Federal False Claims Act Defense: Government Contractor Fraud.

• Section 3729(a)(1)(A) of the False Claims Act governs claims involving “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”
• Section 3729(a)(1)(B) addresses government contract fraud in the broader context of “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;”
• FCA claims under Section 3729 are distinct from other forms of federal fraud enforcement in the federal procurement system.
• Under the FCA’s statute, “knowingly” means “mean that a person, with respect to information- (i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information;”
• The statute further specifies that “require no proof of specific intent to defraud;”
• While the FCA prohibits government contract fraud, government payment of invoices or other fraudulent requests is not necessarily an aggravating or mitigating factor.
• While a contract may explicitly state that no government payment is due unless specific requirements are met, the government’s decision to pay an invoice is not necessarily an admission of the contractor’s compliance with its underlying contractual obligations.
• Similarly, the government can recover funds paid to government contractors even if it knew (or knew or should have known) that the contractors were in breach of their contract.
• This is especially true where the contract requires the contractor to certify compliance as a condition for payment. In such cases, the government’s payment does not preclude civil liability under the FCA, as federal statutes require payment to be made unless the government has proof of noncompliance.
• To prove a federal FCA claim, it is generally not enough for the government to establish that a government contractor committed a contractual breach. It is generally necessary to prove that the contractual breach was material, meaning that it had a natural tendency to influence, or was capable of influencing, the Government’s payment decision.

Which Records and Employee Communications Matter Before a Contractor Answers Investigators in an FCA Inquiry?

1. Preserving Potentially Relevant Records

Upon receiving a request for information or a subpoena from investigators, government contractors and other companies should promptly take steps to preserve potentially relevant electronic and hard-copy records. This applies even when the requests come before a formal target designation, and even when the requests are informal in nature. These risks, once recognized, make it critical to take appropriate steps both to preserve relevant records and to prepare for providing information to the government.

2. Risks of Making False Statements to Federal Investigators

3. Documents Government Investigators Examine

4. Conducting In-Depth Internal Investigations

When Spodek Law Group lawyers represent government contractors and other companies accused of government contract fraud and other allegations of fraud, waste, and abuse involving federal funds, our attorneys take a proactive approach to conducting comprehensive internal investigations. Our attorneys work with our clients to preserve all relevant records and communications while conducting in-depth interviews with pertinent individuals and evaluating all relevant information. In these cases, our internal investigations generally address inquiries concerning:

• Billing practices and request for payment procedures;
• Payment certifications, representations, and disclosures;
• Contract compliance and contract performance;
• Employee misconduct; and,
• Other contractual or substantive performance compliance matters.

5. Responding to Investigative Demands and Subpoenas with Effective and Document-Driven Defense Strategies

How Can a Sealed Qui Tam Allegation Reach a Prime Contractor Through the Federal Payment Chain?

1. Filing of a Sealed Qui Tam Complaint

2. Government Investigation, Evaluation, and Prosecution Decision

3. Declination of Intervention

4. DOJ Intervention and FCA Enforcement in Government Contractor Fraud Cases

5. The Concept of “Qui Tam” Relators and Relators’ Potential to Receive a Percentage of Recoveries

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When Does a Contract Rule Become a Payment Problem Requiring FAR Disclosure or Procurement Action?

1. Truth in Negotiations Act Violations and Procurement-Related FCA Investigations

Violations of the Truth in Negotiations Act (TINA) are common grounds for initiating procurement-related FCA investigations. TINA generally requires government contractors to provide “accurate, complete, and current” cost or pricing data during contract negotiations to ensure fair and reasonable pricing. While TINA violations alone may not always trigger FCA liability, when they are combined with actual knowledge (or reckless disregard) and materiality, the potential for an FCA investigation increases significantly.

2. Trade Agreements Act and Buy American Compliance

Trade Agreements Act (TAA) and Buy American compliance are also potential triggers for FCA investigations. Both statutes limit the types of foreign-made or foreign-sourced materials and components that can be used in government contracts. Again, while a TAA or Buy American violation may not automatically qualify as an FCA claim, a violation that is also “knowing” and “material” (i.e., the government would not have paid if it had known about the noncompliance) is a potential basis for civil enforcement.

3. Mandatory Disclosure Analysis and Additional Procurement Consequences

A mandatory disclosure analysis can also reveal separate procurement consequences, including contractual penalties, contract termination, or the need to re-negotiate contract terms, even when such issues do not provide sufficient support for an FCA investigation.

4. Suspension and Debarment

Suspension and debarment are also potential collateral procurement consequences. While a contractor might be able to avoid civil liability in an FCA case, the agency involved may still pursue suspension or debarment regardless of whether the contractor can prove that its alleged noncompliance was not “knowing” or “material.”

5. FAR 52.203-13 and Mandatory Disclosures under the Federal Acquisition Regulation

How Do Damages, Criminal Proceedings, and FCA Deadlines Alter a Contractor’s Defense?

1. Civil False Claims Act Remedies and Remedies for Civil FCA Fraud

Civil FCA remedies generally include a civil penalty plus damages, ordinarily three times the Government’s damages, subject to statutory exceptions. The civil FCA remedy applies when the contractor’s conduct “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” False-record liability can arise when a person knowingly makes or uses a false record or statement material to a false or fraudulent claim, and FCA liability can also arise from knowingly avoiding an obligation to pay or transmit money to the Government.

2. Civil vs. Criminal False Claims Act Fraud Investigations

In contrast to civil FCA investigations, criminal FCA investigations can expose contractors (and their personnel) to the possibility of incarceration. 18 U.S.C. § 287 makes it a federal crime to knowingly make or present a false, fictitious, or fraudulent claim upon or against the United States. To obtain a conviction for a federal criminal false claim, the government must prove all essential elements of a criminal offense to a jury beyond a reasonable doubt. Specifically, prosecutors must prove beyond a reasonable doubt that the contractor knowingly made or presented a false, fictitious, or fraudulent claim upon or against the United States.

3. Simultaneous Civil and Criminal Proceedings

Civil and criminal proceedings may be conducted simultaneously; however, they are governed by different standards of proof. In both types of proceedings, the government must prove that the contractors acted knowingly, but in the civil proceeding, this can be achieved by proving reckless disregard. In contrast, criminal cases require proof that the defendant knew the claim was false and acted with the specific intent to violate the law or with consciousness that the conduct was wrong.

4. Civil Settlement and Criminal Prosecution

A civil settlement in a qui tam FCA case does not necessarily prevent the government from pursuing criminal proceedings. A contractor could settle its liability for civil damages but still be at risk for criminal prosecution. If the DOJ decides not to intervene, if the relator’s case is weak, or if the DOJ determines that the contractor’s case is best handled by the qui tam relator, the relator’s case does not necessarily protect the contractor from criminal exposure.

Get Advice on Your Situation

If you want someone to look at the specifics of your case, Spodek Law Group handles federal criminal defense nationwide from New York and Los Angeles. The firm has been practicing since 1976 and its motto is simple: we owe loyalty to only you. Call 888 348 8028.