Subcontractor Fraud and the False Claims Act

Posted by Administrator on June 27th, 2008

On June 9th, 2008 the Supreme Court unanimously ruled to increase the burden of proof on the government’s side when prosecuting subcontractor fraud under the False Claims Act.

The False Claims Act is known as a “whistleblower” act; it allows people not affiliated with the government to make a claim of fraud against a federal contractor, on behalf of the government. This gives people with inside information a chance to expose federal contract fraud from within – and often receive a portion of the damages for doing so.

Before the June 9th ruling, it was only necessary for the government to show that a subcontractor had made false statements and been paid with federal monies. The Supreme Court ruling, however, increases the burden of proof so that now, the government must show that the fraudulent behavior directly triggered payment of federal funds. This interpretation of the Act has been used before in lower courts, but the Supreme Court ruling extends it to all subcontractor fraud.

What Constitutes Subcontractor Fraud?

While this ruling may mean more work for prosecuting attorneys and government agencies involved in False Claims Act cases, in the long run it will help define subcontractor fraud. Now that the Supreme Court has upheld the idea that subcontractor fraud must be “material” – i.e., cause federal funds to be paid – attorneys for whistleblowers and agencies alike have more direction when building their cases.

This ruling is yet another example of why it’s so important to pay extreme attention to detail when submitting documents to a prime contractor or government agency during a government subcontracting project. False statements are not only unethical, they’re also illegal. Making false statements to the government, whether about billing, certifications or anything else, is a serious offense. A lengthy trial for subcontractor fraud will not only be costly, but could also permanently damage your company’s reputation in the field and make it very difficult to win another government subcontract.

More information on the False Claims Act can be found here.