The U.S. Government spends over $500 billion per year on contracts for goods, services, and research and development. With big dollars at stake, and with limited oversight, there is a significant opportunity for fraud. Fraudulent schemes include:
Failure to Comply with Contract Terms
Government contracts often have strict requirements not only on product or service specifications, but on compliance with a number of government policies and programs. As a precondition of payment, contractors often must expressly certify that they are in compliance with all of these contract terms. When contractors are not in compliance and fail to disclose these facts to the government, they have likely violated the False Claims Act.
Some suppliers of government goods attempt to cheat the government and taxpayers by substituting cheaper, non-conforming products made of lesser quality materials and passing it off as a conforming product. This is, of course, fraud, and actionable under the False Claims Act.
Contractors have found elaborate ways to overcharge the government. One common scheme is improperly allocating costs to government contracts. Many government contracts pay on a “cost-plus” basis, meaning the government will compensate the contractor at their cost plus a set margin. Some contractors, therefore, disproportionately bill overhead costs (like fixed labor costs) to their government contracts, resulting in significantly increased costs to the government. Such conduct is fraudulent and in violation of the False Claims Act.
Compliance with Federal Trade Agreements Act
The Federal Trade Agreements Act restricts certain U.S. contracts for goods or services to eligible countries with which the U.S. has a satisfactory trade relationship. Some contractors, however, source their products from ineligible countries, such as China, while hiding the source of the product and falsely certifying that it came from an eligible country. This misconduct is actionable under the False Claims Act.