The Expanding
Procurement Fraud
Landscape:
A Look at the Trends,
Cases & Developments
in FCA Enforcement
Over the Past Year
Andy Liu
Jonathan Cone
Presentation Preview
» Government Enforcement Tools
» Procurement Fraud Statistics
» False Claims Act Primer
» 10 Enforcement Trends For 2013
» Conclusion / Questions
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Government Enforcement Tools
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Government Enforcement Tools
» Inspections, Audits and Investigations
– DCMA, DCAA, GAO, IG, DCIS and DOJ
» False Claims Act
– Including qui tam whistleblower suits
» False Statements / Certifications
» Suspension and Debarment
» Criminal Fines, Penalties, and Imprisonment
» Congressional Investigations
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Government Enforcement Tools
» Inevitable: Audits and Investigations
– Congress may be the new sheriff in town
– Whistleblowers and their attorneys follow the
money
– Multi-agency “task forces”
» Many Shapes & Sizes
–
–
–
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Contract clauses
Agency and grand jury subpoenas
Contract price reductions
Civil investigative demands
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Procurement Fraud Statistics
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Total New FCA Cases (2000-2012)
850
800
750
Total New Cases
700
650
600
550
500
450
400
350
Tota l
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
458
396
379
426
537
511
456
495
541
565
715
762
782
Fiscal Year
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Crowell & Morring LLP
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Total FCA Recoveries 2012
Healthcare
Defense
Other
35%
62%
3%
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Total FCA Recoveries (2010)
8%
8%
84%
Healthcare
Defense
Other
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False Claims Act Primer
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False Claims Act Primer
FCA is “Lincoln’s Law”
» Enacted in 1800’s during the Civil War
– Targeted war profiteers bilking Union Army
– Contained a “qui tam” provision that, while not
unusual at the time, is rare now
» Statute was quiet for first 120 years
– After 1986 amendments, however, it has grown
significantly as a tool for the government to fight
fraud
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False Claims Act Primer
» Government’s Principal Anti-Fraud Weapon
– $35 billion recovered since the 1986 Amendments
– $24 billion from qui tam suits
» Qui Tam Provisions
– 15-30% bounties for whistleblowers
– Government required to investigate and make an
intervention decision
– Where government intervenes, relator entitled to 15 to
25%
– Relator entitled to attorneys fees, even where settled
without admission of liability
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False Claims Act Primer
» False Claims.
“Any person who . . . knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or
approval.” 31 U.S.C. § 3729(a)(1)(A)
» False Statements.
“Any person who . . . knowingly makes, uses, or causes to be
made or used, a false record or statement material to a false
or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(B)
» Other Commonly-used Causes of Action
– Conspiracy to defraud by getting a false claim paid, 31
U.S.C. § 3729(a)(1)(C)
– “Reverse” false claims, 31 U.S.C. § 3729(a)(1)(G)
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False Claims Act Primer
What do the government and whistleblowers need to
prove under a false-claims theory?
1. A contractor submitted a “claim” for payment.
2. The contractor’s claim was false or fraudulent.
3. The contractor knew that the claim was false or fraudulent.
4. The falsehood was material to the government’s decision to
pay the claim.
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False Claims Act Primer
The meaning of the term “claim”
» The FCA defines a “claim” as any request or demand for
money or property that is:
 Presented to an officer or employee of the United States.

Made to a contractor, grantee or other recipient of government
funding, as long as the government provides or has provided
any portion of the money or will reimburse any portion of the
money requested
• Example: Subcontractor submits invoice to a prime contractor
working on a USAID contract.
• Example: Construction company working on a state contract that is
partially funded using federal highway funds.
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False Claims Act Primer
» Claim: Encompasses virtually all demands or requests for
money that are made to a Government agent, a contractor or a
grantee, provided that the Government has provided some
portion of the money sought.
– Any action by the Contractor that has the purpose and effect of
causing the Government or a recipient of Government funds to
pay out money it is not obligated to pay, or any action that
knowingly deprives the Government of money it is due.
– Each separate submission that seeks payment from the
Government or a recipient of Government funds is a claim for
purposes of the FCA, even if each submission is under the same
contract.
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False Claims Act Primer
The meaning of the term “knowingly”
» Although the FCA is thought of as a “fraud” statute,
it is different than most fraud actions.
» FCA definition of “knowingly”
– Actual knowledge (of false information)
– Deliberate ignorance of the truth or falsity
– Reckless disregard of the truth or falsity
» “No proof of specific intent to defraud is required”
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False Claims Act Primer
The meaning of the term “material”
» To be material, a falsity must either:

have a “natural tendency to influence,” OR

be “capable of influencing,” the payment or receipt of
money or property.
» Common examples:
– The Government relied upon the false information in
deciding to pay the claim; or
– The falsity had the potential to influence the
Government’s payment decision.
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False Claims Act Primer
Examples of Common FCA Cases
» Government Accounting Rules (e.g., unallowable
costs)
» Labor and Material Overcharging
» Truth in Negotiations Act
» False Certifications of Compliance
» Implied Certifications
» Kickbacks
» Fraudulent Inducement (e.g., grant applications)
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False Claims Act Primer
What is the potential liability for my organization?
» Treble damages are 3x the actual damages the
Government sustained because of the prohibited act.
– Traditional measure is the difference between the value the
government received versus what it paid.
– Full contract/grant value in some situations.
» Civil penalties for each false invoice/claim.
– Up to $11,000 per claim is the maximum penalty
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The 10 Enforcement Trends of 2013
Trend # 1: Rise of the Relator
» Increase in whistleblower lawsuits filed by current or
former employees.
» These cases are often triggered by an employee’s
retaliation (real or perceived) concerns.
» Investigation and litigation costs are substantial, even
if contractor is innocent.
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The 10 Enforcement Trends of 2013
Trend # 2: Anyone, Even Competitors, Can Be Whistleblowers
» Toyo Ink paid $45 million to settle allegations that it failed to
pay antidumping and countervailing duties.
– Case was brought by a qui tam whistleblower who was
Toyo’s competitor.
» The DOJ is willing to investigate and litigate cases, even when
the whistleblower has a motive of harm.
» Government is focusing on non-traditional government
contractors
» Companies should be careful to monitor the pricing and other
data that is made available to competitors.
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The 10 Enforcement Trends of 2013
Trend # 3: Damages Equal Full Grant or Contract Value
»
Court finds that Cornell University Medical College misused federal grant
funds and that the government’s damages were the full amount of the
grant for entire funding years.
»
Educational institutions and companies that prepare grant applications
may be liable under the FCA for material misstatements about their
curriculum and key personnel under a theory of fraud-in-the-inducement.
»
Contractors not eligible for certain contracts, e.g., under a small or
disadvantaged business program, may be liable for 3x the entire contract.
»
The determining factor is whether the government receives only an
intangible benefit from the grant or award—like many research grants.
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The 10 Enforcement Trends of 2013
Trend # 4: Focus On Statutory & Regulatory Compliance
» Failing to comply with certain statutory or regulatory requirements may
render claims “false.”
– Important to understand statutory requirements to which your company
may certify compliance.
» Certifying compliance with a statute or regulation should be a “red flag.”
» Court finds that a company’s failure to pay prevailing wages to its
employees as required by the Davis-Bacon Act is actionable under FCA.
» Government is focusing on origin requirements of products sold to the
government under the Trade Agreements Act.
– ADC Telecommunications settlement for $ 1 million.
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The 10 Enforcement Trends of 2013
Trend # 5: Focus on Implied Certifications
» Even if there is not an express certification, courts may find an
implied certification with contractual provisions.
– Government will challenge a contractor’s compliance with
even ambiguous provisions.
» Government may intervene in a case against Lance Armstrong
– Postal Service contract said “negative publicity” due to “alleged
possession, use or sale of banned substances” by riders would
constitute an event of default,” as would a failure to take “action” if a
rider violates a morals or drug clause.
» An implied-certification case is a risk for anyone doing
business with the government.
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The 10 Enforcement Trends of 2013
Trend # 6: Focus on Defective Parts & Products
» ATK Launch Systems settles allegations that it sold defective
flares to the U.S. Army and Air Force.
» Products that do not meet performance specifications may be
actionable under the FCA.
» The key issue for the Government will often be knowledge—
did the company know about the problem?
– Was the company reckless in not knowing?
» Important to have systems in place to detect defects and to
inform government customers.
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The 10 Enforcement Trends of 2013
Trend # 7: Cost Estimates Can Be False
» Court finds that a defense contractor’s estimates can be false
and actionable under the FCA.
» A cost estimate may be false if :
 A bid is not what the contractor intends to charge the
government (under-bidding).
 When the contractor knows facts that would preclude its
estimate (over-bidding).
» Government is willing to challenge estimates for both T&M
and fixed-price contracts.
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The 10 Enforcement Trends of 2013
Trend # 8: Subcontractor Conduct Leads To Liability
» Lockheed agreed to pay $15 million to settle allegations that
the government was overcharged on perishable tools.
» Subcontractor misconduct may lead to liability for the prime
contractor where it acts “recklessly” in overseeing the
subcontractor.
» Prime contractors need adequate controls to ensure that they
do not pass inflated costs on to the government.
» Merely having a subcontract, when you’re not supposed to,
may lead to allegations of FCA liability in some situations.
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The 10 Enforcement Trends of 2013
Trend # 9: Regulations are a Trap for the Unwary
» Government sues healthcare provider for interpreting federal
regulation in a way that maximizes its own profit.
» It may not always be enough to simply take a reasonable
interpretation of a federal regulation.
» Contractors can protect themselves by:
1. Following industry standards and best practices.
2. Being transparent and forthright with the government.
3. Seeking the advice of in-house and outside counsel.
4. Requesting guidance from the responsible agency.
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The 10 Enforcement Trends of 2013
Trend # 10: Government Targeting New Industries
» The country’s five largest mortgage servicers agreed
to pay $25 billion for loan-servicing and foreclosure
violations.
» Educational company paid $10 million to resolve
allegations that it fabricated attendance records to
seek federal reimbursements.
» FCA covers any request for payment when any
portion of the money has been provided (or will be
reimbursed) by the federal government.
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Conclusion / Questions
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