The United States Department of Justice (“DOJ”) continues to announce results of its enforcement efforts. Invariably, many of these enforcement actions involve government contractors. The following is a brief summary of recent announcements. These examples continue to underscore the notion that compliance is key, particularly for government contractors who remain under the microscope for potential violations of applicable law.

Case Study No. 1. In an October 31, 2023 press release, the DOJ revealed that the former president of an out-of-state asphalt paving company had pleaded guilty in response to allegations that he had participated in a 5-year long bid rigging scheme. The government alleged that the president and others within his company had conspired with another asphalt contractor to coordinate their bid prices “so that the agreed-upon losing company would submit intentionally non-competitive bids.” This scheme created an appearance of open competition when in fact the bidders “had already decided among themselves who would win the contracts.” The president pleaded guilty to one count of violating the Sherman Anti-Trust Act, which carries a maximum penalty of 10 years in prison and a $1 Million criminal fine. The individual awaits sentencing.

Case Study No. 2. In September of 2023, the DOJ announced that it had reached a settlement of alleged False Claims Act violations with an out-of-state contractor. According to the government, the contractor knowingly double-billed and shifted labor and material costs under a series of contracts with the Department of the Navy relating to the manufacture and design of surveillance and reconnaissance technologies. The contractor allegedly billed costs under one contract, and then later billed for the same costs under another contract, resulting in double-payments. The government further alleged that the contractor shifted costs incurred under one contract to other contracts in violation of Federal Acquisition Regulation requirements that costs incurred under a contract must be allocable to that contract. The contractor agreed to pay $4.4 million to settle the allegations. According to the Head of the DOJ’s Civil Division “[c]ompanies that do business with the government must ensure that they are properly billing the government for the goods and services that they provide” and the government “will hold accountable those who misuse taxpayer funds for their own self-enrichment.” According to the U.S. Attorney: “[c]ases such as this one should be seen as a warning to defense contractors that false claims have no place in military purchasing.”

Many contractors are aware that they cannot attempt to double-bill the government or knowingly attempt to recover payment under inappropriate pay items. However, contract pay items can sometimes be subject to interpretation and questions may arise as to what amounts can or should be billed under what categories. This may become a murky area in light of a recent 2023 decision of the Supreme Court indicating that an “objectively reasonable” interpretation of applicable requirements may not be a defense to alleged violations of the False Claims Act.

Case Study No. 3. In June 2023, the DOJ announced a settlement of alleged False Claims Act violations in a whistleblower action against a contractor, its principal, and an affiliated joint venture, relating to representations made to the Small Business Administration (“SBA”) concerning eligibility for federal set-aside contracts. The government alleged that over a 6-year span, the defendants fraudulently obtained six contracts under the SBA’s 8(a) business development program. The company and its owner allegedly failed to report distributions and payments to the owner’s family members and provided false information to the SBA concerning the owner’s assets. This information was arguably material because, according to the government, the company and the affiliated joint venture would not have been eligible for 8(a) set-aside contracts if accurate information had been disclosed. The settlement requires the defendants to pay a total of $7,759,693.92. As part of the resolution, the whistleblower will receive $1,357,964.00. The Special Agent in Charge stated that the settlement “sends a strong message that those responsible will be held accountable.” The U.S. Attorney stated that the settlement represented a “coordinated effort among our agency partners to ensure that disregard for the integrity of small business contracting will not go unchecked.”

This case appears to have involved an intentional scheme of making false misrepresentations in order to obtain federal set-aside contracts. However, contractors should be aware that DBE/MBE/WBE fraud remains prevalent. Contractors are advised to take careful steps to help ensure that they are working with bona fide DBEs/MBEs/WBEs that are performing commercially useful functions.