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You secured a government contract. Now is the time to worry

For many companies and industries, securing a contract for goods or services with the United States Government is seen as a worthy and beneficial goal.  Usually, these contracts are well defined and certain, and, most importantly, there is a firmly held belief that the U.S. Government will always be able to pay its bills, thus guaranteeing the income of the contract to the business.  So, whether you are selling uniforms to the military, performing closing work for the Housing and Urban Development Board, or supplying concrete to the Department of Transportation, a government contract can give your business a fiscal shot in the arm.

But there is a unique risk to working with the U.S. Government and taking U.S. Government funds for goods or services provided.  You see, selling to the U.S. Government has long been a favorite business model of companies, some scrupulous, some not-so-much.  So after yet another war profiteer sold shoddy blankets, bullets, and bandages to the U.S. Government a hundred or so years ago, the Government passed a law: the False Claims Act (“FCA”).

This act imposes civil liability on anyone (and yes – that is “anyone” meaning individual liability can be found even if the company is doing the bad acts and has the contract) who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”  The False Claims Act, 31 U.S.C. § 3729 et seq., empowers the United States, or private citizens on behalf of the United States, to recover damages from those who knowingly make false claims for money or property upon the United States, or cause to be made, or who submit false information in support of such claims.  The issue examined under the FCA is whether defendant presented a “false” or “fraudulent claim” to the government.

What would this consist of?  How about the person who signs the invoice for work which he believed had been done but hadn’t yet?  That could be a false claim.  How about the person who told the payroll people that 10 people had worked on the job site, when only 5 had?  Clearly a false claim.  How about the person who misbilled an erroneous medical code for Medicare/Medicaid reimbursement?  Yup, that’s one, too.  But those are easy examples.

The False Claims Act doesn’t require intent, doesn’t require privity of contract, and it doesn’t even require that the bill got paid.   It is solely put there to give the Federal Government the ability to pursue anyone who has any hand in submitting a bill to the Government which the Government contends is false, in any way.  So here are some more examples of potential false claims act situations: (1) the person who certifies that his workforce is made of 30% minorities, when 25% are by the time the bill goes out; (2) the person who certifies that all background checks have been complied with, when not all of the responses back have been received or they cannot be completed due to workers providing the wrong information; and (3) the person who certifies that all federal laws have been followed, even though there is no way for the person to know what all federal laws might apply to the job.  And the U.S. Government has 6 years to determine whether a False Claims Act case can be brought.

The best/worst part of the False Claims Act is that it is not the Government which is going to catch a company or individual.  It is likely an insider, a whistle-blower, an employee with an axe to grind.  In short, that malcontent on the job site, if he knows or thinks that his employer is cutting corners or doing the wrong thing in any way on a government contract (i.e. is the hiring man asking whether potential employees are married – which would be a violation of federal law and thus a violation of the certification that all federal laws are complied with), he can run out an find a lawyer to pursue the claim for him.  And does he get paid?  You bet he does.  This employee has the chance to recover 15-30% of what the U.S. Government gets back.

And now, of course, a whole slew of attorneys are in this business.  Type “False Claims Act” into a Google search and you will be besieged with ads for attorneys eager to “do good”.  And False Claims damages which could be found against a company and any individual who “caused the bill to be presented” are the amount of the bills submitted (whether paid or not), statutory penalties of thousands of dollars per transaction, trebling of damages, plus the Government’s attorneys’ fees.  In short, FCA cases bury in bankruptcy most liable defendants, either corporate or individual.  So these complaining ex-employees and their attorneys have huge incentive to go find claims against anyone who has been paid government money.  (Currently, the U.S. Government is taking over Floyd Landis’ False Claims Act case against Lance Armstrong.  Armstrong was paid $30 million from the US Postal Service.  He misrepresented to it that he was following the rules.  Landis, former employee of Armstrong, brought the suit initially, and now stands to collect 15-30% of whatever the Government extracts from Armstrong.)

Still want to do business with the Federal Government?  Well, you can, and you should.  And you should do it properly, of course.  At Hanszen Laporte, we have worked with the Federal Government and its departments successfully over the years.  And, uniquely, we have defended entities and individuals which have been the targets of the U.S. Government’s False Claims Act claims.  It is a real life concern that anyone dealing with the Federal Government should recognize and know about before they sign that contract.

Guest blogger, Anthony Laporte is a partner at Hanszen Laporte, a Houston-based, AV “Preeminent” Rated law firm comprised of three practice groups — Litigation, Business and Real Estate.  Since 1993,Hanszen Laporte has proudly represented a diverse array of clients – from Fortune 500 corporations to individuals and new entities, and the firm has grown to a team of nearly 50 employees with offices in Houston and Dallas.   We provide the right resources for handling any issue or dispute, which affects the success or welfare of our clients. Your case is as important to us as it is to you, and we believe that creativity, judgment, and experience are the keys to success in finding winning outcomes.