Be Careful What Certifications You Sign (Even Those You Don’t Sign)
The current Trump administration continues to proceed with efforts to effectuate sweeping policy changes, largely through broad and ambiguous executive actions, including executive orders (EOs), regulatory changes (often through its deviation authority, rather than a typical notice and comment period), and requiring contractors and grant recipients to sign new and/or revised representations and certifications, such as EO 14398. With these dramatic policy shifts, many of which relate to ending diversity, equity and inclusion (DEI) initiatives, imposing limits on “gender ideology” and restricting the provision of federally funded services to noncitizens, the administration attempts to tie compliance to the federal civil False Claims Act and in turn to impose significant penalties and damages for organizations’ failure to comply.
The False Claims Act (FCA) (31 U.S.C §§3729-3733) entitles the government to pursue treble damages for funds disbursed to (or retained by) any person or company that knowingly presents (or conspires to present) a false or fraudulent claim for payment to an officer or employee of the United States government. In addition to significant damages, the FCA also assesses a penalty per claim ranging from $14,308 to $28,619.
By certifying it understands and intends to follow specific policies or rules, a grant recipient or government contractor exposes itself to potential FCA liability. The clearest liability under the FCA results from a materially inaccurate request for payment. For example, this frequently occurs when a federal grant recipient or contractor submits an invoice or drawdown reimbursement for hours not actually worked. However, the FCA has also been used to ensure compliance with agreement and regulatory requirements, often through either express or implied representations or certifications attesting to such compliance. Under the “implied certification” theory, the government can argue that the mere submission of a request for payment implicitly means the grant recipient or contractor complied with the material provisions applicable to the funding agreement. For example, FCA liability may arise when an organization draws down funds or submits an invoice for hours that were worked, but in the course of performance, the organization did not comply with another material requirement.
As explained by the Supreme Court in Universal Health Services v. U.S. ex rel. Escobar, “liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory or contractual requirement. In these circumstances, liability may attach if the omission renders those representations misleading.” 579 U.S. 176, 181 (2016). It is irrelevant whether the contractor or grant recipient explicitly certifies to compliance with all award terms when submitting the invoice — it must only make specific representations as to the invoiced goods or services such that “failure to disclose noncompliance with material statutory, regulatory or contractual requirements makes those representations misleading half-truths.” Id. at 190.
Importantly, however, a violation of a requirement giving rise to FCA liability must still be material to the government’s decision to pay, meaning that the truth or falsity of the implied compliance would have likely influenced the government’s decision to pay. Cimino v. Int’l Bus. Machines Corp., 3 F.4th 412, 423 (D.C. Cir. 2021) (quoting 31 U.S.C. § 3729(b)(4)). Furthermore, the compliance or noncompliance with a requirement is not material simply because the government asserts that it is. See Escobar, 579 U.S. at 194-95; United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027, 1033 (D.C. Cir. 2017). Nevertheless, “the government’s decision to expressly identify a provision as a condition of payment is relevant” to the analysis. Escobar, 579 U.S. at 194.
Materiality Standard
The materiality standard in the past has shielded contractors and grant recipients from FCA liability for failing to comply with minor requirements. Yet, with this administration’s frequent use of EOs to impose additional requirements on contractors and grant recipients, the government will be in a far better position to argue that these new requirements are material to the government’s decision to pay for performance. See id. at 194-95. In fact, as the Supreme Court explained in Escobar, “proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory or contractual requirement.” Id.
And while the government must prove a grant recipient or contractor had “knowledge” of a material false claim, the legal definition for knowledge includes reckless disregard or willful ignorance as well, and that knowledge can be imputed from not only executive-level employees, but also lower-level employees, depending on the pervasiveness of the noncompliance. Indeed, courts have tied a failure to enact sufficient internal controls to constitute reckless disregard, and therefore “knowledge” under the FCA. See, e.g., United States v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1276 (D.C. Cir. 2010).
The speed with which the current administration is issuing policy changes creates another risk — the policies may conflict with existing contract and grant requirements such that contractors and grantees cannot comply with both the policy change and the other terms of their contracts. For example, in January, the State Department promulgated a final rule adding regulations at 2 C.F.R. Part 604 meant to ensure that “foreign assistance align[s] with State Department policies opposing gender ideology, discriminatory equity ideology, unlawful [DEI] programs, and abortion as a method of family planning overseas.” However, there appears to be no consideration from the administration about whether these requirements would violate host-country laws, which grant recipients and contractors are also required to follow when working in another country.
Criminal Statutes and Debarment
Beyond these concerns, there are several criminal statutes the government could use to hold noncompliant contractors and grant recipients accountable, including the criminal False Claims Act (18 U.S.C. § 287), the False Statements Act (18 U.S.C. §1001), and even Wire Fraud (18 U.S.C. § 1343). While at trial, the government must prove a contractor or grant recipient had the requisite knowledge (often “actual knowledge” or “willful blindness”) and must do so “beyond a reasonable doubt,” even credible allegations of violations of these criminal statutes can change the bargaining position of a contractor or grant recipient seeking to settle with the government and seeking subsequent conversations with relevant suspension and debarment officials.
In addition to any of the above criminal or civil actions and their specific punishments and penalties is also the near-automatic consequence of a suspension or debarment review, whereby a finding that the organization lacks “present responsibility” is often tantamount to a corporate death penalty. Indeed, the FCA and other integrity-based violations of law (whether by a plea, settlement, judgement or conviction) is an automatic basis to debar, based on provisions at 2 C.F.R. § 180.800(a). Accordingly, an FCA inquiry and settlement raises issues that go well-beyond the dollars and cents of a settlement.
Best Practices
Given these factors, before signing any certification advanced by the administration, or even submitting an invoice or request for payment or reimbursement, grant recipients and contractors should carefully consider whether their organization can satisfy the myriad of requirements being foisted upon them. Moreover, if in doubt, such organizations should: (1) attempt to seek clarification as to conflicts in law and inconsistency in federal demands; (2) make good faith interpretations of ambiguous or unclear requirements or terms, ideally supported by legal counsel; (3) qualify its certifications to account for any such ambiguities or where there is a lack of clarity; and (4) attempt to be as transparent as possible with the government funder or customer. Each of these efforts can mitigate against a viable FCA claim, demonstrating a lack of recklessness and transparency on the part of the organization, and knowledge of the issues, facts and information by the government.
Dismas (Diz) Locaria is a partner with the law firm Venable LLP. His practice focuses on assisting government grant recipients and contractors in all aspects of working with the federal government. He has extensive experience assisting clients with regulatory and contract/grant term counseling, compliance (including ethics and integrity compliance), investigations (including handling FCA matters) and responsibility matters, such as suspension, debarment and other contracting/grant exclusions.
Allison Siegel is an experienced analyst and advisor on federal regulatory matters. Allison assists clients with government contracts and federal grant matters, including federal investigations, bid protests, claims, litigation, regulatory compliance, mergers and acquisitions, and grant funding disallowances. She represents clients in bid protests and interventions before the Government Accountability Office and the U.S. Court of Federal Claims. In her time as a trial attorney with the Department of Justice, Allison managed and investigated civil FCA cases originating from qui tam relators, disclosures and government sources alleging federal procurement, international trade and healthcare fraud.
