The federal False Claims Act (FCA), 31 U.S.C. § 3729 et seq., imposes liability for knowingly making a false or fraudulent “claim,” or a false record or statement material to such a claim, in order to obtain funds from the federal government. The statute applies to claims that are either “presented to an officer, employee, or agent of the United States,” or “made to a contractor, grantee, or other recipient” who has authority to distribute that money or property on the government’s behalf. 31 U.S.C. § 3729(b)(2). Accordingly, federally funded state and municipal contracts are embraced by the FCA as well. That includes several hundred million dollars expected to be spent on transportation projects in the Granite State over the next three years.
Civil penalties under the FCA currently range between $13,508 and $27,018 per violation “plus 3 times the amount of damages which the Government sustains.” 31 U.S.C. § 3729(a). Triple damages can really add up. Recently Walsh Construction Company, a contractor working on the federally-funded Whittier Bridge/I-95 Improvement Project in Amesbury, MA paid $1,099,000 to settle claims under the FCA that it defrauded the Disadvantaged Business Enterprise (DBE) program by falsely claiming that its DBE subcontractor had performed certain tasks which, in fact, Walsh itself had performed.
The Walsh litigation was a “relator” case. Both the Justice Department and private parties acting as whistleblowers (called “relators”) may bring FCA lawsuits in the name of the United States, with successful relators recovering their attorneys’ fees plus a bonus of between 15% and 30% of the damages awarded. The financial incentive for these so-called “qui tam” lawsuits works like a charm. In FY 2022, over $1.9 billion of the Justice Department’s $2.2 billion FCA suit recovery stemmed from qui tam suits, and relators were paid $488 million.
While the FCA is a civil statute, a violation of the FCA can also trigger criminal penalties under 18 U.S.C. § 287, with fines up to $500,000 for businesses and $250,000 for individuals, and imprisonment for up to five years.
A defendant violates the FCA if he “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” A statement is made “knowingly” if it is made with actual knowledge of its falsity, deliberate ignorance of its truth or falsity, or reckless disregard of its truth or falsity. Earlier this month the U.S. Supreme Court in United States ex rel. Schutte v. Supervalu Inc., 143 S.Ct. 1391 (2023), clarified that this is purely a subjective test: as long as the representer believed his representation was false, liability follows regardless of whether truth or falsity was objectively ambiguous.
A statement is “material” if it has “the tendency to influence, or be capable of influencing, the payment or receipt of money or property.” § 3729(b)(4). One way to gauge the materiality of a contractor’s statement is to consider whether the government paid a claim despite knowing the representation was false. In United States ex rel. Foreman v. AECOM, 19 F.4th 85 (2d Cir. 2021), cert. denied, 142 S.Ct. 2679 (2022), a defense contractor improperly billed the Army for work it never performed by inflating a statistic used to measure the time worked on the Army’s projects compared to their overall time on duty. On appeal, the court affirmed dismissal of this claim for lack of materiality because “the government had actual knowledge of AECOM’s non-compliance,” yet continued to pay AECOM’s claims. Id. at 118.
The wise government contractor assumes that all representations made in connection with a claim for payment are “material,” and takes care to verify that they are true to the best of his knowledge and belief after diligent inquiry into the facts.