False Claims Act Guide for Government Contractors

Originally enacted during the Civil War in 1863 to combat defense contractor fraud, the False Claims Act imposes civil liability on any person who knowingly presents — or causes to be presented — a false or fraudulent claim for payment or approval to the federal government. The statute also covers false statements material to a false claim, conspiracy to commit FCA violations, and so-called "reverse false claims" where a person knowingly avoids an obligation to pay the government.

The FCA's reach is broad. "Knowingly" does not require proof of specific intent to defraud. Under the statute, a person acts "knowingly" if they have actual knowledge that the information is false, act in deliberate ignorance of the truth or falsity, or act in reckless disregard of the truth or falsity. This means that "I didn't know" is not a defense if you should have known — willful blindness and reckless disregard are sufficient to establish liability.

The FCA is a civil statute, not criminal. Criminal fraud against the government is prosecuted under separate statutes (18 U.S.C. § 287 and § 1001). However, the same conduct can give rise to both civil FCA liability and criminal prosecution, and DOJ frequently pursues parallel civil and criminal investigations.

The FCA's qui tam provisions (31 U.S.C. § 3730(b)) allow private citizens — known as "relators" — to file lawsuits on behalf of the federal government against entities that have defrauded the government. The relator is typically an employee, former employee, or business partner who has firsthand knowledge of the fraud. Qui tam cases account for the vast majority of FCA recoveries.

The qui tam complaint is filed under seal and served on the Department of Justice, which has at least 60 days (often extended to months or years) to investigate and decide whether to intervene and take over the case. If DOJ intervenes, the relator receives 15–25% of any recovery. If DOJ declines to intervene, the relator may proceed with the case independently and receives 25–30% of any recovery.

The FCA includes robust anti-retaliation protections (31 U.S.C. § 3730(h)) for employees who report fraud. An employer that retaliates against a whistleblower — through termination, demotion, suspension, harassment, or discrimination — is liable for reinstatement with seniority, double back pay with interest, and compensation for special damages including litigation costs and attorney fees.

For contractors, the practical implication is clear: every employee is a potential qui tam relator. An employee who observes billing irregularities, quality shortcuts, or compliance fabrication has a financial incentive to report it — and legal protection against retaliation. Internal compliance programs that encourage early reporting are the best defense.

The FCA imposes harsh financial consequences. A person found liable must pay three times the amount of damages sustained by the government (treble damages), plus a civil penalty for each false claim submitted. The per-claim penalty is adjusted annually for inflation and currently ranges from approximately $13,508 to $27,018 per false claim.

The per-claim penalty structure can be devastating. Consider a contractor that submits 1,000 fraudulent invoices over a contract period. Even if each individual invoice involves a small overbilling, the per-claim penalties alone can range from $13.5 million to $27 million — on top of treble damages on the actual fraud amount. This multiplier effect gives the FCA extraordinary deterrent power.

In addition to monetary penalties, FCA liability frequently leads to suspension and debarment from federal contracting. Debarment, which typically lasts three years, effectively shuts a contractor out of the federal marketplace. For companies whose revenue depends on government contracts, debarment can be an existential threat.

Contractors that discover potential FCA violations should seriously consider voluntary disclosure to the government. The FCA provides that courts may reduce treble damages to double damages if the violator voluntarily disclosed the violation to the government within 30 days of gaining knowledge, fully cooperated with the investigation, and disclosed before the government had independent knowledge of the fraud.

The Department of Justice has repeatedly emphasized that voluntary self-disclosure is the single most important factor in determining the government's response to contractor fraud. DOJ's guidelines encourage reduced penalties, favorable settlement terms, and avoidance of suspension or debarment for contractors that self-report, cooperate fully, and implement corrective measures.

Best practices for mitigating FCA risk include maintaining a robust compliance program with regular internal audits, establishing anonymous hotlines for employees to report concerns, providing regular training on billing practices and contract requirements, and conducting prompt internal investigations when issues are identified. The FAR mandatory disclosure rule (FAR 52.203-13) requires contractors to disclose credible evidence of violations of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations, as well as FCA violations connected to their government contracts.

Failing to disclose known violations compounds the problem. Under the mandatory disclosure rule, the failure to disclose itself can be grounds for suspension or debarment, independent of the underlying fraud.