THE FALSE CLAIMS ACT: DANGERS LURK FOR FEDERAL GOVERNMENT CONTRACTORS WHO FAIL TO COMPLY WITH GOVERNMENT REGULATIONS – BE PREPARED FOR GOVERNMENT AUDITS
The False Claims Act (FCA) is a federal law that is frequently used to pursue federal government contractors (or their subcontractors)who are alleged to have knowingly or recklessly failed to comply with government laws and regulations related to their contract performance. The FCA may be enforced directly by government investigation and legal action or by relators which are third parties (for example, aggrieved employees, competitors or, as noted below, government auditors) who bring the allegedly fraudulent conduct to the government’s attention and can share in any recovery and penalties. Damages and penalties under the FCA include recovery of any government over payments and severe multiple times penalties applicable to each false claim
While deliberately fraudulent conduct will always get you into trouble, note that a false claim may be based on an “implied certification” theory that a condition or perquisite to being paid was not fulfilled. For example, the failure to comply with the following, at either the prime or subcontractor level, could form the basis for an FCA claim:
Providing labor that does not have the requisite or promised qualifications or clearances
Providing products or systems that have not met required testing or inspection criteria
Failure to comply with price disclosure requirements and the price reduction clauses in a GSA or VA Schedule contract
Inaccurate Trade Agreement Act or Buy American Act representations on the origin of products
Note that government auditors, including the DCAA personnel, are charged to look for “fraud indicators” and refer such findings to the Department of Justice. These indicators can be uncovered as the result of information the auditors see during their audit or through interviews with contractor personnel and need not be the focus area of their audit. In fact, government auditors may in certain cases be relators who can share in the recovery and penalties imposed against the contractor.
Bottom line, compliance with the Federal Government laws and regulations by contractors (and subcontractors) is mandatory. An FCA claim and its costs to defend (even if you are ultimately successful) can be damaging and costly. As noted, penalties can be enormous. A government audit can be an especially dangerous juncture.
Point Compliance can help you at the front end by ensuring you have compliance policies, procedures and training in place to avoid FCA exposure and to help you prepare for that government audit.