The Federal False Claims Act (FCA) imposes liability for making false claims to the Federal Government. Violations of the FCA can result in triple damages, plus attorney fees and fines of up to $10,000 for every false claim. It also can result in the surrender of the entire claim (even the legitimate portions). Through its whistleblower incentives and protections, the FCA offers tremendous incentives for employees and even subcontractors to alert the government to false claims.

The threat is real, and it can be devastatingly unexpected. In Daewoo Engineering & Construction v. United States, 73 Fed.Cl. 547 (2006), a road contractor sued the government for $64 million based on defective specifications, superior knowledge, and impossibility of performance. But the government proved that $50 million of the claim was fraudulent. The contractor’s witness admitted that the $50 million was included to “get the Government’s attention.” The result was that the contractor forfeited the entire claim (even the legitimate portion); the contractor was ordered to pay the government $50 million under a different law (the Contract Disputes Act); and the contractor faced $10,000 penalties for each of 762 false claims, plus $4 million in the Government’s attorneys fees.

Until recently, liability under the FCA for a false claim was limited to false statements that were “presented” to the government or at least were presented to someone with the intent of getting the false claim paid by the government (not just with government funds). The Supreme Court’s 2008 decision in Allison Engine Co. v. United States emphasized the importance of proving intent for recovery under the FCA. In its words:

Eliminating the element of intent would render the FCA “almost boundless: for example, liability could a????ach for any false claim made to any college or university, so long as the institution has received some federal grantsas most of them do.”

A year later, Congress took that extra step and eliminated the element of intent. The Fraud Enforcement and Recovery Act (FERA) expands the False Claims Act to include liability for any false statement that is “material” to a false or fraudulent claim. It defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” It also expands liability to include false claims presented to a contractor or grant recipient.

The results of the FERA Amendments are far reaching. Now, every contractor or subcontractor submitting pay applications, negotiating change orders, or even negotiating contracts face the tremendous penalties of the False Claims Act for any statements made to other contractors or grant recipients that could be capable of influencing (directly or indirectly) the payment of government money.

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