# Presentation: 392833

## False Claims in Government ContractingLaws and Remedies

- FAA Procurement Officials
- Thomas Flatley
- 2006

## False Claims in FAA Contracting

**Overview **
- If presented with a false claim, STOP
- Contact contractor
- Refer to IG
- DO NOT PAY
- Department of Justice Remedies
- Criminal, Civil and Administrative remedies asserted by FAA with DOJ approval

## What is a “Claim”?

**Any request made under a contract or otherwise, for money or property**
**To the Government or a contractor or grantee or other person, if the Government provides any of the money to the contractor, grantee or other person**

## Possible Examples of False Claims

**Inflation of costs or labor hours**
**Substitution of less costly/lower quality materials**
**Overstating labor categories **
- eg., civil engineer claimed where general laborer is appropriate or performs the work
**False certification of payments to subcontractors when payments not made**
**False statements in monthly invoices or progress payment requests**
**Charging for labor and/or material in excess of requirement**

## Possible Examples of False Claims

**Charging unallowable costs**
**False certification on stage of completion**
**Failure to comply with all laws and regulations**
**Misinterpreting meaning of clause**
**Cost and pricing data**
**Uninvoiced costs included with total actuals**
**Alteration of data**
**Failure to update cost data when you know there is a change**
**Distortion of overhead account**
**Reverse-decrease an obligation to the government**
**Overstated resumes**
**Employees paid at inflated rate**

## Important things to remember:

**Contracting officer MAY NOT pay or compromise a false claim**
**Possible false claims MUST be referred to the DOT Inspector General **
**DOTIG investigates and Department of Justice decides whether to prosecute**
**The FAA may not pay, compromise or pursue administrative remedies until authorized by DOJ**

## Who Can Violate the Civil False Claims Act?

**Anyone who commits the enumerated offenses, including:**
- Contractors or subcontractors
- Grantees or other recipients of money from the Government
- Any other person (including Government employees)

## Civil Penalties/Treble Damages from any Person:

**Who knowingly presents a false claim**
**Who knowingly makes, uses or causes to be made or used a false record or statement to get a false claim paid or approved**
**Who conspires to defraud the Government by getting a false claim allowed or paid**
**Who, intending to defraud the Government, delivers less property or money than is due.**

## What is “Knowing” or “Knowingly”?

**Has actual knowledge of the falsity of information**
**Acts in deliberate ignorance of the truth or falsity of the information; OR**
**Acts in reckless disregard of the truth or falsity of the information**
**Required for #1 and #2**

## What is “Intent to Defraud”?

**A deliberate wrongdoing with the specific purpose of **
- Conspiring to get a false claim allowed or paid
- Delivering less property or money than what was ordered
**Required for #3 and #4**

## Remedies

**Civil Penalties - $5000 - $10,000 PLUS**
**Treble Damages – 3 X Government’s Actual Damages**
**Forfeiture of claims **
**Criminal penalties**
**Rescission/Voiding of contact**
**Suspension and Debarment**

## False Claims Act Example 

**Contractor committed fraud by submitting inflated claim to government **
**Invoice submitted was in amount of $150,000 but employee of contractor knew that contractor was owed only $100,000 at time it submitted invoice to government**
- It was immaterial whether employee believed contractor would subsequently be owed $150,000**  **
**Treble damages of $150,000 assessed**

## Forfeiture Statute - Civil

**Claims against the Government are forfeited:**

- “A claim against the United States shall be forfeited tothe United States by any person who corruptly practices or attempts to practice any fraud against the United Statesin the proof, statement, establishment, or allowance thereof.”

## Another Civil Remedy - Forfeiture

**Forfeiture statute: Contractor committing fraud returns amounts paid, and cannot recover for work performed, even if the work has been completed **
**Example: Contract for $200,000 **
- Contractor paid $50,000 for 25% of work
- Contractor completes remaining 75%
- Contractor must return $50,000, is not paid for anything and is fined $5,000 - $10,000 for each claim

## False Claims Act (Criminal)

- Whoever makes to any person in the civil service any claim against the United States, KNOWING such claim to be false, shall be imprisoned not more than five years and shall be subject to a fine.
**“****Beyond a Reasonable Doubt”**
- VS
**“****Clear and Convincing”**

## Criminal Laws Applicable to False Claims

**False Claims Act**
**False Claims Accountability Act**
**Major Fraud Act of 1988**
**Federal Conspiracy Statute**
**Bribery**
**Unlawful Gratuities**
**False Statements**
**Mail and Wire Fraud**
**Theft, Embezzlement or Destruction – Public Property**
**Anti-Kickback**
**Sarbanes-Oxley Act of 2002**

## False Claims Accountability Act (Criminal)

- Whoever knowingly and willfully:
**(1) falsifies, conceals, or covers up a material fact;**
**(2) makes any materially false, fictitious, or fraudulent statement; OR**
**(3) makes or uses any false document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;**
- Shall be fined or imprisoned not more than 5 years, or both.

## Major Fraud Act of 1988- Contracts of $1 million or more

**It is a **_**CRIME**_** to:**
- Knowingly execute, or attempt to execute any scheme or artifice with the intent to:
- Defraud the United States; or
- Obtain property by means of false pretenses,  in any procurement of services as a prime contractor or subcontractor or supplier, where the value of the contract, subcontract or any constituent part thereof, for services is $1,000,000 or more

## Major Fraud Act Penalties

**Up to Ten years imprisonment**
**Fine up to $5,000,000**
**Fine up to 2 X gross loss or gain**

## Federal Conspiracy Statute(Criminal)

**Two or more persons conspire either to commit any offense against the U. S., or to defraud the U. S.  **
**Prosecution must show an overt act, but crime need not be completed.**

## Procedure

**US Department of Justice initiates civil and/or criminal cases**
**Contracting Officer learning of potential fraud/false claim MAY NOT pay or compromise that claim and must refer the claim to DOT Inspector General**

## Administrative Remedies 

**Asserted by the FAA *****AFTER***** DOJ declines prosecution or authorizes administrative action:**
- Program Fraud Civil Remedies Act
- Suspension and Debarment
- Termination of contract for default
**Remedy available in the bidding process:**
- Rejection of falsely certified bid

## Main Features of Administrative Civil Remedies

**Investigation by the DOT IG **
**Review by Deputy General Counsel of DOT**
- For assessments of $150K or less, etc., reviewing official may issue complaint with DOJ approval
**Administrative Trial procedure**
**Appeal is to “authority head”-DOT Ass’t Sec’y for Budget & Programs.  **
- Judicial Review:  US District Courts
**DOJ may require stay of proceedings if it will interfere with ongoing criminal or civil actions**

## Other Administrative Remedies for False Claims

**Suspension and Debarment ****  **
**   **
- FAA may suspend or debar contractors for cause.
- FAA will honor suspension, debarment, and ineligibility decisions of other agencies unless FAA has a compelling need to obtain the requirement from that contractor

## False Certification in Bid as Basis for Rejecting Proposal

_***Protest of Simerly Enterprises***_
**Simerly Enterprises filed a bid protest challenging the award of a contract for weather observation services. **
**The ODRA found that Simerly had falsely certified that it had not been the subject of any default termination within the preceding three years when,  in fact, it had received a default termination notice from the Southwest Region **
- Even though Simerly considered the default wrongful and it subsequently challenged the termination
**The ODRA determined that the Central Region's decision to reject Simerly's proposal had a rational basis**

## A Real Life Example

**Computer Service contractor increased number of hours worked and charged for work not performed,  altering payroll records with white-out.  **
**Contracting officer noticed and reported to DOTIG, and prosecution resulted.**
**Resulted in criminal and civil prosecution, prison sentence, payment of treble damages, and request for debarment proceedings **

## A Hypothetical Example

**Janice is a FAA Contracting Officer on a contract with Prime Contracting, Inc. (“Prime”)**
**Prime performs multiple ongoing services in emergency situations (natural disasters), under a cost-type contract, using a number of subcontractors to perform the assigned tasks.  **
**During an emergency, Janice assigns Prime a task of such magnitude that Prime would have to outlay a substantial sum of money to retain its subcontractors.  **
- Because of the magnitude of the costs involved, Prime asks Janice for help.

## A Hypothetical Example (continued)

**Because Prime’s request is valid and in the best interests of both the contractor and the government to ensure that the mission is accomplished without undue risk to the contractor, an advance payment to Prime would be permitted under the AMS.  **
- However, Janice has never used that option, nor is she familiar with it.
**Instead of processing the matter as an advance payment, Janice processes it as a partial payment.**

## A Hypothetical Example (continued)

**As part of the partial-payment processing, Janice approves Prime’s invoice which falsely states that the services have already been performed.  **
- The invoice is not for services performed, but rather for services estimated as required to fulfill the mission.
**A partial payment is made to Prime. **
**Ultimately, Prime provides services of a total value far exceeding the amount of the partial payment.**

## False Claim or Not?

**Did Janice violate the False Claims Act?  **
**If so, what penalties may she face?**** **

## Answer:

**Janice did not violate the False Claims Act because she had no intent to defraud the government; **
**However, disciplinary action would be appropriate since she failed to follow agency procedures **

## False Claim or Not?

**Did Prime violate the False Claims Act?  **
**If so, what penalties may it face?**** **

## Answer:

**Prime violated the False Claims Act because it submitted a claim for payment knowing the information contained therein was false**
**Prime could be  liable for a civil penalty of $5,000-$10,000**
- But not for actual or treble damages, since the Government suffered no actual damage as a result of the false statement/claim.

## Qui Tam Actions under the False Claims Act

**A private party may file suit against a contractor if, after notice by the private party, DOJ declines to file suit. These are known as *****qui tam***** suits**
- A “qui tam” suit is brought by an individual on behalf of the Government seeking to expose and thereby stop the wasting of federal funds
*Qui Tam* provisions encourage private persons and entities with knowledge of fraud to come forward
**The private party and the Government share the proceeds of any recovery**.
**If you are served with a *****qui tam *****complaint or subpoena, advise AGC/Regional Counsel immediately**

## Conclusion

**Be alert to possible fraud**
**Carefully review invoices and supporting data**
**Advise the DOTIG and alert your legal counsel to suspected fraud cases**
***DO NOT PAY***** or compromise a potentially fraudulent claim until authorized by the DOTIG/DOJ**