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How the False Claims Act Helps Fight Fraud in Federal IT Contracts

The False Claims Act (FCA) is an important tool for fighting fraud against the federal government, including in the area of federal IT contracts. The FCA imposes liability on any person or company that knowingly submits false claims for payment to the government. This article will explain how the FCA works to combat fraud in federal IT contracting.

The FCA in Federal IT Contracting

The FCA is commonly used to go after fraud in federal IT contracts. Some examples of FCA cases in this area include:

Overbilling or double-billing for goods or services
Charging for hours not actually worked by employees (“phantom employee” scheme)
Using substandard materials or falsifying test results
Misrepresenting qualifications or certifications to win contracts
Falsifying performance evaluations to earn bonuses

Many major IT contractors like IBM, Dell, Cisco and Oracle have faced FCA lawsuits involving their government contracts. For example, in 2022 Oracle paid $23 million to settle allegations it overbilled the U.S. General Services Administration by concealing discounts given to other customers ⁴. The FCA allows the government to recover losses from this type of fraud.

Unique Challenges in IT Contracting

Proving fraud in IT contracts can be uniquely challenging. Projects may “fail” even when a contractor acted in good faith. Complex software systems don’t always work as intended. And technical requirements frequently shift over long development cycles. Separating honest failures from intentional deception is not always easy.

The FCA requires establishing a contractor knowingly submitted false claims. Due to the complexity of IT systems, contractors may argue they did not intentionally deceive the government when problems emerge. Defining what constitutes “knowledge” of falsity in an IT context has been a key issue in these cases ⁵. Despite these challenges, the FCA remains an important tool for prosecuting fraud in federal IT procurement.

Recent Major IT Contract Fraud Settlements

The government has had some major successes recently using the FCA to prosecute IT contractors. Here are two high-profile examples from 2022:

Booz Allen Hamilton – $377 Million Settlement

In July 2022, leading technology consulting firm Booz Allen Hamilton agreed to pay $377 million to settle FCA allegations it violated accounting rules related to indirect costs for government contracts ⁶.

The settlement resolves claims that Booz Allen failed to properly track and report indirect costs on government projects. This violation of cost accounting standards allegedly resulted in Booz Allen overcharging agencies across the federal government. The company did not admit liability in the settlement. But it demonstrates the government’s willingness to hold even the largest IT contractors accountable for compliance with complex procurement rules.

DXC Technology – $25 Million Settlement

In April 2022, IT consulting firm DXC Technology paid $25 million to settle alleged FCA violations related to a contract with the U.S. Army ⁷. The government alleged DXC faked qualifications to win a $21 million IT support contract and then relied on unqualified personnel once hired. This put troops’ data and operations at risk.

This case shows how seriously the government takes representations of qualifications and certifications in awarding IT contracts. Even if services are provided, faking expertise to win contracts can still lead to FCA liability.

Role of Whistleblowers

A major reason for the FCA’s success in prosecuting IT contract fraud is whistleblowers coming forward to report misconduct. Under the FCA’s qui tam provisions, company insiders and contractors can serve as relators, filing fraud lawsuits on behalf of the government in return for a cut of the recovery.

Whistleblowers have been crucial in exposing major IT contracting scandals. For instance, Science Applications International Corporation (SAIC) paid $5.75 million in 2013 to settle FCA allegations first bought by whistleblowers that it charged for work at significantly marked up labor rates on an IT services contract with the Nuclear Regulatory Commission ⁸. Qui tam relators provided an inside account of the alleged fraud.

To encourage whistleblowing, the FCA prohibits retaliating against employees for lawful fraud reporting. It also allows whistleblowers to initially file their qui tam cases under seal so misconduct can be investigated without tipping off the contractor. Protecting whistleblowers has been key to the FCA’s success in bringing fraud allegations to light.

The Future of the FCA and IT Contracting

The False Claims Act will continue serving a crucial role in combating fraud, waste and abuse in federal IT contracting. Major contractors are now on notice they will face consequences for practices like overbilling, faking qualifications, or misrepresenting compliance with complex procurement regulations. Record settlements in recent years show the government’s willingness to use the FCA and its powerful damages provisions to police IT deals and recover losses from this fraud.

At the same time, unique challenges in proving intent and knowledge of falsity in complex IT projects will persist. Defining fraud versus honest failure remains tricky in some cases. But with whistleblowers continuing to come forward and the government devoting more resources, the FCA will remain the government’s most potent weapon against IT contract fraud.