Federal Government Contractor Fraud

Traditional False Claims Act procurement cases include delivering goods of inferior quality or in violation of inspection, testing, or other technical requirements. Well known procurement violations frequently involve defense contracts, such as B-1 bombers, computers, tanks, and other traditional subjects of Government contracting. The Government, however, buys a wide array of goods and services. Supplying reconstituted powdered milk, not the fresh milk that the contract requires, is a False Claims Act violation. When Army mess halls are delivered inferior quality meat, the False Claims Act is violated. Charging the Government higher labor rates than those agreed to in the contract is another scheme utilized to defraud the Government. False billing cases can also involve misrepresenting indirect and overhead labor charges as direct labor. Collusive bidding schemes where bidders conspire to rig prices can similarly trigger False Claims Act liability. The most frequently cited procurement case arising under the False Claims Act is United States v. Bornstein, 423 U.S. 303 (1976). In Bornstein, the prime contractor was to provide radio kits to the Government that met certain quality standards. The subcontractor supplying the electronic tubes instead delivered substandard parts. The parts were mislabeled in an attempt to disguise the inferior nature of the goods. Both the “innocent” prime contractor and the “guilty” subcontractor were liable.

A false certification of regulatory and statutory compliance, necessary to obtain a contract, can render false all claims for payment under that contract. Likewise, a contractor’s failure to meet contract performance requirements and failure to provide goods and services in conformance with federal statutes and regulations, as set forth in what might otherwise be termed “boilerplate” — but still extremely important — sections of contracts, may be sufficient to violate the False Claims Act.

Presentation of a claim for payment, when the failure to abide by contract requirements has not been affirmatively disclosed to the Government, is deemed equivalent to false certification of compliance with such laws, rules, and regulations. Thus, submission of claims for payment when the contract requirements have not been fulfilled in all respects, if government funding is conditioned on compliance, gives rise to a viable False Claims Act case.

The False Claims Act may be an enforcement device for contract terms requiring compliance with other federal statutory schemes. Government contractors must abide by certain requirement including environmental protection laws, equal employment opportunity law and regulations, small business procurement laws and regulations, federal wage and hour laws and regulations, and competitive bidding laws. Under some circumstances, these laws can be enforced through the False Claims Act, despite the absence of a “private right to sue,” because Government contracts contain many clauses beyond the technical requirements or descriptions of the products or services being procured. The contractual provisions themselves are derived from language in the Federal Acquisition Regulation (FAR) or from similar Government acquisition regulations. Often, a contract will only cite the applicable FAR provisions and, thereby, incorporate the regulation by reference.

All Government contracts have these broad-reaching public policy provisions, although some variations exist from one contract to the next. Among the “public policy” statutes pursued under the False Claims Act are the Buy American Act, Trade Agreements Act, Anti-Kickback Act, Walsh-Healy and Service Contract Acts, and the Davis-Bacon Act. False certifications by a contractor stating that it is a small minority business entity also violates the False Claims Act.

To learn more about the False Claims Act, click here.

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