False Claims Act

The False Claims Act is the federal government's primary civil enforcement tool against contractor fraud, allowing the Department of Justice and private whistleblowers to pursue companies that knowingly overcharge or misrepresent work on government contracts.

What is the False Claims Act (FCA)?

The False Claims Act (31 U.S.C. §§ 3729-3733), originally enacted during the Civil War, creates civil liability for any person who knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the United States government. "Knowingly" encompasses actual knowledge, deliberate ignorance, and reckless disregard for the truth - it does not require proof of specific intent to defraud.

Key provisions include:

• Treble damages - the government recovers three times the amount of the false claim, not merely the overcharge.
• Per-claim civil penalties - currently adjusted to between approximately $13,900 and $27,800 per false claim, which can multiply rapidly on contracts with frequent invoicing cycles.
• Qui tam provisions - private citizens (relators) who have inside knowledge of fraud can file a sealed complaint on behalf of the government and share 15-30 percent of the government's recovery.
• Government intervention - the DOJ has 60 days (routinely extended) to investigate and decide whether to intervene and take over the case. Non-intervened cases can still proceed with the relator acting as plaintiff.
• Reverse false claims - liability also attaches to those who knowingly conceal or avoid an obligation to repay the government, meaning contractors who discover overbillings and fail to disclose them face FCA exposure.

The FCA works in tandem with the Mandatory Disclosure Rule and whistleblower protections. The Anti-Kickback Statute violations typically generate parallel FCA liability because kickback costs submitted as allowable costs represent false claims.

Why the False Claims Act matters for government contractors

The FCA is the single greatest legal risk for companies doing business with the federal government. Annual DOJ recoveries consistently exceed $2 billion, with the vast majority of cases originating from qui tam relators - often current or former employees. Contractors must maintain compliance programs that detect and correct billing errors quickly, because self-disclosure before a qui tam filing (or government investigation) dramatically reduces penalties through the voluntary disclosure safe harbor.

Example

A healthcare IT firm holds a cost-reimbursement contract with the Department of Veterans Affairs. A billing analyst discovers that approximately 400 invoices over two years included charges for subcontractor hours that were never actually worked. The analyst files a qui tam complaint under seal. The DOJ intervenes, and the firm ultimately pays $14 million in treble damages plus penalties. The analyst receives $2.1 million as the relator's share. The firm implements a new billing reconciliation system and enters a Corporate Integrity Agreement with HHS-OIG.

Frequently Asked Questions

What is a qui tam lawsuit?

A qui tam lawsuit (from the Latin "qui tam pro domino rege quam pro se ipso agit" - who brings the action as much for the king as for himself) is a civil FCA complaint filed by a private party on behalf of the government. The case is filed under seal, meaning it is not publicly disclosed while the government investigates. The private relator is entitled to a share of any government recovery.

What is the statute of limitations for False Claims Act cases?

FCA claims must be brought within the later of six years after the violation, or three years after the government knew or should have known about it, but in no event more than ten years after the violation. The ten-year outer limit is particularly significant for long-running contract fraud schemes.

Does a billing error automatically create FCA liability?

No. The FCA requires the "knowing" element - a contractor that makes a good-faith billing error, corrects it upon discovery, and repays the government has not committed fraud. The danger arises when errors are discovered and not corrected (reverse false claims) or when the contractor had reason to know its billing practices were producing false claims but turned a blind eye.

What is the government's voluntary disclosure safe harbor?

A contractor that discovers and self-discloses a potential FCA violation before the government or a relator files a case may negotiate reduced penalties. Self-disclosure does not eliminate liability but typically limits recovery to single (not treble) damages and reduces per-claim penalties. Timing is critical: once a qui tam complaint is filed and served on the contractor, the safe harbor window closes.