- False Claims Act suits hitting an all-time high of 753 in 2013, and
- Government enforcement concerning disadvantaged business status is a particular focus of the Department of Justice.
A contractor that fails to follow DBE rules in turn almost always violates the False Claims Act. The violation occurs when a contractor submits a payment application that certifies that a certain percentage of work was performed by a DBE when in reality the DBE performed no commercially useful function. Importantly, to violate the False Claims Act the contractor need not be a knowing participant in the DBE fraud so long as it is shown that the contractor recklessly or deliberately disregarded the existence (I don’t know about it and I don’t what to know about it) of the DBE fraud.
Winning is Still Losing.
The False Claims Act makes bounty hunters out of disgruntled employees. Couple this with an increased interest on part of the trial lawyers bar makes the risk of facing a False Claims Act claim significant. Because the Act is complex and the risks of losing so severe, defending a False Claims Act action is not cheap. Even if a contractor successfully defends the action and it is ultimately dismissed, the attorneys fees will undoubtedly impact a firm’s bottom line.
The biggest takeaway for contractors working under a federal, state, or local DBE program is that they simply cannot ignore or fail to investigate potential wrongdoing involving the DBE program.