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“Fast and Loose” Equals High Risk on Government Projects - Heightened Scrutiny under the False Claims Act -

Posted October 7, 2014 --> • False Claims Act

Most contractors who navigate the federal contracting arena are well aware of the standard violations of the FCA.  Knowingly making, using or presenting a false or fraudulent claim is the classic example of the violation.  But, any notion that attempting to "pad" a claim or play "fast and loose" with pricing is outside of the FCA, or that such behavior will not result in any meaningful action by the government agency in charge (so long as the government discovers the error without first making payment) is both dated and dangerous to a government contractor.  Contractors should know that the mere submission of a false or fraudulent claim, however nominal and even if only “padded”, is enough to support a successful action by the government under the FCA.

 A contractor should be mindful of two particular activities within its project performance that have historically garnered less FCA attention and treatment within the industry, and which may see increased government scrutiny in the coming years —false pricing and fraudulent underbidding.[1]

Contractors who want to avoid the government's FCA scrutiny on pricing claims or extra work should:

  1. Know internal costs for all bid items

  2. Put in place systems that will allow for real-time updating of rates and available rebates from outside vendors

  3. Have a keen knowledge of the government's contract pricing provisions applicable to the bid at hand and, specifically, consult with Federal Acquisition Regulation Part 31 for "unallowable costs"

  4. Keep apprised of ongoing changes to the government's pricing provisions, and

  5. Put in place a due diligence program for the development and submission of claims to the government that incorporate pricing of labor and materials

Naturally, steps (1) through (5) require greater administrative effort at the home office, but the tradeoff is reducing exposure under the FCA and enormous savings in time and money that would be lost in defending against any resulting lawsuit.

Today's FCA scrutiny extends to wrongful or reckless manipulation of one's bid and/or false pricing in a claim or change order.  Contractors should view the more aggressive oversight in these areas by the government as a form of "new normal" that should be factored into the contractor's programs for bidding and pricing the work.


[1]   Fraudulent underbidding has also been referred to in legal decisions as “bad, bad guesses,” and neither the government nor the courts are sympathetic to this defense against the FCA.  Hooper v. Lockheed Martin, 688 F.3d 1037, 1047 (9th Cir. 2012)