False Claims Act (“FCA”) enforcement is on the rise with 782 total FCA claims brought in 2019 compared to the 769 in 2018. Of these 782 claims, 633 were qui tam actions filed by whistleblowers. Though the majority of financial recovery for FCA claims in 2019 related to the health care industry, many FCA claims are based on procurement fraud. In 2019, such enforcement actions included procurement fraud allegations against northern Virginia-based firm Northrop Grumman Systems Corporation, and an Oregon aluminum extrusion manufacturer.
The FCA imposes civil liability on those who knowingly present a false or fraudulent claim to the government for payment or approval, or knowingly make or use a false record or statement material to a false or fraudulent claim. Under the FCA, private individuals can act as “enforcers” on behalf of the government by bringing a qui tam action. If these individuals are successful, even in a settlement, they receive between 15% and 30% of the recovery depending on if the government intervenes. With the Department of Justice (“DOJ”) reporting more than $3 billion in settlements and judgements for 2019 FCA actions, whistleblowers have a clear incentive to come forward.
Northrop Grumman allegedly falsified labor hours under its contracts with the U.S. Air Force. The company entered into two contracts with the Air Force for battlefield communication services. Allegations arose that between July 2010 and December 2013, the company billed for hours worked by individuals stationed in the Middle East which such individuals had not actually worked. Northrop Grumman settled these allegations for $27.45 million. The company agreed to pay an additional $4.2 million in a separate agreement with the Southern District of California’s Criminal Division of the U.S. Attorney’s Office. In its press release, the DOJ asserted a firm stance on consequences for contractors who knowingly inflate their bills to the government.
The Oregon based aluminum extrusion manufacturer’s settlement was substantially higher. This manufacturer faced criminal and civil charges relating to a 19-year history of falsifying certifications for aluminum extrusions, including the tensile tests which verify the consistency and reliability of aluminum. The manufacturer’s customers included the government and NASA believes the manufacturer’s subpar aluminum are to blame for two failed rocket launches. The firm is now debarred from government contracting.
Government contractors should be aware of the DOJ’s enforcement of FCA procurement fraud and make sure all of their representations, certifications and invoices are accurate. Any known false statements made under such contracts subject contractors to damages in the amount of three times the damage the government sustained, high monetary penalties for each violation, and the potential for debarment as a government contractor.
For more information, please contact the Hirschler government contracts team. The DOJ’s 2019 report can be found here.
Luis F. Ruiz