Over the years, government compliance requirements have grown and grown. They've become more intricate, too – as have the tools needed to enforce them. Using a wide array of enforcement methods, the federal agencies work to control and enforce compliance.

There is one tool the government uses that affect contractors more than others – the False Claims Act. While understanding the False Claims Act can be difficult, it's imperative for contractors and surety professionals. The risks associated with violating the Act are significant.


What is the False Claims Act?

Before we get too far in, let's break down the False Claims Act. While complicated, the Act boils down to this: the law imposes liability on companies and individuals who defraud any government program. The federal government uses the act as the primary litigation device in fighting fraud against the government.

Not Too Difficult?

Contractors are typically aware that defrauding a customer, company, or government is completely prohibited and illegal. The False Claims Act extends beyond full-on fraud. A doctrine known as the "false certification doctrine" states that a contractor who falsely states they have complied with a variety of compliance policies imposed by the government can be held liable under the False Claims Act.

Violating the False Claims Act is far easier than committing traditional fraud. The government doesn't have to prove any damages suffered. They simply have to find a contractor who has submitted a claim that was "known" to be false.

Due to how the Act is enforced and the "false certification doctrine" – it is incredibly simply to violate the False Claims Act. Once you do, the violations can add up. Most contractors find a violation can be exceptionally costly.


Volatile and Expensive

There are two different types of liabilities the government can dish out to violators of the False Claims Act. Both actual damages and statutory penalties can be lobbied against violators.

The penalties can be between $10,781 and $21,563 for each claim submitted by the government. As individual invoices are treated as separate claims, a large penalty can be enforced – even when the government hasn't suffered any actual harm.

Not only are the fines costly, but they can be unpredictable, too. Even subcontractors without a direct relationship to the government can be subjected to liability – just like federal prime contractors.

Due to the whistleblower provisions in the False Claims Act, individuals with knowledge of a company's operations can bring suit on the government's behalf. This clause often catches contractors flat-footed and unaware of the consequences that may be coming.


What Sureties & Their Contractors Should Know

Paying attention to the False Claims Act is mandatory these days. While it seems to be tougher and tougher to stay in compliance with the Act than ever before, the consequences for failing to do so continue to get higher and higher.

As a surety, it's imperative to educate contractors on the perils of the False Claims Act. Contractors can take a number of steps to ensure risks are minimized. For example, a contractor could:

  • Implement a mandatory independent review of every single invoice by a project manager before submitting and completing the project.
  • Continual communication with the federal government through counsel. Details of contractual difficulties that arise and compliance issue may be discussed.
  • Fully implementing a compliance, monitoring, and training program for all employees that covers a majority of significant contractual requirements.

On top of these ideas, a contractor may seek to consult with outside counsel regarding changes to federal regulations and implementation. By doing so, a contractor can limit exposure to liabilities under the Act. 

To learn more about liability under the False Claims Act and how this effects your business contact Skyline Risk Management, Inc. at (718) 267-6600.