The government continues to prioritize fraud involving government contractors, as the Department of Justice’s (DOJ) most recent annual report on civil fraud recovery shows.
Although the majority of government recoveries are related to the healthcare industry, the government still recovered hundreds of millions of dollars in 2022 alone not related to the healthcare industry. Government contractors have faced a broad array of allegations in False Claims Act (FCA) cases, including those related to eligibility for government programs, false certifications, provision of defective products, and the receipt of kickbacks. To illustrate these areas of enforcement risk, this post summarizes recent key settlements involving government contractors.
- On March 23, 2023, the government announced a settlement with a contractor focused on science and technology-based engineering and consulting and its former CEO, in which the defendants agreed to pay $742,500 to resolve FCA allegations that they used alter ego companies to allow the contractor to obtain contracts “set aside” for contractors participating in the Small Business Administration’s (SBA’s) 8(a) Program when the contractor was no longer eligible for the 8(a) Program. The 8(a) Program is open to small businesses that are at least 51% owned by socially and economically disadvantaged U.S. citizens for which management and daily operations are controlled by one or more individuals who are both socially and economically disadvantaged. The defendants were alleged to have falsified their eligibility for 8(a) funds.
- On August 15, 2022, a defense contractor agreed to pay $3.35 million to resolve FCA allegations that it sold defective material for bulletproof vests worn by law enforcement officers. The material allegedly degraded quickly in heat and humidity. The settlement marks the end of over a decade of litigation and exemplifies DOJ’s recent public remarks that “[t]he government [has] continued its pursuit of fraud matters involving the purchase of goods and services in connection with military and similar programs. Fraud in these programs not only squanders government funds, but also potentially puts servicemembers and first responders at risk.”
- On June 13, 2022, four companies agreed to pay $13.67 million to resolve FCA, Anti-Kickback Act and breach-of-contract allegations regarding the companies’ agreement to provide logistics support to the U.S. Army in Iraq. Certain employees of the companies allegedly accepted kickbacks from foreign subcontractors in connection with the award of their subcontracts. The government also alleged that the companies sought reimbursement for inflated subcontract prices and unnecessarily extended subcontracts through vouchers submitted to the Army.
- On January 12, 2023, the U.S. Court of Appeals for the Ninth Circuit affirmed an attorneys’ fee award of $500,000 for whistleblowers stemming from an April 2021 settlement with a defense contractor for $5.6 million. That settlement resolved FCA allegations related to allegedly false certifications regarding the origin and manufacture of tungsten products.
Given the government’s focus on fraud involving government contractors, enforcement actions like these are certain to continue.
If you have questions about how the False Claims Act has been applied to government contractors, please contact a member of the Bass, Berry & Sims Government Contracts or False Claims Act teams. For more information about topics like this, subscribe to this blog.