Government Contracts and Procurement Fraud

The False Claims Act allows the federal government to recoup payments made to contractors as a result of false statements in the acquisition or performance of a government contract. Whistleblowers are instrumental in pointing the Department of Justice in the right direction.

Historically, this has been one of the largest areas of fraud, eclipsed only by misconduct in the health care industry. It dates back to the law’s origins: Congress passed the legislation to combat fraud by companies selling goods to the Union Army during the Civil War. More than 100 years later, it is still a cost effective strategy for the government to determine who is not living up to their end of the deal.

Fraud arises throughout the procurement process as companies are driven to increase their revenues and profit at the expense of taxpayers. It would be difficult and costly for officials to police every term and condition in the agreements. By rewarding informants who point them to misconduct, the government can focus its limited resources on recovering funds from the worst offenders.

Types of Fraud at the Onset of the Contract

The government employs a complex system to select contractors to supply goods and services. Prospective businesses are required to act in conformity with a number of laws during the process and certify compliance with others. If the business makes material misstatements or violates the law in order to earn a contract, the government is entitled to recover its damages.

Big Rigging

Competition is essential to ensure that the government pays a fair price for items. When there are only a few participants in the market, some have engaged in violations of the nation’s antitrust laws to increase the amount that they earn off the United States. The False Claims Act permits the U.S. to recover its damages in the event that companies employ techniques to circumvent fair competition.

Negotiations

The United States requires truthful information from certain companies during the contracting process. This includes details required by the Truth-in-Negotiations Act and the best price GSA suppliers give to other customers. Violations of these laws have resulted in payouts to whistleblowers.

Representations & Warranties

Government contracts typically contain language requiring compliance with a number of laws, including anti-corruption and export control laws. If there is a violation of these terms and conditions, the request for payment under the contract typically contains a false statement.

For example, the government gives special preference to disadvantaged businesses. These include incentives for small businesses, minority-owned businesses and HUBZone certificate holders. If the company does not actually qualify for special treatment, it is not entitled to payment under the contract.

Another required certification is for compliance with the Byrd Amendment. Federal appropriated funds can’t be used to influence the awarding of the contract. The use of registrants under the Lobbying Disclosure Act of 1995 must also be disclosed. Failure comply with this requirement can be the source of litigation qualifying for a reward.

Contract Performance

Federal contractors must deliver what they promise in accordance with the agreement. Unscrupulous actors sometimes try to fleece the government by delivering defective goods, overbilling or failing to follow the specifications set forth in the contract. Whistleblowers can help the government identify situations where their non-performance is not obvious.

Overbilling

Certain contracts with the government are not set at a fixed price. They allow contractors to bill for their time and costs. In order to receive more money, businesses have double billed for costs, sought reimbursement for unallowable costs, or submitted fraudulent timecards for their employee’s hours.

Defective Goods

Whistleblowers have helped the United States identify a number of products that it purchased but did not actually perform as intended.

Failure to Test

The burden to quality test products following manufacturing is often placed on the supplier rather than the government. The method of testing is frequently specified in the agreement. Unfortunately, companies have cut corners or skipped testing altogether. These cases can give rise to a claim under the law.

Certifications

Businesses often must certify that the product and their performance complies with the specifications set out in the agreement in order to receive payment. It is not entitled to payment if it has not performed as specified.

Product Substitution or Nonconforming Goods

Businesses are not allowed to make changes to the terms of the agreement without approval. Yet, sometimes they use unqualified personnel, unauthorized subcontractors substitute parts or change suppliers. At the end, when the business certifies compliance with the contract even though it has made material changes, it submits a false claim for payment.

For example, certain contractors must meet the specifications of the Buy American Act. Components must be sourced from the United States. If the company encounters difficulties, it is supposed to approach the agency for a waiver. If it intends substitutes, nonconforming products and bills the government as if it complied with the terms, it has violated the law.

Government Contract Fraud News

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