Government Contracts Fraud

Why Does the Government Use Contractors?

Using contractors to fulfill certain crucial services allows the government the opportunity to invest taxpayer dollars back into communities through the completion of necessary projects. Ideally, a contractor will already have connections to the community that they serve, and will be the best equipped party to take on maintenance or construction projects in that region. At other times, contractors may represent groups that the government wishes to uplift and support, such as veteran-owned small businesses. Finally, contractors are often a more efficient choice to complete certain projects, as they already have the equipment, employees, and training in place that are necessary to complete the job.

What Are Some Examples of Government Contracts?

Government contracts take a variety of forms across many fields. Most federal contracts are either based on either a fixed-price model or a cost-reimbursement plan. One example of a fixed-price model might be a contractor who sets a certain price in order to repair a stretch of road. A cost-reimbursement plan might be a healthcare facility that bills the government for their expenses seeing patients covered by Medicare funds. Other government contract examples include incentive contracts, time-and-materials, labor-hour contracts, letter-contracts, and indefinite-delivery contracts.

The US Department of Health and Human Services is the fourth largest contracting entity in the federal government. HHS spends almost $5 billion in taxpayer dollars every year on contractual services, reimbursements, and supplies. Other common areas of government contracts are in infrastructure, defense spending, education, and environmental protection.

What is Government Contract Fraud?

Bidding and competition for these lucrative government contracts have led some companies to misrepresent their abilities, apply for set-aside project funds for which they are ineligible, collude on prices, and more. These are just some of the ways that government contractors may violate the False Claims Act and misappropriate government funds. The scope of government contract fraud encompasses only the limits of scam artists’ imaginations. However, any effort to fix prices or recover funds for which a contractor or their services should not be reimbursed is an example of government contract fraud.

What is Government Procurement Fraud?

Procurement fraud in government contracts is any attempt to unlawfully manipulate the procurement process. Procurement fraud may be undertaken in order to try to manipulate the outcome of the bidding process, collude to set prices, or otherwise squeeze out other viable options. Procurement fraud may also take place after the bidding process in order to obtain further contracts, goods, or services unlawfully. Examples of post-award procurement fraud might be false billing or invoicing, accounting or manufacturing fraud, cost mischarging, offering kickbacks, or even outright bribery.

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.

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 their actions.

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. However, that veteran is only a figurehead without any real ownership or control of the company.

Allocated contract fraud deprives genuinely qualifying businesses the opportunity to profit from set-aside taxpayer funds. It prevents the government from being able to help veterans, minority groups or other kinds of small business owners, and cheats voters out of the chance to see real change enacted with their taxpayer funds. If you have information about set-aside fraud, reporting it is the right thing to do.

Common Types of Fraud Committed by Government Contractors

Government contract fraud is reportable by whistleblowers, who may become eligible to receive financial rewards if their case is successful. The following are different kinds of fraud committed by government contractors:

• Bribes or kickbacks
• Obtaining contracts through false statements made in bidding documents
• Misallocating costs
• Misrepresenting the cost of a project, or “underbidding” on contracts
• Misrepresenting cybersecurity safety protocols in place, or concealing data breaches
• Bid rigging
• Cross charging
• Delivering products or services to the government that does not meet the actual contract specifications while certifying that they do
• Misrepresenting compliance with the Davis-Bacon Act or other prevailing wage laws
• Using fraudulent means to avoid small business, service-disabled veteran-owned business, or minority/women-owned business programs

Who Can Be Held Liable for Government Contract Fraud?

Anyone who claims funds from the federal government through a contract may be held liable under the federal False Claims Act if they deliver shoddy work, fail to meet project standards, are discovered to have misrepresented their bid, or any of the above examples of fraud and abuse. State contractors may also be held liable in some instances under state False Claims Acts. The following are examples of common industries that can be held accountable for government contract fraud:

• Defense contractors
• Consulting and services contracts
• Private prisons
• Construction projects related to infrastructure, public works, and transportation
• Multiple Award Schedule contracts with the General Services Administration and other cooperative contracting arrangements
• Hardware manufacturers
• Database companies
• Software developers
• Subcontractors

Government Contract Fraud and 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. As of this writing in March 2024, countries that are not TAA-compliant include, but are not limited to, China, Brazil, India, 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. Likewise, if a contractor falsely certifies that their equipment or goods are in compliance with the TAA, they may be held liable for that false certification, as well as for the sale.

Government Contract Violations of the Truth in Negotiations Act

The Truth in Negotiations Act (TINA) applies to companies that are monopoly providers as well as a business that has been awarded a contract with the government based on price estimates that they provided. One of the most common violations of the Truth in Negotiations Act is concealing costs or pricing data. Companies must accurately report the true cost that they expect in order to bid for a job lawfully. A company that conceals it can expect a discount on supplies, for example, in order to charge the government a higher cost, would be in violation of TINA.

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.

Government Contract 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.

Warning Signs of Government Contract Fraud

Government contract fraud costs taxpayers millions of dollars every year. However, when whistleblowers become aware of fraud, they can report it. The following actions, while not conclusive of illegal action, are common warning signs of fraud committed by government contractors:

• “Preferred supplier agreements” or other longstanding associations
• Suppliers who are not generally known to other employees
• Concealed invoicing or billing processes
• Irregular invoices, such as unopened documents, soiled papers, or invoices missing crucial information
• Invoices that cannot be traced to shipments
• Buyers, inspectors, or contractors who appear to live well beyond their means
• Drastically increased payments made to suppliers
• Payments made solely in cash
• Poor record keeping
• Conflicts of interest, favoritism, or excessive or inappropriate interest in one contractor’s bid
• Sole source contracts repeatedly awarded to the same recipient
• Outdated standard pricing
• Bids that are consistently too close to government estimates, suggesting insider information
• Frequent errors or corrections
• No reconciliation process from accounts receivable subledger to general record-keeping
• Missing items or supplies
• Excessive ordering
• No residual or excess materials reported after completion
• Shifting timelines
• Private opening of bids or acceptance of late bids
• Bid involving specialized information found only in government files
• Inadequate information, such as lack of correct phone number and address. Or vendors, contractors, or suppliers with duplicated information, such as sharing an address or phone number

How to Report Government Contract Fraud

To report government contract fraud, you will need credible information that alleges a false claim has been made to the federal government. Some whistleblowers’ testimony is enough to act as evidence, if you have personally observed and can swear to certain kinds of procurement fraud. In other cases, you will need to provide some kind of documentation that illustrates collusion, bribery, bid rigging, false certification, or other kinds of procurement fraud. A government contract fraud lawyer will be able to advise you on what kinds of proof are necessary to build your case. A government contract whistleblower attorney will then create your disclosure document, and supplement the information that you provide with any additional legal arguments or past contextual examples in favor of pursuing your claim.

You do not need to assemble all of your information ahead of time in order to begin the disclosure process. A government contract fraud attorney can spearhead your claim as soon as you speak to them about what you know, and a federal investigation may uncover the rest of the proof necessary. The first step is to contact a government contracting fraud attorney, so that they can advise you about what you will need in order to create a substantive claim.

Rewards for Government Contract Whistleblowers

Blowing the whistle on fraud under the False Claims Act can result in a whistleblower receiving anywhere from 15 to 30% of a successful settlement. The False Claims Act is a qui tam law, meaning that false submissions to the federal government can be reported by an average person on behalf of the defrauded federal program, which is the real plaintiff in the case. As an inducement for whistleblowers to come forward, they can receive protections against retaliation as well as up to 30% of the total award, if their information helps lead to a recovery of funds.

What is the Federal Contractor Whistleblower Protection Act?

Federal contractors and their employees are invaluable in the fight against fraud because they often have insider information about the bidding and fulfillment process. Federal contractors or their employees who report on bid rigging, offers of bribery or kickbacks, skirting of rules or regulations, or any of the aforementioned methods of procurement fraud are protected against retaliation. It is illegal to harass, discriminate against, take or threaten to take a negative personnel action against a protected whistleblower. Complaints to a supervisor, Office of the Inspector General, member of Congress or law enforcement official are all considered protected disclosures.

How Can a Government Contract Fraud Lawyer Help?

A government contract fraud lawyer can help build your claim and report it to the appropriate government agency. Reporting through a government contracting fraud attorney allows you to make your claim anonymously, and have professional representation on your side should your employer attempt to discriminate against you in any way.

Our team includes not only expert whistleblower lawyers, but also former Department of Justice officials who know what kinds of proof will be most compelling when bringing your claim. We can build your submission, protect your identity and documentation, follow through on your claim, and liaise with federal investigators should your false claim case be accepted. If not, we can represent you in court if you choose to continue with your claim, and fight for you to receive the highest whistleblower award possible.

Notable Government Contract Fraud Cases

The following are some notable government contract fraud cases involving illegal bribes, bid rigging, and more.

• $377 Million Contract Fraud Settlement Against Booz Allen: Tycko & Zavareei LLP successfully represented a whistleblower who claimed a $69,828,832 reward in their case against defense contractor Booz Allen. The claim involved improperly billing costs from the company’s commercial and international clients to federal accounts, causing taxpayers to subsidize Booz Allen’s additional client projects.
• $7.7 Million Settlement in Small Business Administration Contract Fraud Claim: The Small Business Administration’s 8(a) business development program is an example of set aside government funds. The program offers businesses owned by economically and socially disadvantaged individuals the opportunity to bid on government contracts that they might otherwise be squeezed out from accessing by larger corporations. Companies apply for certification, and then receive eligibility for certain set-aside bids as well as mentorship and connections to the government procurement process. Over a period of six years, two related government contractors, dba HX5 LLC and HX5 Sierra LLC, falsely submitted for and maintained membership in the program, allowing them to improperly receive several government contracts. The whistleblower in this case received $1,357,964 for their honesty.
• $4 Million Verizon Cybersecurity Settlement: Under the new Civil Cyber Fraud Initiative, companies may be prosecuted under the False Claims Act if they fail to provide appropriate cyber security controls on government contracts, or fail to report data breaches and hacks that affect sensitive material. In this case, Verizon self-reported that from a period of 2017 to 2021 their Managed Trusted Internet Protocol Service (MTIPS) did not fully satisfy GSA protocols, leaving the agency open to hacks and breaches of information. The claim resulted in a $4 million settlement.

Government Contract Fraud: FAQs

The following are some frequently asked questions about government contract fraud, how it occurs, and how to report it.

What is an example of government contract fraud?

An example of government contract fraud might be a contractor who conceals a discount that they can get from their supplier, and bids an artificially high price to complete the job. This would be in violation of the Truth in Negotiations Act. Government contract fraud can also take place once a bid has been awarded. Another example might be a contractor who performs subpar work, or who hires unqualified employees to complete their bid. Any unlawful manipulation in order to secure a contract, or violation of project terms once awarded, is an example of government contract fraud.

What is bid rigging?

Bid rigging is an example of collusion, and it reduces competition in the market. In bid rigging, two or more contractors may agree to set prices in advance, and offer only estimates that do not fall below a certain number. In this way, contractors seek to control the amount that the government can expect to pay for vital services. Usually the set prices are much higher than the job would be expected to cost. In other instances, contractors agree ahead of time which bid will win by submitting artificially high bids with only one lower offer, thus virtually guaranteeing that their choice will be selected.

What is a red flag of procurement fraud?

Procurement fraud has many red flags, but one common one is missing information. Something as simple as invoices submitted without addresses or phone numbers that lead to inactive voicemail boxes can be a warning sign of a non-existent company. Likewise, contractors without appropriate checks or protocols on how they fulfill orders, submit for reimbursement, file invoices and more may be committing fraud and hiding behind shoddy record-keeping.

How did some large companies illegally get government contracts?

Fraudulent government contracts are awarded more frequently than anyone would like to think. Corrupt procurement practices, offering bribes and kickbacks, the influence of special interests or cronyism, and bid rigging are all examples of how companies can be awarded a contract illegally.

Are federal contractors covered by the whistleblower protection act?

The Whistleblower Protection Act covers employees of a federal contractor, subcontractor, grantee or subgrantee, as well as those who hold a personal services contract with the federal government. Disclosures made in good faith in order to report fraud, gross mismanagement, gross waste, abuse of authority, violation of rules or regulations or clear and present danger to the public are protected by federal law. If you report on any of the previous, it is illegal for your employer to discriminate or otherwise retaliate against you.

How much does a federal whistleblower get?

A federal whistleblower can receive up to 30% of a successful settlement. When contracts are fraudulently obtained, the False Claims Act imposes treble liability per false submission, certification, or instance of fraud. Because of this, federal whistleblowers regularly receive large settlements in exchange for their information and honesty.

Call a Government Contract Fraud Lawyer Today

Employees of federal government contractors are often the best defense against bribery, bid rigging schemes, and all kinds of fraud in government contracting. Those with insider information are encouraged to speak to our team of experienced government contracting fraud attorneys, in order to catch and report fraud with taxpayer funds.

Speaking up is the right thing to do. Becoming a government contract whistleblower can net you a significant financial reward, anonymity, and protections against retaliation while preventing taxpayers from being charged for corrupt practices and poor work in federal projects. A legal consultation about the initial facts of your case is both complimentary and confidential.