Federal contractors: Be aware of potential for increased penalties under FCA

Editor’s note: As the federal fiscal year winds down to its Sept. 30 close, GPN learned about some upcoming changes in penalties for violations of the False Claims Act. Jeffrey Pedersen, an associate at Pepper Hamilton LLP, offers his views on this new development below.

As we see an uptick in federal government contract awards before the end of the government fiscal year on September 30, 2016, companies doing business with the federal government should take note of two recent developments that stress the need for companies to have comprehensive compliance programs. First, effective August 1, 2016, there will be a substantial increase to the penalties assessable for violations of the False Claims Act (FCA).

The Bipartisan Budget Act of 2015 requires the Department of Justice (DOJ) to adjust for inflation the FCA penalties, which were last adjusted in 1999. The current penalty range will increase from $5,500–$11,000 per violation to a staggering $10,781–$21,563 per violation. The new civil penalties will be enforced after August 1, 2016 for violations that occurred after November 2, 2015, and are in addition to the FCA’s provision for treble (triple) damages customarily imposed for these types of violations.

The Bipartisan Budget Act also requires the DOJ to annually adjust these penalties—a first-time requirement and one that will see steady escalation of assessable penalty amounts. The heightened penalty range will no doubt motivate current and former employees, among others, to be ever more vigilant in their efforts to observe and report questionable corporate conduct that appears to be illegal or unethical, and to file qui tam litigation against employers. Under the FCA, successful plaintiffs (commonly referred to as relators) may receive 15 percent to 30 percent of the amount recovered by the government.

The FCA penalty adjustment comes on the heels of a recent Supreme Court decision that upheld the broadly applied “implied certification theory,” which expands the application of the theory to all federal circuits. Under the implied certification theory, it is presupposed that contractors implicitly certify compliance with statutory, regulatory, and contractual requirements when submitting claims for payment, and FCA liability may be extended to violations of any such requirement deemed material. Click here for a more in-depth analysis of this case.

The combination of increased penalties and expanded coverage of the implied certification theory provides significant incentives for the filing of FCA lawsuits, increasing contractors’ risk of exposure to enhanced penalties and more robust theories of recovery.

Jeffrey Pedersen can be reached at [email protected] or 202.220.1253.

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