Beware the False Claims Act

By: Edward T. DeLisle

Pursuant to the Contract Disputes Act of 1978 (CDA), every claim on a federal construction project that is in excess of $100,000 must be certified. The reasoning behind this policy is simple: the government wants to discourage the submission of questionable and/or inflated claims. As such, for each claim in excess of the threshold amount, a contractor must append the following language to its claim:

I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the Contractor believes the Government is liable; and that I am duly authorized to certify the claim on behalf of the Contractor.

If a contractor submits a claim that it has reason to believe runs afoul of this affirmation, it is subject to a variety of penalties. Those set forth in the False Claims Act (FCA) are the most daunting and represent those that the government will most likely pursue if it becomes aware of a potential violation.

In order to be liable under the civil version of the FCA, the government (or an individual in a qui tam action) must prove that the contractor submitted false information and had actual knowledge that the information was false; acted in deliberate ignorance of the truth or falsity of that information; or acted in reckless disregard of the truth of falsity of the information. If, after an evidentiary hearing, a fact finder determines that a violation took place, a contractor can be assessed fines, damages, or both. Fines can range from $5,000 to $10,000 per violation. This can amount to quite a penalty indeed. For example, in Ab-Tech Const., Inc. v. U.S., 31 Fed.Cl. 429 (1994), a contractor was successful in obtaining the award of a contract issued as an 8(a) set-aside. It subsequently pursued a claim for an equitable adjustment of its contract. The government filed a counterclaim under the FCA, alleging that the contractor was not eligible to receive the award, thereby forfeiting its claim. The government also demanded penalties in the amount of $10,000 for each instance that the contractor submitted an invoice for payment, arguing that in each case the contractor was effectively asserting that it was an eligible participant under the 8(a) program. The court ultimately agreed that the government was entitled to a penalty of $221,000, $10,000 for each payment application submitted by the contractor.

The government can also seek treble damages under the FCA. While many of the reported cases that involve the assessment of treble damages pertain to egregious violations, that does not preclude the government from pursuing such a remedy in more benign situations. See Morse Diesel Intern v. U.S., 79 Fed.Cl. 116 (2007)(assessing treble damages where contractor billed the government more than $1.6 million for reimbursement of bond premiums that were not paid and in excess of $650,000 for false indemnity payments to a parent company).

The above must be taken very seriously based upon the current trends in federal government contracting. The GAO has issued a number of reports over the last several years identifying instances of fraud in the government procurement process. Those reports have generated intense interest on Capitol Hill, resulting in legislation such as the Small Business Contracting Fraud Prevention Act of 2011. The Act would allow for stricter enforcement of the regulations governing small business procurement and increase prosecutions, suspensions and debarments for violations. Similarly, there is a push to amend the FCA to increase the statute of limitations for offenses from six (6) to ten (10) years, expand the ability of the government to obtain awards in excess of any actual losses incurred and apply these principals in a retroactive fashion. All of this suggests increased vigilance in the prosecution of potential instances of fraud. Inevitably, as the government attempts to vigorously root out the evils in the system, there will be honest, hard-working contractors who find Justice knocking on their door. Contractors must be aware of the FCA and the world we now live in and have sufficient controls in place to avoid any unwanted visitors.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

This article was originally published on Law360.

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