By Jonathan Ingrisano, Godfrey & Kahn, Milwaukee

May 20, 2009 – The American Recovery and Reinvestment Act of 2009 (ARRA), known more commonly as President Obama’s stimulus package, presents an unprecedented opportunity for private businesses interested in contracting with the federal government. The Professional Services Council, which represents federal contractors, estimates that almost $40 billion of the $787 billion program will go to federal contractors and suppliers. However, as experienced federal contractors know, working with the government presents its own set of drawbacks and challenges. There are two things your new or inexperienced contractor-clients should be aware of: (1) the False Claims Act (FCA), a unique legal remedy the federal government and whistleblowers have at their disposal to address contractor fraud; and (2) the increased protection whistleblowers will receive under the ARRA.

The False Claims Act

The FCA penalizes a contractor’s knowing submission of false claims for payment to the federal government. The Department of Justice has the ability to bring criminal or civil proceedings against contractors and suppliers it believes to have committed such fraud. The FCA’s civil remedies permit the government to recover three times its actual losses as well as additional fines. In 2008 alone, the Department of Justice used the FCA to recoup more than $1.3 billion from those doing business with the government.

Perhaps more importantly, the FCA empowers and incentivizes private citizens – whistleblowers, who are typically current or former employees of the contractors – to bring their own civil actions to recover sums on behalf of the government. These whistleblowers, labeled qui tam relators, can share as much as 30 percent of the treble damages and fines they recover on behalf of the government, plus their attorneys’ fees. Recently, qui tam relators have been filing between 300 and 400 FCA suits each year.

How companies can minimize FCA risk

FCA suits generally cite at least one type of operative fraud. First, some entities are accused of misrepresenting their eligibility for programs from which they seek payment. Second, many whistleblowers accuse companies of submitting false applications for grants or loans. Third, companies can be accused of overcharging the government or providing goods or services different from those promised or contracted for. Finally, the government and relators frequently claim false certifications by contractors of their compliance with laws, contract terms and/or regulations.

So what can your clients pursuing stimulus project funds do to minimize its FCA risk? First and foremost, prospective contractors should communicate with the government with the utmost candor and not misrepresent their business’ capacity or performance. Nevertheless, many companies are still embroiled in FCA disputes when their ambiguous representations or negligent mistakes appear to be (or can be contorted into appearing like) fraud. These risks can be minimized with better personnel and processes. If a company does not have the benefit of a staff experienced with government contracting, management should assemble a team of competent employees dedicated to learning the complex web of government contract documentation and regulations. Procedurally, during contract negotiations with the government, representations made to the government and concessions received should be carefully documented. Contractors must both ask questions and push government contracting officers to explain ambiguities – in writing. If issues persist, would-be contractors should seek experienced counsel.

The ARRA’s enhanced whistleblower protection

While the FCA is designed to address fraud, Section 1553 of the ARRA protects whistleblowing on mismanagement, waste and public health dangers related to stimulus funds. Employees of non-federal employers receiving covered funds – i.e., private business, state and local government employees – may not be “discharged, demoted or otherwise discriminated against” for disclosing misuse of stimulus funds. While other federal laws provide whistleblowers with protection, those in the ARRA represent a significant expansion including increased damages and easier proof of reprisal than other laws. This sets the ARRA apart from other whistleblowing laws.

Conclusion

Your clients should recognize the negative aspects of working with the government in making informed decisions on whether to pursue stimulus funds. Stimulus dollars do not represent “found money,” but instead come with heightened negotiation and compliance costs that should be accounted for in any cost-benefit analysis. Moreover, contractors and suppliers should further recognize that the federal government represents the most formidable opponent in litigation, particularly when it is armed with inside information provided by protected whistleblowers. Unless contractors appreciate these risks and conduct themselves accordingly, their stimulus dollars and more will more likely end up stimulating the plaintiffs’ lawyers representing whistleblowers and qui tam relators.

Jonathan Ingrisano is a shareholder and member of Godfrey & Kahn’s Litigation Practice Group. For additional information, please contact Jonathan at (414) 287-9611 or jingrisano@gklaw.com.