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GCN Home > June 19, 2000 issue

FEDERAL CONTRACT LAW

Supreme Court upholds whistleblowers’ rights

For vendors, fraudulent government contracting carries three significant risks: criminal fraud prosecution, debarment and liability under the False Claims Act.

Debarment is visited on small businesses, but big businesses make juicier targets for false-claims actions. Larger contracts mean greater damages, and big corporations’ deeper pockets mean that they have money enough to pay a large judgment.

Liability under the False Claims Act is triggered by knowingly presenting a false or fraudulent claim to the United States for payment. The standard for “knowingly” is low and includes acting in deliberate ignorance or in reckless disregard of the truth. And any kind of demand for payment can suffice. As those in the health care industry have learned, Medicare reimbursement is a species of claim on the government.

The sanctions imposed by the act can be severe. In 1985, incensed by revelations of fraud in Defense Department contracting, Congress upped both the fines and the damages. The top penalty of $5,000 became the minimum, and the ceiling rose to $10,000 for each false claim. In addition, Congress increased the damages from twice to three times the amount of the loss sustained by the government.

The combination of multiple penalties with treble damages can add up to staggering liability. A major hospital company is proposing to settle a number of such suits for $750 million. The risk of damages is so great that some analysts cite it in their low stock valuation of defense contractors.

A controversial provision of the act deputizes people as whistleblowers to bring suit on behalf of the government and claim a portion of the damages and penalties as a reward. This type of suit is called “qui tam,” a Latin phrase describing the relationship between the private plaintiff, or relator, and the government.

Thing of the past

If the punishment meted out by a qui tam suit seems medieval, that’s because the origins of this type of lawsuit are medieval, dating back to 14th-century England.

A successful qui tam plaintiff stands to make lots of money. His or her share of the proceeds of the action ranges up to 25 percent if the government intervenes in the case, which it has the right to do. If the government declines to intervene, the relator’s share grows to 30 percent. Either way, the winning plaintiff also gets reasonable expenses, including attorneys’ fees and costs. Hence, a cottage industry has sprung up of plaintiff’s lawyers willing to take such cases on a contingent fee basis.



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