Government Contractor Fraud
Fraud conducted on a Federal level can range from large corporations to small business contractors whom provide services to the U.S. Government. Those services vary from military weapons to food used to prepare meals for the U.S. military. Unfortunately, some contractors attempt to get by with cutting corners in an attempt to defraud the Federal Government; however, this is a serious White Collar crime with substantial penalties if found guilty.
The U.S. Government spends trillions of dollars annually on contracts from profit and non-profit organizations to supply the military with supplies such as ammunition, B-1 bombers, clothing, computers, food, medical equipment, medicine, tanks, and other traditional military needs; also known as ‘Procurement’ Procurement is one of the highest acknowledged Federal violations involving military defense contracts.
Contractor fraud is an extremely broad legal topic. Contractors are required to fulfill all the terms within their specific Federal contractor contract, and any additional requirements within Federal law. Specific ways to defraud the U.S. Government are vast and may range from intentional, excessive billing for products not received, to violations during the contract bidding process.
Contractor Fraud Examples
- Providing substandard quality equipment, food, supplies, or products;
- Failing to comply with mandatory inspections;
- ‘Bill Padding’ or Overbilling practices;
- Distributing defective products;
- False or forged certifications;
- Undisclosed product defects;
- Neglectful in fulfilling technical requirements;
- Dishonest labor services;
- ‘Truth-In-Negotiations Act’ bidding violations;
- Subcontractor lack of services; and
- Any intentional, willful misconduct in an attempt to defraud the U.S. Government.
In order to anticipate a favorable outcome of a Federal contractor fraud case it must consist of the following elements:
- “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval”;
- “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim”;
- have “possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property”;
- “authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true”;
- “knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property”;
- “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government”;
- “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government”; or
- Conspires to do any of the above.
When a contractor commits an illegal act against the Government, and an individual or company has knowledge of such fraud, they may become what is called a Whistleblower. A Whistleblower may be entitled to bring suit (qui tam action) under the Federal False Claims Act (FCA) or Lincoln’s Law. The Federal False Claims Act is a statute allowing a Whistleblower, known as a relator, to bring a civil action against the contractor in the name of the Government. The identity of the Whistleblower is withheld and not known to the company being investigated. Unlike Federal civil cases in the U.S. a Whistleblower does not have to be specifically harmed in any way to bring such civil litigation against the corrupt contractor.
One of the largest Whistleblower cases was back in 2009 against Pfizer who was found to have scammed the U.S. Government and was fined $2.3 billion in dishonest drug promotions. This was a huge case and a notice to all drug manufacturers from the Justice Department. Of the $2.3 billion, $1 billion was a criminal fine and the largest fine imposed in U.S. criminal law history.
Each year the Department of Justice receives billions of dollars in owed monies lost through fraudulent means, and fines imposed either civilly or criminally in contractor fraud cases. In exchange for the Whistleblower cooperating with the Government and reporting such contractor fraud to the U.S. Government, the Whistleblower is entitled to 15-30% of the amount collected. Annually millions of dollars is paid directly to the Whistleblowers by the Government.
Compensation consists of the following:
- Reinstatement with seniority;
- Double back pay;
- Special damages; and
- Attorney fees and costs
A Whistleblower may be an association, employee, family member, old friend, neighbor, or anyone with the right information and some initial evidence to show possible Federal contractor fraud. For obvious reasons employees may be fearful and not initially feel comfortable with reporting their employer whether a large or small corporation. That is why Congress added the anti-retaliation protections to the False Claims Act to protect employees from losing their jobs, receiving a demotion, or being harassed while at work. In the event the Whistleblowers identity is disclosed, and the employee is fired or harassed by their employer, this protection allows them to receive compensation making them ‘whole’ again.Show Sources
- 31 USC § 3729 - False Claims
- 31 U.S.C. § 3730 - False Claim Act
- 5 USC § 1213; Provisions relating to disclosures of violations of law, gross mismanagement, and certain other matters
- 5 USC § 1219; Public Information
- New York Times Website; “Pfizer pays $2.3 billion to settle marketing case”, 2009; web, http://www.nytimes.com/2009/09/03/business/03health.html?_r=0
- New York Times Website; “Court says Pfizer can be sued by man who took generic”, 2012; web, http://www.nytimes.com/2013/01/12/business/court-says-pfizer-can-be-sued-by-man-who-took-generic.html