False Claims Act in Government Contracting

The False Claims Act (FCA), 31 U.S.C. §§ 3729-3733, is the federal government's primary civil enforcement tool against contractor fraud. Originally enacted during the Civil War to combat fraud by Union Army suppliers, the modern FCA (significantly strengthened in 1986 and 2009) generates billions of dollars in annual recoveries and is a major risk factor for government contractors.

What is the False Claims Act in Government Contracting?

The FCA imposes liability on any person who:

• Knowingly presents a false or fraudulent claim for payment to the government.
• Knowingly makes or uses a false record or statement material to a false claim.
• Knowingly makes or uses a false record material to an obligation to pay money to the government.
• Conspires with others to submit a false claim.

The word "knowingly" is broadly defined to include not just actual knowledge of falsity but also deliberate ignorance and reckless disregard for the truth. This means a contractor cannot avoid FCA liability simply by claiming it did not know a claim was false if it took no steps to verify accuracy when verification was clearly warranted.

FCA violations carry penalties of:

• Civil penalties: Between $13,946 and $27,894 per false claim (adjusted annually for inflation).
• Treble damages: Three times the amount the government actually paid on the false claim.

The FCA's qui tam provisions allow private individuals (called "relators") who have evidence of fraud to file a lawsuit on the government's behalf. If the government joins the lawsuit, the relator receives 15% to 25% of the recovery. If the government declines and the relator pursues the case alone, the relator can receive 25% to 30%.

Why the False Claims Act matters for government contractors

FCA exposure is one of the most severe legal risks in government contracting. Common FCA triggers include: billing for work not performed, submitting invoices with false labor hour counts, misrepresenting the cost or pricing data used in negotiations, delivering nonconforming products while certifying compliance, and falsely certifying small business status. Contractors should maintain robust internal controls, conduct regular audits, and establish ethics programs that encourage employees to raise concerns internally before they become FCA whistleblower cases.

Example

A defense contractor bills the Army for 10,000 hours of senior engineer labor over 18 months. An internal audit reveals that 1,800 of those hours were actually worked by junior technicians billing at the senior rate. The company self-reports the overbilling to the contracting officer, cooperates with the investigation, and repays the $540,000 overcharge. Because the company self-reported and cooperated, the government negotiates a settlement for 1.5 times actual damages rather than treble damages. If an employee had filed a qui tam suit instead, the company would have faced treble damages plus per-claim penalties on each false invoice.

Frequently Asked Questions

Can a contractor be excluded from future contracts after an FCA settlement?

Yes. FCA settlements often include debarment or suspension provisions, or may trigger separate debarment proceedings. However, many FCA settlements do not include debarment, particularly when the contractor self-reported, cooperated fully, and implemented effective remediation measures.

Does the FCA apply to subcontractors?

Yes. Subcontractors who submit false claims through the prime contractor are subject to FCA liability. The FCA's "reverse false claims" provision also covers subcontractors who make false statements to avoid paying money owed to the government.

What is the statute of limitations for FCA claims?

The FCA has a six-year limitations period from the date of the violation, or three years after the government knew or should have known of the fraud, with a maximum of 10 years. Qui tam cases have a slightly different framework.

How does the FCA interact with criminal fraud statutes?

The FCA is a civil statute, but the same conduct that gives rise to FCA liability often also violates criminal fraud statutes (18 U.S.C. § 287). The government may pursue both civil FCA and criminal charges simultaneously. Criminal conviction can result in imprisonment, whereas the FCA only imposes civil monetary penalties.