government Procurement Fraud & Avoiding Criminal Liability

Theodore P. Watson, Esq. (Federal Government Procurement Fraud Attorney)  Government procurement fraud schemes with any federal contract can create a nightmare for company owners and employees. Several procuring agencies must guard taxpayer dollars and ensure that the procurement process and the performance of contracts are all done with integrity and honesty.

Things that CEOs want to know initially include:

• Did my company commit fraud?
• What legal defenses does the company have?
• How will an investigation or indictment impact my business?
• What is the civil and or criminal liability that the CEO or company faces?
• Does my criminal defense attorney understand federal government contract law?

Various Department of Defense (“DOD”) pursue small businesses and larger contractors for violations of the False Claims Act resulting from various cases of contracting fraud. 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 has 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 alleging that the company was involved with supplier fraud in government contracting or vendor purchasing fraud schemes. 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 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, procurement fraud occurs and 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 procurement fraud or the unique government contract laws. Solving this problem can reduce exposure to criminal liability in government contract fraud cases. 

In any event, being charged with fraud in the procurement of your contract is not a good situation. Avoiding criminal liability for contractor procurement fraud should be a top priority for large and small businesses involved with federal government contracts and either involved in a fraud investigation or an upcoming trial.

What is Government 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 would then benefit from some type of financial gain or loss.  In other situations, a government employee responsible for contract award or performance 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 fraud against the government. This is done via government fraud investigations, indictments, criminal liability and civil fines.

Government procurement fraud law also refers to any illegal activity related to the procurement process in government contracting. This includes bribery, kickbacks, false invoicing, and bid rigging. It also includes offering or accepting favors in exchange for preferential treatment when awarding contracts.

Bid rigging is a common type of case where procurement fraud occurs, and which involves two or more businesses conspiring to manipulate the bidding procurement process by either submitting duplicate bids or fixing the outcome of a bid.

It is estimated that procurement fraud law and other forms of white-collar crime cause the loss of billions of dollars each year when companies or individuals commit fraud. Therefore, it is crucial for government contractors to understand how to recognize and prevent procurement fraud and to protect their reputation, avoid costly lawsuits and stay compliant with regulations.

Fraud in Contract Law :: Key Points for Preventing Common Procurement Fraud Schemes

Government procurement is the process by which public entities purchase goods, services, or works from private entities. Procurement fraud occurs during this process, causing billions of dollars in losses for governments annually.

Minimize fraud risk: To prevent common fraud schemes, government contractors should be aware of the fraud in contract law regulations governing government contracts and take steps to ensure compliance. Here are some key points for preventing procurement fraud:

Establish strong internal controls to avoid fraud: Implement internal control systems that clearly define roles, responsibilities, and procedures related to procurement activities.

Avoid conflict of interest: Companies should have policies in place to identify common purchasing fraud schemes and prevent conflicts of interest. This includes prohibiting an employee responsible for award or performance from having financial interests in the suppliers or vendors with whom they do business.

Ensure accurate invoices: False claims and inflated invoices are common procurement fraud types. Companies should ensure that all invoices are accurate and compliant with contract terms.

Prevent kickbacks:  Kickbacks in procurement fraud cases are payments or other rewards made in exchange for preferential treatment when awarding contracts. Companies should have policies in place to identify and prevent kickbacks and common procurement fraud schemes.

By following these key points, companies involved in contract law investigations can help increase procurement fraud prevention and promote fair and transparent procurement practices.

What is Your Criminal Liability in a Procurement Fraud Case?

Criminal responsibility in government procurement fraud 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, developed a procurement fraud scheme, 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 Federal Government Contract Fraud Charges

The key to avoiding criminal liability is deconstructing the prosecution’s case from the beginning. Waiting too late can make any negotiations less likely. To deconstruct the government case, your defense attorney should look to show that the government cannot provide the elements of its case beyond a reasonable doubt. For example, if there is a False Claims Act charge against you, disproving the false claims elements would be your priority.

Elements to provide false claims against the government include: 

1. Knowingly on intentionally making a false statement to the government or its agents;

2. Knowingly submitting false claims for payment or receiving something of value by the government; and 

3. Concealing, avoiding, or decreasing an obligation to pay the government.

How do you avoid criminal liability against Government procurement fraud charges?

If you commit fraud (allegation), you still have legal defenses and can develop a legal strategy to avoid charges. When facing criminal charges for procurement fraud, the best way to avoid liability is to seek legal counsel from an experienced federal contract and procurement fraud lawyer. Your lawyer can help you review the circumstances of your case, analyze any evidence presented against you and develop a defense strategy that minimizes your risk of being convicted or held liable for any illegal activity. Additionally, if you are found guilty, an experienced lawyer can work to mitigate your penalties and ensure that you do not suffer any more repercussions than necessary.

When facing criminal charges for government procurement fraud, it is also important to remember that the burden of proof rests with the prosecution. In other words, in order for a conviction to be made, the prosecution must prove beyond a reasonable doubt that you are guilty of the crime. This means that your lawyer can use the facts of your case to create a defense strategy that casts doubt on any claims of guilt by demonstrating weaknesses in the prosecution’s argument.

Your lawyer will also help ensure that all evidence is collected and examined legally. If there is any evidence obtained illegally, then it cannot be used in a court of law. An experienced contract procurement fraud lawyer will work to suppress any evidence obtained unlawfully, including any statements you may have made that were done so without proper advisement.

Various Types of Government Contract Fraud Risk and 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: 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 raud cases 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 the government suspects inflated 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.

Defective pricing: Government contract 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 contracts, which are all common procurement fraud 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 supplier Fraud : Penalties and other legal consequences for government procurement fraud 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. Supplier fraud and other vendor fraud schemes can arise in trade agreements / TAA compliance procurement fraud cases or Buy American Act fraud cases.  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 procurement fraud cases. Avoiding liability starts with protecting your statutory and constitutional rights upfront. The consequences of government contract 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 who 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 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 procurement fraud and 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 who understand 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 the 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 enter a plea when there is nothing legally wrong.

In addition, small businesses with alleged contracts procured by fraud, 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 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 government procurement fraud 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 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 assess 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, 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 fraud in the procurment 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.