Contractor Fraud Against the Federal Government: Selected Federal Civil Remedies

Summary

Because the federal government relies heavily on contractors to supply it with goods and services, fraud by these contractors potentially costs the government billions of dollars annually. Detecting, prosecuting, and deterring contractor fraud poses a challenge to federal agencies, which often possess limited resources. To combat contractor fraud, Congress has enacted several statutes that allow the federal government—and in some instances, private parties—to recover damages, civil penalties, or forfeitures against parties that make false or fraudulent claims for payment or engage in other misconduct. These statutes may impose civil liability for conduct that does not amount to fraud under traditional common law definitions and potentially allow for significant recoveries.

Generally, the False Claims Act (FCA) authorizes the Attorney General, as well as certain private parties, to bring a civil action against “any person” who makes a false claim for payment from the government. Recently, some courts have held that claims for payment that are not explicitly false may become false by implication because of a party’s actions or omissions prior to contract formation or during contract performance. However, some of these same courts have expressed concerns that such theories could lead to liability for ordinary breaches of contract or insignificant regulatory violations, and have thus imposed limitations on their use by the government or private parties that sue on behalf of the government. Other recent regulatory and judicial developments may also affect contractors’ potential exposure to civil liability and damages under the FCA.

The Contract Disputes Act (CDA) sets forth procedures for the resolution of claims and disputes involving certain contracts awarded by executive agencies. The CDA contains an anti-fraud remedy because of concerns that contractors would submit inflated claims during contract disputes as a “negotiating tactic,” leading the government to settle these claims instead of using its limited resources to evaluate them on the merits. The Federal Circuit’s notable decision in Daewoo Engineering Co., Ltd. v. United States demonstrates that the CDA’s anti-fraud provision may result in a significant civil penalty for a contractor that submits a fraudulent claim to the government in an effort to extract a settlement offer.

Under the Forfeiture of Fraudulent Claims Act (FFCA), a contractor that brings a fraudulent contract claim against the government in the Court of Federal Claims (COFC) may have to forfeit all of its claims under the contract. Courts disagree over whether fraud sufficient for forfeiture may relate to the execution or performance of the contract in addition to submission of a claim.

The Program Fraud Civil Remedies Act (PFCRA) provides an administrative process under which certain federal agencies may impose civil remedies or assessments on “persons” who knowingly make false, fraudulent, or fictitious claims or statements to the agencies in “small-dollar cases” of fraud that the Department of Justice (DOJ) declines to pursue in court. Few federal agencies use the PFCRA, leading some to recommend that, among other things, Congress raise the act’s jurisdictional cap and civil penalty limit; allow agencies to retain recovered funds; and simplify the act’s procedural requirements.

Congress is perennially interested in the scope of federal civil fraud remedy statutes. In order to be effective, these statutes must be broad enough to punish and deter fraud that often evades detection, wastes taxpayer funds, and negatively impacts government programs. On the other hand, if courts interpret a fraud statute so broadly that it imposes civil liability on contractors for minor regulatory violations or ordinary breaches of contract, contractors may decline to compete for government contracts, potentially leading to higher prices for the government.