The Federal False Claims Act – A Primer for New Government Contractors

The President’s invocation of the Defense Production Act may end up putting businesses into an unfamiliar posture—that of government contractor. For entities that contract routinely to provide goods or services to the federal government, or otherwise engage in activities that involve the submission of claims for payment, careful avoidance of submitting (or causing others to submit) false or fraudulent claims may be second nature. But for businesses unaccustomed to serving as a vendor to the federal government and seeking payment, a basic understanding of the federal False Claims Act (FCA) is essential. Most states have similar laws. So here are the FCA basics:

• Among other things, the FCA prohibits persons who act knowingly:
  • from presenting (or causing others to present) a false or fraudulent claim to the government for payment
  • from making or using (or causing others to make or use) a false record or statement material to a false or fraudulent claim for payment from the government
  • from making a false or fraudulent claim to wrongfully retain money or property that is owed to the government
  • from making or using (or causing others to make or use) a false record or statement material to an obligation to pay or transmit money or property to the government, or concealing or improperly avoiding or decreasing an obligation to pay or transmit money or property to the government
• How might a vendor or government contractor violate these prohibitions?
  • By claiming nonexistent or inflated costs in producing a good or service to the government where the contract provides for reimbursement of the vendor’s costs
  • By furnishing goods or services to the government and falsely certifying that the goods conform to contract specifications when the vendor knows they are nonconforming
  • By receiving an overpayment from the government and failing promptly to refund the overage
  • By claiming payment from the government for goods or services when the claim includes false or fraudulent statements—such as inflated time records or false certifications of compliance with governmental regulations that constitute conditions of payment
• Private whistleblowers have substantial financial incentives to report false claims to the government, even in cases where the whistleblower may have been involved in bad conduct:
  • Private citizens can bring lawsuits (called qui tam suits) in the name of the federal government, alleging the defendant vendor submitted false claims, and share in the recovery of damages, civil penalties (roughly $11,000 to $22,000 per claim) and attorney’s fees against wrongdoers
  • Depending upon the dollar amount of any false claims and the number of claims, whistleblower recoveries can easily reach millions—if not hundreds of millions of dollars
• How does a business avoid submitting false claims?
  • By taking care all claims for payment submitted to the government are true and correct in all respects; reckless disregard for the truth or falsity of a claim can violate the FCA the same as a knowing and willful false statement
  • By delivering the goods or services that the government contracted for in the quality and quantity specified in the contract, without hidden defects or deficiencies
  • By being vigilant in auditing payments received from the government and promptly refunding any overpayments
  • By promptly self-disclosing—preferably through counsel—any facts or circumstances the business learns that would cause any of its claims for payment to be false or fraudulent
• What should a business do if an employee brings forward allegations that the business may have submitted false claims?
  • Diligently investigate the allegations to determine if they are credible
  • Do not retaliate against the employee—whistleblowers receive protected status under the FCA and retaliation will lead to separate, severe sanctions
  • If the allegations prove credible, work rapidly—preferably with counsel—to disclose those allegations to the government and initiate actions to refund impacted claims to the government
• How real is the risk?
  • Substantial—government recoveries under the FCA have been increasing annually
  • In fiscal 2019 the government’s FCA recoveries topped $3 billion, with most coming in the health care and government procurement areas