Procurement Fraud

Procurement fraud generally refers to any illegal conduct that undermines the integrity of the federal government’s procurement and/or contracting processes, such as bid rigging, bribery, and fraud. Due to the extremely extensive budgets, procurement fraud poses a threat of significant financial losses, but beyond the financial losses when our soldiers and sailors and spies are equipped with inferior equipment due to fraud – it puts their lives and our national security at risk.
Given the massive scope of such fraud, the federal government relies heavily on whistleblowers to come forward with information to help reveal fraudulent activities. Procurement Fraud Whistleblowers are afforded financial incentives and protections to come forward and expose nefarious practices.

The Department of Justice places a large emphasis on training (see DOJ’s Procurement Collusion Strike Force) to spot red flags and determine how to act when encountering unethical practices that may implicate procurement fraud. This training enhances the ability of officials at all levels to spot red flags and act against unethical practices.

Partnering with a trained procurement fraud lawyer/procurement fraud law firm can assist you with reporting procurement fraud the right way or at minimum when you speak with a whistleblower law firm they can help evaluate whether the conduct is wrong and if so, what steps can be taken to report the fraud and protect yourself along the way.

How to Detect Fraud in Procurement

Detecting fraud is crucial not only for protecting the interests of taxpayers, but also for upholding the integrity of businesses. Without either of these elements, consumers would mistrust the economy. The Department of Justice highlights several red flags that may indicate fraud, such as identical bids from different contractors, bids that are significantly higher or lower than market expectations, and unusual bidding patterns like bid suppression where one or more competitors withdraw their bid to allow another to win.

Here are some common signs of procurement fraud to be aware of:

• Bidding Irregularities: Keep an eye out for patterns that deviate from normal procedure, such as consistent awards to a particular vendor despite lower bids from others, or a lack of competitive bidding when it’s expected. Repeated sole-source awards without a strong rationale are also concerning.
• Vendor Relationships: Be wary of situations where employees have personal relationships or undisclosed financial interests. This could manifest as favoritism towards certain vendors or avoidance of proper vendor vetting processes.
• Documentation Issues: Watch for inconsistencies or anomalies in procurement documents. This includes purchase orders that don’t match the bids, invoices that vary without explanation from the contract terms, or missing documentation that should standardly accompany procurement processes.
• Change Orders: Frequent or significant change orders that increase the scope and cost of contracts can be a sign of initial underbidding to secure the contract, followed by adjustments to increase profit margins illegally.
• Lifestyle Red Flags: Significant changes in the lifestyle or financial status of those involved in procurement might indicate kickbacks or bribes. This could include unusual purchases that don’t align with their known income.

The DOJ and its responsible agencies branches, such as the Federal Bureau of Investigation (FBI) and various Offices of Inspector General, are actively involved in investigating procurement fraud. They look into cases where there may be false claims, bribery, or other forms of procurement irregularities. Essential aspects of these investigations include the analysis of bidding patterns and the relationships between contractors and government officials.

How to Report Procurement Fraud

If you wish to receive a procurement fraud whistleblower award, you need to speak with a qui tam law firm that has the background to commence an action under the False Claims Act. The False Claims Act addresses fraud against the federal government and entitles a whistleblower, also knowns as a relator, to commence an action and receive up to 30% of what the government recovers as a whistleblower reward. These are sophisticated cases so you should not just trust a mom and pop shop to file this, but instead look to some of the best whistleblower law firms which generally are firms with a track record in this space and have one or more former Department of Justice alumni like Brown, LLC.

It is important to file a False Claims Act lawsuit with attorneys that have former DOJ experience, since the prosecuting agency is the Department of Justice and the rules for filing are complex and the DOJ likes to interface with those that they have a comfort level with because it’s like speaking the same language. While the Department of Justice encourages reporting procurement fraud through formal channels, you need to speak with a procurement fraud whistleblower lawyer first to understand your rights and upsides versus downsides of using the FCA versus just reporting it directly yourself.

This helps initiate investigations that can uncover and prosecute fraudulent activities. The government has set up a Procurement Collusion Strike Force. This strike force has systems to facilitate the reporting of such violations. Synergistically, when filing the False Claims Act for procurement fraud, your whistleblower attorneys can seek to steer the case to the strike force to streamline the litigation. If you approach the strike force yourself without filing a False Claims Act case you are not eligible for an award!

Examples of Procurement Fraud

Procurement fraud can come in various forms. Here are some examples of common types of procurement fraud:

• Bid Rigging: This occurs when businesses collude to raise prices or lower the quality of goods or services.
• False Invoicing: Companies or individuals might submit invoices for goods or services that were never delivered or performed.
• Kickbacks and Bribery: This involves a supplier offering bribes or kickbacks to procurement officials in exchange for favorable treatment or contract awards.
• Conflict of Interest: In instances where a person responsible for procurement has a personal interest in a vendor or contractor, it can lead to biased decision-making. An example could be a public official who steered contracts to a company owned by a family member, thereby bypassing more competitive and qualified bids.
• Change Order Abuse: This fraud happens when a contractor deliberately underbids to win the contract, intending to increase the price through change orders once the contract is secured. An investigation might reveal that the initial bids were unrealistically low to guarantee winning the tender.
• Progress Payment Fraud: This happens when a contractor fraudulently or falsely certifies certain costs, such as those eligible for reimbursement or claims that there are no payment holdbacks.
• Nonconforming Materials: This is a specific form of fraud in which a contractor uses false documentation to show materials meet contract specifications when they actually do not.
• Cost Mischarging: A straightforward type of fraud in which the government is charged for costs that are not allowable, or for costs that pertain to a completely different contract.
• Defective Pricing: Similar to materials fraud, this relates to fraud entailing the falsification or inaccurate submission of information regarding costs or prices.

Notable Procurement Fraud Claims

Some notable procurement fraud claims to be aware of include:

1. Booz Hamilton Holding Corp.: In 2023, Booz Allen Hamilton Holding Corp. agreed to settle allegations for a landmark amount of $377 million dollars. The company was charged under the False Claims Act for improperly allocating costs to the government by “comingling indirect costs” across different contracts. Notably, this case was brought to light by a whistleblower.
2. South Korean Fuel Supply Bid Rigging: This case involved multiple South Korean companies that conspired to rig bids on fuel supply contracts to U.S. military bases in South Korea. The companies agreed amongst themselves to manipulate the bids, which resulted in inflated prices for the U.S. government.
3. “Fat Leonard” Navy Bribery Scandal: In one of the most infamous bribery and corruption scandals to hit the U.S. Navy, Leonard Glenn Francis, a defense contractor known as “Fat Leonard,” admitted to bribing Navy officials with cash, gifts, and other lavish incentives in exchange for confidential information and favorable treatment. This case exposed significant vulnerabilities in naval procurement processes and has led to numerous convictions and reforms for naval contracting practices.
4. GSA Schedule Contract Fraud: This case involved a technology company using its General Services Administration (GSA) schedule contract to defraud the U.S. government. The company was accused of misrepresenting its commercial pricing practices to the GSA, leading to government agencies paying significantly more than they should have. The case resulted in a substantial settlement that underscores the importance of accurate and honest disclosure in government contracting.

Whistleblower Awards in Procurement Fraud

Whistleblower awards in procurement fraud cases are designed to incentivize individuals to report illegal activities. These awards are part of broader anti-fraud laws that aim to protect public funds and maintain the integrity of the procurement process by incentivizing individuals to come forward with inside information. In the United States, a large contingent of the legal framework providing for whistleblower awards is the False Claims Act.

Under the False Claims Act, whistleblowers, also known as “relators,” can sue on behalf of the government for false claims and are entitled to a portion of the monetary recovery, typically between 15% and 30% of the recovered funds. The amount can vary depending on several factors, including the extent of the whistleblower’s contribution to the case and whether the government intervenes in the matter. These awards have significantly contributed to the discovery and deterrence of fraud. It’s crucial for potential whistleblowers to seek advice from a procurement fraud lawyer seasoned in this subfield to assist with submitting and litigating a successful False Claims Act procurement fraud claim.