Mid-year is a natural time for compliance housekeeping, and few laws deserve more attention from federal contractors than the False Claims Act. It is the government’s primary civil tool for recovering money lost to false or fraudulent claims, and it reaches well beyond obvious fraud. Invoices, certifications and representations can all become issues under it. This overview is general information, not legal advice; a firm with a specific concern should talk with a lawyer.
A law with Civil War roots
Congress passed the False Claims Act in 1863, during the Civil War, in response to widespread fraud by suppliers who sold the Union Army defective goods and inflated their bills. It is sometimes called the Lincoln Law. From the start, it allowed private citizens to bring suits on the government’s behalf and share in any recovery, an arrangement known as qui tam. Congress substantially strengthened the law in 1986, increasing damages and encouraging whistleblower suits, and it has been amended several times since.
How the law works in general terms
The Act imposes liability on anyone who knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the government, or who knowingly makes a false record or statement material to such a claim, along with several related forms of conduct. A few features make it powerful:
- Knowledge includes recklessness. Liability does not require a specific intent to defraud. Acting in deliberate ignorance or reckless disregard of the truth can be enough.
- Damages are multiplied. Liability generally includes three times the government’s damages, plus civil penalties for each false claim that are adjusted for inflation.
- Whistleblowers can sue. Employees, competitors and others may file suits under seal, which the government reviews and may join. Successful relators can receive a share of the recovery, and the law protects employees against retaliation.
- Certifications matter. A claim can be false not only because of a wrong number but because it rests on a false certification of compliance. In its 2016 decision in Universal Health Services v. United States ex rel. Escobar, the Supreme Court addressed when implied false certification can create liability and emphasized that the misrepresentation must be material to the government’s payment decision.
Where contractors get into trouble
Common areas of risk include billing hours for people who do not meet labor category qualifications, charging time to the wrong contract, misrepresenting size or socioeconomic status to win set-aside work, supplying products that do not meet country-of-origin requirements, certifying cybersecurity or other compliance that has not been achieved, and keeping known overpayments. Many of these begin as carelessness or optimism rather than a plan to defraud, which is exactly why process matters.
A mid-year compliance check
- Test a sample of recent invoices against timesheets, labor category qualifications and contract terms.
- Review the representations in your SAM.gov registration and the certifications you made in recent proposals.
- Confirm that compliance claims, such as cybersecurity requirements, match what is actually in place.
- Check how employees can raise concerns internally and whether those concerns are followed up and documented.
- Look for overpayments or billing errors and correct them promptly with the contracting officer.
The FAR’s mandatory disclosure rules can also require contractors to disclose credible evidence of certain violations, including violations of the civil False Claims Act. A culture in which employees feel safe raising problems early, and errors are fixed openly, is the best protection a contractor can have. The FAR’s ethics and disclosure requirements are available at acquisition.gov; for any specific situation, talk to a lawyer.