Bidding and competition for these lucrative government contracts have led some companies to commit fraud to win business. Listed below are just some of the ways that government contractors may violate the False Claims Act and misappropriate government funds.
Common Types Of Fraud Committed By Government Contractors
Defense contractors, and other government contractors, may commit fraud in multiple different ways. Some of the more common violations of the False Claims Act by defense contractors involve:
- Obtaining contracts through false statements made in bidding documents.
- Misrepresenting the cost of a project, or “underbidding” on contracts.
- Bid-rigging or kickbacks in connection with bids on government contracts.
- Engaging in practices such as “cross-charging” or improper cost allocation, in which costs incurred by the contractor in connection with one contract (for example, a fixed price contract or a commercial contract) are improperly charged to a “cost-plus” government contract.
- Delivering products or services to the government that does not meet the actual contract specifications while certifying that they do.
If you have information that a government contractor is engaged in any of the above types of activity or is otherwise engaging in unlawful conduct connected with government contracts, you may be eligible to bring a qui tam lawsuit and collect substantial rewards.
Fraud In Connection With GSA Contracts
The General Services Administration (GSA) is an independent agency of the United States government tasked with managing and supporting federal agencies’ basic functioning. The GSA supplies products for federal government offices, provides transportation and office space to federal employees, and creates government policies regarding cost reduction.
The GSA maintains a computerized system used by other federal agencies to buy goods and services from pre-approved government contractors. This system is called the GSA Schedule, and vendors and contractors must meet all of the required legal obligations for a listing. Entities failing to comply with GSA Schedule requirements may be liable for fraud under the False Claims Act. The most common GSA fraud activity includes:
Failure to Comply with the Trade Agreements Act
The Trade Agreements Act (TAA) requires that the U.S. government only purchase items made in countries where the United States has trade agreements in place. To be included on the GSA Schedule, suppliers must certify that they are compliant with the TAA requirements. Countries currently not TAA-compliant include China, Taiwan, Malaysia, and Thailand. If a GSA Schedule contractor sells goods made in non-compliant countries to the U.S. government, the TAA is violated, thus violating the False Claims Act.
Failure to Comply with “Best Pricing” Requirements for Government Contracts
Generally, contractors must give the U.S. government the “best price” that the contractor would give to any one of its other customers. A contractor must certify that it has offered a price to the government equivalent to, or less than, the price given to other customers. A company’s failure to do so can constitute fraud under the False Claims Act.
Failure to Comply with Price Reduction Requirements
GSA contractors must also notify the government if the price used as a basis for GSA contract negotiations is reduced for commercial customers. In that instance, the GSA contractor must give the federal government the same discount as the commercial customer. Failure to do so may result in False Claims Act liability.
Fraud In Obtaining Set-Aside Contracts
The government has many programs designed to allocate, or “set aside,” specific government contracts for certain specified types of contractors. Standard set-aside programs include small business set-asides, service-disabled, veteran-owned small business (SDVOSB) set-asides, women-owned small business (WOSB) set-asides, 8(a) Business Development program set-asides, and HUBZone set-asides. These set-aside programs require that contractors first “certify” eligibility to bid on the set-aside contracts. When an ineligible contractor bids on and is awarded a set-aside contract, that contractor may have violated the False Claims Act, and a whistleblower with information about such set-aside fraud could bring a qui tam lawsuit to expose that fraud.
Many set-aside fraud cases involve the use of “fronts.” For example, a large company ineligible to bid on a small business set-aside contract may form or collude with an eligible small company agreeing that the large company will do most of the work and keep most of the revenue generated by the contract. Another type of fraud is when a company owned and controlled by an individual who is not a veteran appoints a service-disabled veteran as the company’s president or CEO. But that veteran is only a figurehead without any real ownership or control of the company.
Have more questions? See our frequently asked questions.