The United States Government is the single largest purchaser of goods and services in the world, and contracts for goods and services on a daily basis. The Federal Acquisition Regulations (FAR) set forth mandatory requirements for companies that are awarded or seek to be awarded contracts from the Federal Government.
The Federal Government has stated that it “is the policy of the United States that small business concerns, veteran-owned small business concerns, service-disabled veteran-owned small business concerns, HUBZone small business concerns, small disadvantaged business concerns, and women-owned small business concerns shall have the maximum practicable opportunity to participate in performing contracts let by any Federal agency . . . .” FAR 52.219-8. In fact, that small business concerns shall have the maximum practicable opportunity to participate in government contracts is deemed “a matter of national interest.” FAR 19.705-7.
The FARs mandate that if the amount of the government contract to be awarded is expected to exceed $650,000 (or $1,500,000 if a construction contract), the contractor seeking to be awarded the contract must include a Subcontracting Plan that provides for the participation of small businesses in the contract. In awarding large construction contracts, the government is not seeking the lowest possible bidder to perform the work. Instead, the government is seeking the contractor that can best deliver the full continuum of final product, consistent with all applicable goals, laws, rules and regulations applicable to the product, which expansively include certain requirements for the participation of Disadvantaged Business Enterprises through the requisite Small Business Subcontracting Plan.
Because government contracts can be very lucrative, companies often engage in fraud to obtain and keep such contracts. For instance, contractors may engage in the fraudulent practice of using “sham” small businesses that are affiliated with large businesses to create the appearance that they are complying with their Subcontracting Plan. Likewise, companies may misrepresent themselves as being a “woman-owned small business” or a “service-disabled veteran small business,” when in fact they do not qualify for such a designation, in order to obtain government contracts or subcontracts.
These, and other fraudulent practices, can form the basis for claims under the False Claims Act.
Real World Examples of Recent Small Business Fraud False Claims Act Cases:
- 2011: Lydia Demski agreed to pay the United States $800,000 to resolve false claims allegations that she misrepresented her companies as service-disabled veteran small businesses in order to obtain contracts with NASA. The whistleblower received an award of $140,000 from the settlement.