Exercise Caution With Government Contracts

Originally published
Originally published: 9/1/2008

Detailed records are the best defense againt false-claim allegations.

Although it is not terribly common, from time to time hvacr contractors do have opportunities to provide contracting or service work for an agency of the federal government. Any contract with the federal government carries special obligations and special risks. Here are some things you need to know before entering into a government contract.

A contract with the federal government should be as specifi c as possible as to the scope of services to be provided, the materials to be used, and the price to be paid by the government. Specifi city will minimize misunderstandings. If you suspect that the scope of work might have to change during the project, be sure to include language in the contract addressing how changes will be approved and priced. Finally, include provisions in the contract for inspection and documentation of the fi nished project.

Why is this so important? All government contracts are subject to the False Claims Act. The False Claims Act was enacted during the Civil War in response to the rash of defense contractors who were defrauding the Union Army. The Act provides stiff civil and criminal penalties for knowingly presenting a false claim to a governmental agency. A “knowing” submission includes acting either

• with deliberate ignorance of the truth or falsity of the information; or

• with reckless disregard of the truth or falsity of the information.

No specific intent to defraud is required to trigger a violation. Not surprisingly, “knowingly presenting” is a legal term of art subject to case law interpretations that may not always appear logical. Thus in some cases, zealous prosecutors have claimed that contractor billing errors were evidence of false claims. The False Claims Act has been used against defense contractors who overcharge the government for weapons projects to physicians who over bill Medicare for professional services.

The government’s recovery for violation of the False Claims Act may be signifi cant, as those liable under the Act are subject to a civil penalty of not less than $5,000 and not more than $10,000 for each claim that is submitted. In addition to these mandatory civil penalties, the government may recover treble damages (triple the amount of the actual/compensatory damages to be awarded to a prevailing plaintiff ). In many cases, penalties for violations of the False Claims Act exceed the value of the original contract. T

he Civil War era legislation was not substantially amended until 1986 when the current qui tam provisions were added. By passing the amendment, Congress authorized and encouraged “whistleblowers” to seek out fraudulent actions being taken against the government. Private lawsuits were authorized when plaintiffs, almost always employees (or, more precisely, disgruntled former employees) of the alleged offender, provided “direct and independent knowledge” of fraudulent acts against the government. Congress explicitly intended to set up incentives to supplement government enforcement of the Act by encouraging insiders privy to fraud on the government to blow the whistle on the crime. The motivation to fi le a whistle-blower suit is substantial: 10% to 30% of the government’s recovery.

In addition to a carefully worded contract, a contractor’s best defense against a claim under the False Claims Act is good, written documentation of the services provided. If you have a federal contract, keep good records, including the names of persons working on the project and hours worked, receipts for materials used, and the like. Such records are the best defense against the false claims allegations. Additionally, carefully review your bills before submitting them to the government. Be sure that they accurately refl ect the services provided and are consistent with the terms of your contract.

Michael P. Coyne is a founding partner of the law fi rm, Waldheger Coyne, located in Cleveland, Ohio. For more information on the fi rm, visit, or call 440-835-0600. >> To pose a question to Mike, go to www.

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