The federal government obligates hundreds of billions of dollars each year to procure goods and services. Federal procurement statutes and regulations establish largely uniform policies and procedures applicable to government contracts "to deliver on a timely basis the best value product or service to the [government], while maintaining the public's trust and fulfilling public policy objectives." To meet these ends, federal agencies have a number of legal tools at their disposal to help ensure a contractor adequately performs a contract or, if warranted, to hold a contractor accountable for performance failures or misconduct. These legal tools are intended to advance the transparency, fairness, and integrity of the procurement system and limit waste, fraud, and abuse. As described in detail below, these tools include contractual remedies, contract bid and source selection criteria, as well as various noncontract-based legal powers, such as civil fraud enforcement and the authority to exclude contractors for a period of time from being eligible for future contracts through suspension or debarment proceedings. This report analyzes a selection of the legal tools a procuring agency may use to hold contractors accountable. The report first assesses contractual remedies that procuring agencies could utilize to ensure full and satisfactory performance of existing contracts. Next, the report discusses performance-related contract source selection criteria that agencies may, and often must, utilize when evaluating new contract bid proposals. The report ends with a discussion of other legal tools—outside of contract law and the contract selection processes—that the government may employ to hold a contractor accountable. Contracting officers generally have wide discretion to draft contracts to protect the government's interest. However, contracting officers are bound by governing procurement statutes, regulations, and executive orders regulating government contracts. In many instances, the Federal Acquisition Regulation (FAR) —the government-wide regulation that generally applies to acquisitions by federal executive branch agencies —requires that particular contracts incorporate specific standard contractual terms (or slightly modified versions thereof, as applicable). Part 52 of the FAR, and in some cases individual agencies' supplements to the FAR, provide for dozens of standard terms agencies must include in their contracts. Many of these standard contract clauses are designed to protect the government's interests, such as by ensuring that goods and services are provided in the time, manner, and quality contemplated and in accordance with the procuring agency's programmatic objectives. Certain "mandatory contract clauses that express a significant or deeply ingrained strand of public procurement policy"—such as the right to terminate contracts for the government's convenience, discussed further below—are available to the federal government "by operation of law" even in the absence of express authorization. Other rights and remedies may be available to the government only if the relevant procurement contract expressly provides or incorporates such terms by reference. When problems arise in the performance of a contract, the parties can address them through their contract rights. Contract disputes potentially can be reviewed and resolved by a federal court (typically, the U.S. Court of Federal Claims) or a board of contract appeals in accordance with the Contract Disputes Act. The contract dispute process is outside the scope of this report. The terms that a procuring agency incorporates into a particular contract—and, by extension, the rights and remedies at the agency's disposal—can vary considerably according to the type of contract the agency solicits. The type of contract an agency chooses may depend on, among other factors, the types of goods or services sought; the timeline by which the agency needs delivery or performance; the objective and complexity of the acquisition; the depth and breadth of the qualified contractor pool; and the certainty with which costs can be predicted. This report focuses on the two most common categories of government contracts: fixed-price and cost-reimbursement. Fixed-price contrac t. Through a fixed-price contract, a procuring agency acquires a good or service for a specified price that is either firm, or, under certain circumstances, adjustable in accordance with conditions spelled out in the contract. The contractor under a fixed-price contract generally assumes the risk of cost overruns. As a result, the government typically prefers using fixed-price contracts to the extent that they are appropriate for the given circumstances. When administering a fixed-price contract, the government's focus is generally on whether the acquired good or service comports with the contract's specifications and meets the agency's needs. Cost-reimbursement contract . In contrast, through a cost-reimbursement contract, a procuring agency agrees to reimburse a contractor for specified allowed costs the contractor incurs, subject to a cap. The payment structure of cost-reimbursement contracts subjects the government to a greater risk of wasteful spending than in fixed-price contracts. An agency will typically use a cost-reimbursement contract when there are too many uncertainties regarding the cost, performance, or specifications for the procuring agency to utilize a fixed-price contract. When overseeing the administration of a cost-reimbursement contract, the government generally focuses on "ensuring that the contractor expends funds to most effectively accomplish the government's objectives." Table 1 details selected common contract types for each category; the situations in which they are typically utilized; and a selection of regulatory conditions imposed on their use. What follows is an analysis of selected contractual rights and remedies that federal agencies may employ to obtain products and services that meet the quality, cost, and other specifications for which they contracted. As one court found, "the government generally has the right to insist on performance in strict compliance with the contract specifications." To further this end, the FAR generally requires procurement contracts to include clauses that explicitly authorize the government to inspect and test goods and services to ensure contractors have fully complied with contract specifications. These standard "inspection clauses" authorize procuring agencies to require contractors to remove, correct, replace rejected goods, or reperform services, (together, to take "corrective actions") for failing to conform to contract specifications and requirements. The type of contract involved typically determines which party assumes the costs associated with taking corrective action. Under many fixed-price contracts, contractors assume all of the costs associated with valid corrective actions. In contrast, under many cost-reimbursement contracts, procuring agencies pay contractors for certain specified allowable costs the contractor incurs to perform corrective actions, subject to a defined ceiling. The standard inspection clauses applicable to cost-reimbursement contracts generally authorize contractors to charge the government for the actual cost—not including profits—of correcting or replacing nonconforming goods, unless the lack of conformity resulted from (1) the contractor's "fraud, lack of good faith, or willful misconduct;" or (2) a "habitually careless or unqualified" employee of the contractor. When contractors fail or refuse to take corrective actions, inspection clauses under both fixed-price and cost-reimbursement contracts authorize the government, under certain circumstances, to hire new contractors or initiate other measures to correct the deficiencies and then to charge the original contractor for the reperformed work. The procuring agency's general right to require contractors to perform corrective actions to ensure strict compliance with contract specifications is subject to some limitations. For example, procuring agencies generally cannot insist on reperformance when "the cost of correction is economically wasteful and the work is otherwise adequate for its intended purpose." Relatedly, inspection clauses often provide agencies with the authority to make equitable cost reductions or seek repayment to account for all of the costs associated with deficient services that cannot be reperformed or goods the agency receives and accepts despite the deficiencies. The cost adjustment is typically calculated by how much the contractor saved as a result of the defective work or the reduced value of the defective work, and, thus, can vary considerably. For instance, an equitable reduction might be modest when the government will still substantially benefit from the good or service in spite of the deficiencies. In contrast, the contract price might be significantly reduced when deficiencies largely eliminate the usefulness of the good or service. Under certain circumstances, procuring agencies are permitted to incentivize contractors with performance-based payments "to . . . motivate contractor efforts that might not otherwise be emphasized and . . . discourage contractor inefficiency and waste." Incentive fees can be an effective contractor accountability measure because they can be paid to reward contractors for meeting or exceeding goals or standards contemplated in the contract or withheld or reduced when contractors fail to meet or exceed those goals or standards. The FAR provides that incentive fees may be used in situations in which an agency's needs cannot be met with a firm-fixed-price contract and in which performance-based payments can reduce costs or enhance the technical quality or timely delivery of goods and services. Incentive fees can be utilized in both fixed-price (other than firm-fixed price) and cost-reimbursement contracts. Contracts generally provide for an incentive fee to be paid to a contractor if the contractor meets certain cost targets; however, a contract may also provide for incentive fees if the contractor meets other performance targets, such as those related to delivery schedule or the technical standards of the procured good or service. The FAR provides that performance targets should be "reasonable and attainable . . . and clearly communicated" to the contractor. To establish an incentive fee as a reward for a contractor meeting certain technical performance targets, for example, contracts generally must specify compliance and quality testing standards applicable to those targets. The FAR provides that the determination of an incentive fee is a "unilateral decision[] made solely at the discretion of the Government." Nevertheless, an agency may not exercise its discretion arbitrarily or capriciously, and this discretion can be constrained by other terms of the contract. The FAR also establishes the general conditions under which a procuring agency can reduce or withhold an incentive fee. The degree of discretion that a contracting officer has to reduce or withhold incentive fees varies according to the terms of the contract. Generally speaking, contract officers have less discretion to reduce or withhold incentive fees that are tied to quantitative metrics such as cost or delivery times. In contrast, contract officers have more discretion to reduce or withhold incentive fees that are based on more qualitative performance standards. Another potential contract mechanism that federal agencies can use to promote contractor accountability is to require a security bond. In the government contract context, a bond is a security instrument in which a third-party surety promises to assume a contractor's responsibilities in the event that the contractor fails to meet specified contractual obligations. The surety might either fulfill the responsibilities under the contract itself or cover the cost—up to the maximum bond amount—for the government to hire a different contractor to complete the procurement. The surety bond must be backed by cash, U.S. Treasury securities, or other "acceptable assets," as defined in the FAR. While the primary purpose of a surety bond is to protect the government, a bond also arguably serves as a contractor accountability measure because it subjects a contractor to potential additional costs. These could include, for example, liability expenses under indemnity agreements with the surety. Moreover, it is possible that the contractor would find it more expensive and more difficult—perhaps even impossible—to qualify for a bond for future contracts. The FAR authorizes several different types of bonds, but the two most relevant to contractor accountability are performance and payment bonds, which are described in turn. Performance b onds . An agency may request a performance bond to ensure that contractors perform in accordance with their contractual obligations. The FAR generally requires performance bonds in construction contracts valued over the simplified acquisition threshold (i.e., $250,000), but a procuring agency may also request such a bond when it is "necessary to protect the Government's interest." The FAR provides that performance bonds might be necessary in nonconstruction contracts when, for instance, the agency is contracting for demolition projects. The maximum amount (i.e., penal amount) of a performance bond generally must be the full contract price, including coverage for any potential increase in the contract price, unless the procuring agency determines that it will be adequately protected by a lower penal amount. Payment bonds . A payment bond is used to ensure that all subcontractors, laborers, and suppliers that play a role in performing a contract are paid in accordance with the law. The FAR generally requires that a contract also include a payment bond when a performance bond is required. An agency can also request a payment bond when it "is in the Government's interest." The penal amount of payment bonds must not be less than that of the contract's performance bond, and, thus, is generally the full contract price, including potential increases, unless the contracting officer determines in writing that such amount would be "impractical." Liquidated damages are predetermined sums a contractor must pay the procuring agency for specified contract breaches or performance failures. By predetermining the costs associated with a breach or failure to perform, liquidated damages clauses hold contractors accountable for noncompliance, while "sav[ing] the time and expense of litigating the issue of damages." The FAR authorizes (and in some cases, requires) the use of liquidated damages clauses in contracts when an agency reasonably expects that a contractor's failure to meet timelines for the delivery of goods or the performance of services will harm the government, but "[t]he extent or amount of such damage would be difficult or impossible to estimate accurately or prove." Liquidated damages are intended to represent "just compensation for the harm that is caused by late delivery or untimely performance of the particular contract." Courts will generally enforce a liquidated damages clause if it is reasonable and not punitive in nature. Liquidated damages must bear some reasonable relation to the potential damage that the government would suffer as a result of performance or delivery delays. For example, a liquidated damages clause in a construction contract should encompass "the estimated daily cost of Government inspection and superintendence [and] . . . other expected expenses associated with delayed completion." A contractor challenging a liquidated damages clause as an unenforceable penalty has a "heavy" burden of proof because, by their very nature, liquidated damages are intended to cover harms that "are uncertain or hard to measure." Termination of a contract because of a contractor's default is arguably the most consequential and dramatic contract-based contractor accountability tool at the government's disposal. By terminating a contract, in whole or in part, for default, a procuring agency is informing a contractor that its failure to meet contract requirements "discharges government duties under the contract while exposing the contractor to potential liability for the consequences of its breach." Courts have long held that the federal government has the authority to terminate contracts even in the absence of express contract termination rights. Nevertheless, the FAR generally requires agencies to incorporate termination clauses in procurement contracts. The FAR authorizes an agency to terminate a contract for default due to a "contractor's actual or anticipated failure to perform its contractual obligations." Courts review an agency's decision to terminate a contract for default on an "ad hoc, factual" basis, "examin[ing] and weighing [] all relevant circumstances." These facts and circumstances can include the extent of performance and the time left to complete the contract; whether the contractor has met performance goals; the contractor's history of performance; the contractor's finances; and issues with suppliers or subcontractors. In order to terminate a contract for default, the FAR requires a procuring agency to comply with various procedural requirements, such as providing the contractor with notice of the default and 10 days to cure the breach. If the contractor fails to rectify (i.e., cure) the problems that served as the basis for the notice of the default (e.g., correcting defective supplies) within 10 days, the procuring agency may issue a written notice of termination, at which point the contractor generally must immediately halt work on the terminated portion of the contract and inform subcontractors and vendors to do the same. The financial impact that a contractor suffers when a procuring agency exercises its right to terminate a contract for default varies according to the contract type. Typically, the financial impact of a default termination is most dramatic with fixed-price supply contracts because the procuring agency must provide compensation only for supplies that it accepts and that meet the contract specifications. Consequently, a contractor under a fixed-price supply contract generally will be responsible for all of the costs associated with manufacturing/assembling goods that the procuring agency rejected for failure to meet contract specifications. In contrast, under construction and service contracts, the procuring agency generally must compensate contractors for all performance that takes place prior to the default and termination. Regardless of contract type, contractors generally will be liable for the extra cost to the government of reprocuring the contract. Additionally, contractors might be required to return certain compensation (e.g., progress payments) they had received prior to the termination for default, and they might be liable for liquidated damages, actual damages, and the repercussions of triggering a surety bond. On top of these contractual liabilities, contractors that have had contracts terminated for default might have difficulty receiving future contracts because, as is discussed in the next section of this report, procuring agencies generally consider prior contract performance during the contract solicitation and selection processes. Furthermore, the cause of a termination for default potentially could serve as grounds for suspending or debarring a contractor from government contracting, as discussed in the final section of this report. A contractor may challenge a default termination by arguing, for example, that the default was caused by "excusable" forces outside of the contractor's control (e.g., natural disaster), or that the procuring agency failed to follow the FAR's default termination procedures. Nevertheless, even if the contractor's challenge proved successful, the contract generally would not be reinstated, but, rather, likely would be converted from a default termination to a termination for the government's convenience if it is in the government's interest to do so. The FAR defines "[t]ermination for convenience" to "mean[] the exercise of the Government's right to completely or partially terminate performance of work under a contract when it is in the Government's interest." Courts have construed the term "Government's interest" broadly to include situations in which the agency no longer needs the products or services; the acquisition has become too expensive; or there has been a corrosion in the relationship between the agency and contractor. The conversion of a default termination to a termination for the government's convenience "is a very common practice and has been extended to practically any reason for wrongful default termination." When the government terminates a contract for convenience it is generally liable for the "recovery [of] costs incurred, profit on work done, and costs of preparing the termination settlement proposal." However, the contractor is not able to recover "anticipatory profits," which would generally be recoverable, when the government has breached the contract. When selecting contractors, procuring agencies often must consider various contractor accountability issues, notably including the contractor's performance under other contracts, through (1) "responsibility determinations" to assess whether the contractor is capable of performing on the contract; and (2) source selections under negotiated contracting. (Similarly, as is discussed in the next section of this report, procuring agencies also must ensure that a contractor is legally eligible to be awarded a federal contract.) Procuring agencies generally have considerable discretion in how they evaluate prospective contractors when conducting a selection process, as long as selection decisions are rationally based and comply with the law. The FAR generally requires procuring agencies to compile and review information about potential contractors in the federal government's Contractor Performance Assessment Reporting System (CPARS). These databases include the Past Performance Information Retrieval System (PPIRS), which is available only to authorized government personnel and the contractor in question, and the publicly available Federal Awardee Performance and Integrity Information System (FAPIIS). In addition, agencies are required to compile and review information in a separate but linked government-run database called the System for Award Management (SAM) Exclusions. This section of the report first analyzes FAR provisions requiring procuring agencies to evaluate prospective contractors in connection with (1) responsibility determinations and (2) the source selection process. It then analyzes FAR provisions requiring agencies to document contractor performance-related matters in PPIRS, FAPIIS, and SAM Exclusion while administering existing contracts. Prior to entering into most procurement contracts, the FAR requires procuring agencies to "make[] an affirmative determination . . . that the prospective contractor is responsible." According to the FAR, procuring agencies must determine that a contractor is "nonresponsible" unless there is "information clearly indicating that the prospective contractor is responsible." Some of the criteria agencies must consider when making a responsibility determination include contractor accountability measures. These factors include whether a contractor "[has] a satisfactory performance record"; "a satisfactory record of integrity and business ethics;" and is legally eligible to be awarded a procurement contract. For example, a contractor may become ineligible for award of a federal procurement contract if the contractor has been convicted of a federal crime in the last two years or is delinquent in paying federal taxes. When assessing a contractor's past performance for a responsibility determination, procuring agencies can examine prior contractor performance failures and deficiencies. Such failures and deficiencies may include "failure to apply sufficient tenacity and perseverance to perform acceptably;" "the extent of deficient performance;" the length of time that has elapsed since deficient performance; and the steps a contractor has taken to rectify the causes of past failures and deficiencies. As part of its responsibility determination, a procuring agency also generally must "consider [the] information available through FAPIIS with regard to the [prospective contractor] and any immediate owner, predecessor, or subsidiary identified for that [prospective contractor] in FAPIIS, including information that is linked to FAPIIS such as from SAM, and PPIRS." Separate from, and in addition to, responsibility determinations, procuring agencies generally are required to evaluate prospective contractors under a negotiated contracting process. When contracting through negotiation, as opposed to sealed bidding, the procuring agency's main goal "is to select the proposal that represents the best value" to the government. Price or cost are always going to be part of the best value evaluation, but other factors, such as past performance, may also play a role. Nevertheless, while it imposes some requirements on the process, the FAR generally defers to the procuring agency's judgment regarding "[t]he currency and relevance of the information" it examines on past performance. For instance, the FAR requires agencies to describe their general method for evaluating past performance when soliciting contracts and to provide prospective contractors a chance to submit information about their past performance during the selection process. The FAR also requires procuring agencies to assess a prospective contractor's past work experience with disadvantaged small businesses, if applicable. The FAR further prohibits procuring agencies from viewing a prospective contractor's lack of past performance history either favorably or unfavorably. Other than these general requirements, procuring agencies have a great deal of discretion in determining how to evaluate past performance when selecting bids, and courts generally defer to an agency's reasonable exercise of that discretion. To facilitate agency evaluations of a prospective contractor's likelihood of success on future contracts, the FAR generally requires procuring agencies to conduct and document performance evaluations of contractors shortly after a contract is completed, as well as at least once each year. The FAR requires past performance evaluations to include, at the very least, assessments of the contractor's performance under the following factors: 1. Technical (quality of product or service). 2. Cost control (not applicable for firm-fixed-price or fixed-price with economic price adjustment arrangements). 3. Schedule/timeliness. 4. Management or business relations. 5. Small business subcontracting, including reduced or untimely payments to small business subcontractors . . . (as applicable[]). 6. Other (as applicable) (e.g., trafficking violations, tax delinquency, failure to report in accordance with contract terms and conditions, defective cost or pricing data, terminations, suspension and debarments). Procuring agencies generally must rate a contractor's performance under each applicable evaluation factor as either exceptional, very good, satisfactory, marginal, or unsatisfactory. These factors are described in Table 2 . The procuring agency also must provide a narrative explaining why it assessed each rating. Procuring agencies generally must submit past performance evaluations electronically to the PPIRS module of CPARS. After the performance evaluation is filed, the contractor has up to two weeks to submit comments, or rebuttals, which are also filed in PPIRS. The contracting agency reviews any comments received from the contractor and then finalizes the evaluation. Past performance evaluations generally are made available only to authorized government personnel and the contractor in question. The FAR also requires procuring agencies to maintain information regarding a contractor's past performance beyond that which is included in past performance evaluations. For example, agencies are required to report information related to contractor performance in the publicly available FAPIIS, such as whether the agency has terminated a contract for default; made a nonresponsibility determination; experienced certain problems associated with payments to small business subcontractors; or made administrative determinations regarding "substantiated allegations" of human trafficking. As the next section explains, the FAR also requires agencies to report information to the electronic SAM Exclusions database about actions they have taken to exclude contractors from being eligible to receive procurement contracts. Finally, the FAR requires agencies to "[e]stablish procedures to ensure that [they] do[] not solicit offers from, award contracts to, or consent to subcontracts with contractors whose names are in the SAM Exclusions, except" under limited circumstances. The FAR also requires agencies to have policies and procedures in place to "suspend" and "debar" contractors—i.e., to exclude, except under limited circumstances —from being eligible to receive new federal contracts for some length of time because of various criminal convictions, civil judgments, serious contract performance failures, or specified grounds. These policies and procedures are designed to ensure that agencies award contracts to responsible contractors that are capable of successful performance. Procuring agencies may utilize suspension proceedings to exclude contractors temporarily during the course of investigations of, or legal proceedings associated with, contractor wrongdoing. A suspension generally must end within 18 months, unless the government initiates civil or criminal proceedings against the contractor. A debarment, in contrast, lasts for a specified period of time "commensurate with the seriousness of the cause(s)," but generally no more than three years. The government can suspend and/or debar a contractor based on, among other grounds, the contractor's: "Commission of fraud or a criminal offense in connection with (i) obtaining, (ii) attempting to obtain, or (iii) performing a public contract or subcontract;" "Commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, violating Federal criminal tax laws, or receiving stolen property;" "Commission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor[];" or "[A]ny other cause of so serious or compelling a nature that it affects the present responsibility of [a Government] contractor or subcontractor." While outside the scope of this report, the government can also exclude contractors from being eligible to receive government contracts pursuant to legal authorities other than the FAR. For example, federal law generally prohibits federal agencies from entering into contracts with entities that have been convicted of certain violations of the Clean Water Act and Clean Air Act. In addition to generally being excluded from acquiring new contracts, contractors that are suspended or debarred also are generally prohibited from being hired as subcontractors under government contracts. The suspension or debarment of a contractor does not immediately result in the termination of existing contracts, however. Instead, a procuring agency may allow the performance of those contracts to continue unless and until it decides terminating the contract for default or convenience is warranted. Procuring agencies generally must provide contractors with notice of a suspension or proposed debarment and the opportunity for a hearing before a suspending or debarring official within the agency. These procedural requirements are designed to satisfy the constitutional due process rights of contractors. The notice must explain the grounds for the suspension and proposed debarment, the contractor's rights to dispute the suspension or proposed debarment, the process by which the agency will make a final decision, and the legal impact of the suspension or debarment. If the contractor requests a hearing, the affected contractor may submit evidence, present witnesses, and examine the agency's witnesses. After reviewing the administrative record, the suspending official must notify the contractor of her decision to amend, terminate, or keep in place the suspension or debarment. Alternatively, the contractor and procuring agency can negotiate an "administrative agreement" that resolves the issues that prompted the initiation of the suspension or debarment proceedings. As previously mentioned, procuring agencies are required to file information about contractors that they suspend, debar, or otherwise determine to be ineligible to be awarded government contracts in SAM Exclusions. The information must include: the contractor's name and address; the agency that initiated the relevant action; and the grounds for ineligibility. To help ensure that excluded contractors are not awarded contracts, a procuring agency must check SAM Exclusions both when it receives proposals or opens bids, as well as just before awarding a contract. Another mechanism by which the federal government can hold contractors accountable is to enforce civil laws that make it unlawful to defraud the government. Three such laws frequently enforced against government contractors are the False Claims Act; the anti-fraud provision of the Contract Dispute Act; and the Program Fraud Civil Remedies Act. While not exclusively applicable to contracting issues, the government can use these laws to hold government contractors accountable for acquiring, or attempting to acquire, government contracts through fraudulent means or submitting a false claim for payment to the government. The remedies available to the government under each statute are not necessarily exclusive; rather, under certain circumstances, contractors can be held liable under multiple laws. These laws are discussed briefly below. The False Claims Act (FCA) prohibits seven types of acts. Of these seven, the violations that are of particular relevance to federal contractors are: "(A) knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly mak[ing], use[ing] or caus[ing] to be made or used, a false record or statement material to a false or fraudulent claim." These fraud provisions govern a wide variety of potential government contractor misconduct, such as submitting a claim for payment while falsely claiming to meet (or failing to disclose a lack of compliance with) a material contract or legal requirement in the submission of a claim for payment; and inducing the government to enter into a contract based on "false statements or fraudulent conduct." Liability under the FCA is limited to " knowing " acts, which is defined to mean having "actual knowledge," being "deliberate[ly] ignorant of the truth" or "act[ing] in reckless disregard for the truth"; however, liability does not require proving actual "intent to defraud." The FCA broadly defines the term ' claim ' "to include 'any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded.'" Additionally, the false or fraudulent claims generally must be " material ," which the act defines as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." Violators of the FCA can be subject to civil penalties of up to $10,000 (adjusted for inflation), treble damages, and reasonable attorney's fees and other legal costs. The Attorney General can bring claims under the FCA. In addition, "relators"—private individuals acting in the government's name and on the government's behalf—can bring claims under the act through so-called qui tam claims. The FCA does not provide for an administrative process; violations of Section 3729 of the FCA are enforced exclusively through the courts. The Contracts Disputes Act (CDA) establishes judicial and administrative processes for the resolution of certain disputes that arise in the course of awarding and administering applicable government contracts. The CDA includes an anti-fraud provision intended to prevent contractors from "submi[tting] baseless claims [that] contribute [] to the so-called horsetrading theory where an amount beyond that which can be legitimately claimed is submitted merely as a negotiating tactic" in the course of attempting to resolve a contract dispute. The CDA provision bars contractors from submitting claims that are unsupportable or that are "attributable to a misrepresentation of fact or fraud" in an attempt to acquire a settlement with the government. A "claim" under the CDA is "(1) a written demand, (2) seeking, as a matter of right, (3) the payment of money in a sum certain." The CDA defines "misrepresentation of fact" as "a false statement of substantive fact, or conduct that leads to a belief of a substantive fact material to proper understanding of the matter in hand, made with intent to deceive or mislead." In order to bring a successful claim under the CDA's anti-fraud provision, the government must show that the contractor's claim was fraudulent and made with "an intent to deceive or mislead the government" based on the "preponderance of the evidence." Contractors that are held liable under the CDA's anti-fraud provision are liable for "an amount equal to the unsupported part of the claim plus all of the Federal Government's costs attributable to reviewing the unsupported part of the claim." The Program Fraud Civil Remedies Act (PFCRA) is another mechanism by which procuring agencies may hold contractors accountable for knowingly submitting "false, fictitious, or fraudulent" contract claims. The fraudulent activities that PFCRA bars are very similar to those barred by the FCA. The PFCRA does not create any new civil fraud violations beyond those established by the FCA except that contractors can be held liable under the PFCRA for making false statements that are not tied to a claim. Instead, the PFCRA provides an additional avenue to hold contractors accountable for fraud. Unlike the FCA, which is exclusively judicially enforced, the PFCRA provides an administrative process for enforcing fraudulent claims in addition to a judicial process. Also in contrast to the FCA, the PFCRA is limited to small claims of not more than $150,000. Contractors that violate the PFCRA can be subject to a civil penalty up to $5,000 (adjusted for inflation), as well as an assessment equal to twice the amount of any fraudulent claim that was paid by the government. Procuring agency personnel may report suspected potential violations of the PFCRA to the relevant agency's inspector general or other "investigating official." The investigating official may investigate allegations and, if warranted, issue a report with conclusions about violations to a separate and independent "reviewing official." The reviewing official, upon reviewing the report, may notify the Attorney General of a potential referral of the matter along with an explanation of, among other things, evidence supporting the allegations and the estimated value of the alleged fraud. Upon the Attorney General's approval, the reviewing official may then file a complaint with the contractor or seek to settle the issue with the procuring agency. The contractor may request an administrative hearing, generally conducted in accordance with the Administrative Procedure Act, before an Administrative Law Judge or other "presiding officer." If, upon finding that the government met its burden of proof that the contractor, based on a preponderance of the evidence, violated the PFCRA, then the presiding officer may issue an initial decision recommending the issuance of civil penalties and assessments against the contractor. The contractor may appeal the presiding officer's initial decision to the head of the procuring agency. If the contractor does not appeal the presiding officer's initial decision, that decision becomes final. If the initial decision is appealed, the agency head may "affirm, reduce, reverse, compromise, remand, or settle any penalty or assessment." If the agency head determines that the contractor is liable, then the contractor may appeal her decision to a federal district court, which shall set aside the agency head's decision only if it is "unsupported by substantial evidence."

Summary: Federal procurement statutes and the Federal Acquisition Regulation (FAR) establish largely uniform policies and procedures applicable to government contracts "to deliver on a timely basis the best value product or service to the [government], while maintaining the public's trust and fulfilling public policy objectives." To meet these ends, federal agencies have a number of legal tools at their disposal to help ensure a contractor adequately performs a contract or, if warranted, to hold a contractor accountable for performance failures or misconduct: Corrective Actions. In many instances, the FAR requires procurement contracts to include "inspection clauses" that explicitly authorize procuring agencies to require contractors to remove, correct, or replace rejected goods, or reperform services (together, to take "corrective actions") for failing to conform to contract specifications and requirements. Relatedly, inspection clauses often authorize agencies to make equitable cost reductions or seek repayment to account for all of the costs associated with deficient services that cannot be reperformed or goods the agency received and accepted despite the deficiencies. Incentive Fees. Under certain circumstances, procuring agencies are permitted to incentivize contractors with performance-based payments. These "incentive fees" can be an effective contractor accountability measure because they can be paid to reward contractors for meeting or exceeding goals or standards contemplated in the contract or withheld or reduced when contractors fail to meet or exceed those goals or standards. Performance and Payment Surety Bonds. Under certain circumstances, government contractors are required to acquire a surety bond, through which a third-party surety promises to assume a contractor's responsibilities in the event that the contractor fails to meet specified contractual obligations. A bond can serve as a contractor accountability measure because it subjects a contractor to potential additional costs, which could include liability expenses under indemnity agreements with the surety and increased costs of acquiring a bond for future contracts. Liquidated Damages. Liquidated damages are predetermined sums a contractor must pay the procuring agency for specified contract breaches or performance failures. By predetermining the costs associated with a breach or failure to perform, liquidated damages clauses hold contractors accountable for noncompliance, while saving time and litigation costs. Contract Termination for Default. Termination of a contract because of a contractor's default is arguably the most consequential and dramatic contract-based contractor accountability tool at the government's disposal. A default termination "discharges government duties under the contract while exposing the contractor to potential liability for the consequences of its breach." In addition to other potential repercussions, the cause of the default could serve as grounds for suspending or debarring a contractor from future contracts. Contractor Performance Evaluations. When selecting contractors, procuring agencies often consider various contractor accountability issues, notably including the contractor's performance under other contracts, through (1) responsibility determinations and (2) source selections under negotiated contracting. To facilitate agency evaluations of a prospective contractor's likelihood of success on future contracts, the FAR generally requires procuring agencies to conduct and document performance evaluations of contractors in federal databases and to review these databases before awarding contracts. Suspension and Debarment. The FAR requires agencies to have policies and procedures in place to "suspend" and "debar" contractors—i.e., to exclude, except under limited circumstances—from being eligible to receive new federal contracts for some length of time due to various criminal convictions, civil judgments, serious contract performance failures, or other specified grounds. These policies and procedures are designed to ensure that agencies award contracts to responsible contractors that are capable of successful performance. Civil Fraud Enforcement. Procuring agencies may hold contractors liable for acquiring contracts by fraud pursuant to the False Claims Act, the anti-fraud provision of the Contracts Dispute Act (CDA), and the Program Fraud Civil Remedies Act.