Government procurement fraud is pervasive. The vast majority of government procurement fraud goes undetected, and federal agencies rely heavily on whistleblowers to help them determine when scrutiny is warranted. Blowing the whistle on fraud committed by federal contractors can often result in the recovery and savings of substantial taxpayer dollars, and whistleblowers will often be entitled to a portion of the amount recovered for their efforts.
So, when can (and should) prospective whistleblowers think about reporting government procurement fraud?
Like other types of fraud, government procurement fraud can take many forms; and, despite contractors’ efforts to conceal their fraudulent schemes, there are several common red flags. Knowing when bidding and contracting practices cross the line from competition and compliance to collusion and fraud is essential for making an informed decision about whether to come forward.
“Government procurement fraud costs federal agencies hundreds of billions of dollars per year. With the Trump administration’s focus on fighting fraud, waste, and abuse, this is an area that is likely to receive significant attention in the years ahead.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
What are the most common types of fraud? What are the red flags, and what should you do if you believe you have information about fraud against the federal government? Here is an introduction to what prospective whistleblowers need to know:
Common Types of Government Procurement Fraud
The U.S. General Services Administration’s Office of Inspector General (GSAIG) has published a Procurement Fraud Handbook that identifies the most common types of fraudulent activities during (and after) the procurement process, as well as common indicators. While it isn’t new, the GSAIG’s Handbook remains very relevant today, identifying forms of fraud that continue to cost taxpayers hundreds of billions of dollars annually.
As identified by the GSAIG, some of the most common types of procurement fraud include:
Bid Rigging and Collusion
While many forms of fraud in government contracting involve individual contractors and subcontractors, bid rigging and collision involve cooperation between competing entities (or entities that are supposed to be competing). The following are all improper practices during the bidding process that can warrant whistleblower complaints for procurement fraud:
- Bid rotation (agreeing to take turns submitting the lowest compliant bid on government contracts);
- Bid suppression (agreeing that only certain contractors will bid on certain government contracts);
- Bidding collusion (agreeing to set minimum prices, reduce or eliminate discounts, or engage in price fixing in government contract bids);
- Complementary bidding (agreeing that certain contractors will submit intentionally high or noncompliant bids for certain government contracts); and,
- Customer and market division (agreeing that only certain contractors will bid on contracts with certain federal agencies or in certain geographic locations).
Bid rigging and collusion allow contractors to charge the government rates exceeding those that would be paid in a truly competitive environment. As a result, they often result in significant losses—and they will be well worth reporting to the government in many (if not all) cases.
Defective Pricing and Price Reduction Violations
Defective pricing is defined as “provid[ing] incomplete, inaccurate or not current disclosures during contract negotiations” with federal agencies. It violates the Federal Acquisition Regulations (FAR) as well as the False Claims Act (FCA), and may violate various other regulatory and statutory requirements as well depending on the specific federal agency involved. As the GSAIG notes, “[i]f [a] contractor intentionally provide[s] inaccurate [pricing] information or fail[s] to disclose necessary information, the contractor may be subject to criminal and/or civil penalties and damages.”
Price reduction violations can occur when vendors fail to reduce their prices under government contracts when they offer reduced pricing to other clients or customers. As the GSAIG notes, “[w]hile price reduction issues generally constitute contract violations, reckless disregard can support a civil fraud action, and proving intent can lead to criminal as well as civil fraud charges.”
Cost Mischarging
In the federal procurement context, cost mischarging involves billing a federal agency for costs that, “are not allowable, reasonable, or allocated directly or indirectly to the contract.” Intentionally charging unallowable costs, misrepresenting unallowable costs as allowable, and concealing mischarges are all forms of procurement fraud that whistleblowers can report under the False Claims Act.
Charging for Products or Services Not Delivered to the Government
Federal contractors and subcontractors can only charge the government for products and services they deliver in accordance with the terms of the relevant contract. Charging for products or services not delivered to the government is a clear—and prevalent—form of fraud. While practices such as altering employee timecards and intentionally billing for undelivered products are clear forms of intentional fraud, inaccurate (or inadequate) recordkeeping practices and other similar types of issues can warrant whistleblower complaints as well.
Charging for Improperly Substituted Products or Services
Product substitution fraud is a common scheme where contractors fail to meet contract specifications by knowingly delivering substandard goods or inferior services. This willful substitution may also involve counterfeit products or the unauthorized use of different materials or labor. In doing so, contractors substitute inferior goods while billing the government for higher-quality items, driving up product costs for the government.
As the GSAIG acknowledges, “[d]ue to the volume of federal government purchases, it is impossible and impractical to perform quality reviews on each item purchased.” As a result, the GSA and other federal agencies rely heavily on whistleblowers to come forward and report product substitution and fraud involving public goods and essential services.
Conflicts of Interest (Including Bribery and Kickbacks)
Conflicts of interest involving government officials and other contracting parties can lead to significant taxpayer losses in the form of excessive contract pricing and nonenforcement of contractors’ legal obligations. Two of the most common types of conflicts of interest involve bribery of government officials and paying kickbacks in connection with bid rigging and collusion schemes. In the federal procurement context, all types of conflicts can be classified as public corruption—and they can warrant civil or criminal enforcement depending on the specific circumstances involved.
Buy American Act (BAA) and Trade Agreements Act (TAA) Violations
The Buy American Act (BAA) and Trade Agreements Act (TAA) establish various requirements for government contracts awarded through the federal procurement process. BAA and TAA violations can take many forms, including direct noncompliance (i.e., using foreign-manufactured supplies without an applicable exception under the BAA) and falsely certifying compliance with the relevant statute.
“Other Schemes to Defraud the U.S. Government”
Along with the forms of fraud discussed above, the GSAIG’s Procurement Fraud Handbook discusses various “other schemes to defraud the U.S. government” as well. These include:
- Progress payments fraud (“submit[ting] a request for payment with a false certification of work completed or falsified costs”);
- Forming new entities to conceal previous violations or debarments (“form[ing] a new corporate entity to circumvent the system and deceive the government”); and,
- False certification for preferential treatment (falsely certifying as a small business or a disability, minority, women, or veteran-owned business).
Again, these are just some of the most common examples. Fraud involving government contracts can take many other forms as well. Whistleblowers can report all forms of procurement fraud, and reporting any form of this type of fraud has the potential to help the government recover and/or protect taxpayer funds.
Common Indicators of Fraudulent Schemes
What are the signs of procurement fraud? While some prospective whistleblowers will learn about fraud through their access to internal records and communications, suspicions may arise for a variety of different reasons. For example, according to the GSAIG, the following are all potential indicators of fraud—among many others:
- Attempting to delay government contract audits
- Delays or stall tactics when asked to provide data or documents to the government
- Missing data or documents that are necessary to substantiate government contract billings
- Reassignment or termination of key personnel involved in government contract compliance
- Assertions regarding a contractor’s finances or operations that lack documentary support
- Unexplained variances between promised contract prices and actual contract prices
- Alteration of any documents related to a federal procurement contract
- An overly complex corporate structure with multiple contracting entities
- Inadequate segregation of duties between contract management and contract performance
- Unusual communications with competing bidders or federal contracting officials
While none of these are necessarily indicative of fraud, they can all raise questions depending on the specific circumstances involved. If you have questions or concerns as a current or former employee of a federal contractor, subcontractor, or agency, you should not ignore them.
Reporting Procurement Fraud to the Federal Government
Instead, you should make an informed decision about whether to submit a whistleblower complaint to the federal government. This starts with contacting an experienced federal whistleblower attorney to schedule a one-on-one consultation. This consultation will be completely confidential, and it is your opportunity to begin gathering the information you need to make informed decisions about your next steps.
If you decide to file a whistleblower complaint, you will want an experienced attorney on your side. There are various substantive and procedural requirements you need to meet when filing a whistleblower complaint, and working effectively with the government will help maximize your chances of obtaining a whistleblower reward. An experienced whistleblower attorney will not pressure you to move forward, but will instead focus on providing you with the information you need to feel confident in your own decision-making.
