Federal Contract Fraud - Government Contractor Charges
Welcome to Spodek Law Group. Our goal here is to give you the reality of federal contract fraud charges - not the sanitized version other law firms present, not the government's official explanation, but the actual truth about what happens when federal prosecutors decide a government contractor has crossed the line between aggressive billing and criminal fraud.
The investigation into your company probably started months ago. That former employee who left on bad terms? The subcontractor dispute that got ugly? The DCAA auditor who seemed to be asking strange questions last quarter? Any of these could have triggered a qui tam lawsuit filed under seal, running in secret for 60 days or more while federal investigators interview your current staff, subpoena your bank records, and build a case you know nothing about.
Heres the thing most contractors dont understand until its too late: the False Claims Act doesnt require prosecutors to prove you intentionally deceived the government. The "reckless disregard" standard means your failure to review billing accuracy, your trust in a subcontractors invoices, or your accounting departments cost allocation methodology can all be recharacterized as fraud - and you wont get to explain your side until after theyve already decided your guilty.
The Investigation Started Months Before You Knew
If your reading this because you just recieved notice of a federal investigation, understand something critical: by the time that letter arrived, prosecutors have likely spent months building their case. The False Claims Act allows whistleblowers to file lawsuits under seal, giving the government 60 days minimum to investigate before you recieve any notification whatsoever.
During those 60 days - and it frequently extends much longer - federal agents are interviewing your employees. Theyre reviewing your contracts, your invoices, your internal emails. Theyre talking to your subcontractors and your competitors. Theyre building a timeline of every billing decision you made and looking for patterns that suggest fraud.
Think about that. Right now, as your going through your normal business operations, theres possibly a federal investigation happening that youll never know about until the intervention decision is made. As Todd Spodek often tells clients facing these situations, the investigation you dont know about is the most dangerous one.
The qui tam process was designed this way intentionaly. Congress wanted whistleblowers to have time to assist the government without the target destroying evidence or fleeing. But the practical effect is that contractors face a system where their fate is being determined in secret proceedings they cannot participate in, cannot respond to, and often cannot even imagine are happening.
Look, the numbers here are staggering. In FY 2024, the Department of Justice initiated 1,402 new False Claims Act matters - up from 768-963 annually in prior years. Thats an 82% increase in investigations. And 83% of all FCA actions were initiated by whistleblowers. Your employees, your former employees, your subcontractors - they all have financial incentive to report you.
What "Reckless Disregard" Actualy Means For You
Heres the part nobody talks about until your already sitting across from federal prosecutors. The False Claims Act imposes liability for "knowing" conduct - but "knowing" doesnt mean what you think it means.
Under 18 U.S.C. and the FCA framework, "knowing" includes three standards: actual knowledge (you knew the claim was false), deliberate ignorance (you suspected but chose not to look), and reckless disregard (you submitted claims while being conscious of a substantial risk the information wasnt accurate).
That third standard is were contractors get destroyed. You didnt have to INTEND to defraud the government. You didnt have to KNOW your claims were false. If the government can prove you were conscious of a risk that your billing wasnt accurate and submitted the claims anyway - thats enough for federal prosecution.
CRITICAL WARNING: Failure to review your claims for accuracy before submission can constitute "reckless disregard" - even if you genuinely believed the claims were correct.
Lets be specificaly clear about what this means in practice. Your cost allocation methodology that your accounting firm approved? If it turns out the government disagrees with how you allocated overhead, and prosecutors can argue you should have known there was risk in that methodology - reckless disregard. Your project manager who approved timesheets without personally verifying every entry? Reckless disregard. Your reliance on subcontractor invoices without independant verification? Reckless disregard.
The court in one case found that a contractors "use of a flawed methodology showed its reckless disregard for the accuracy of its claim" - even though the contractor believed they were following proper procedures. Sound familiar?
Your Employees Are The Government's Best Weapon
OK so heres were it gets truly terrifying. The False Claims Act doesnt just allow employees to report suspected fraud - it pays them to do it. Whistleblowers who file successful qui tam lawsuits recieve between 15-30% of whatever the government recovers from you.
Let that sink in.
Since 1986, whistleblowers have recieved over $7.8 billion in awards. Thats billions with a B - paid directly to people who helped the government take money from their employers and former employers. The government has recovered $75 billion total through FCA litigation, with $53 billion (71%) coming from whistleblower-initiated cases.
Your employees arent just potential witnesses against you. There incentivized informants with a financial stake in your destruction.
That employee you fired for performance issues last year? They had 60 days to file a qui tam lawsuit under seal before you could even know it existed. That accounting clerk who disagreed with your overhead allocation? They could be reviewing your records with federal investigators right now. The project manager who quit after a dispute about timesheets? Their qui tam lawsuit might be why you recieved that subpoena.
At Spodek Law Group, weve seen this pattern repeatedly. The government dosent find most False Claims Act cases through independent investigation. They find them because someone inside your organization - someone with access to your billing records, your internal communications, your cost allocation decisions - decides the potential payday is worth more then their loyalty to you.
And heres the kicker: whistleblowers are protected from retaliation. If you fire someone after they file a qui tam lawsuit, even if you have no idea they filed it, you can face additional liability for wrongful termination. The statute specifically protects employees who are "discharged, demoted, suspended, threatened, harassed, and discriminated against" for reporting potential fraud.
The DCAA Audit That Becomes A Criminal Case
Most government contractors know DCAA audits are part of doing buisness with the federal government. What they dont realize is that DCAA maintains an entire Office of Investigative Support specifically designed to convert audit findings into criminal referrals.
Heres how it works in reality. A DCAA auditor conducts a routine financial capability audit of your company. They find "questioned costs" - maybe a cost allocation discrepancy, maybe a billing irregularity, maybe just something that looks unusual. Under normal circumstances, you might think you can explain this, negotiate a settlement, move on.
But DCAA dosent just flag questioned costs. They have a dedicated hotline (1-855-414-5892) for referring potential fraud. And their Investigative Support Division provides "accounting and financial advisory services to investigative agencies and the Department of Justice in civil and criminal fraud investigations."
WARNING: The DCAA auditor asking questions about your overhead allocation may be documenting evidence for a criminal referral - and you wont know until the investigation is complete.
Consider what happened to Austal USA, a major Navy shipbuilder based in Mobile, Alabama. In February 2025, they pled guilty to financial accounting fraud AND obstruction of a DCAA audit. The settlement? $24 million. The company that builds ships for the U.S. Navy and Coast Guard - destroyed by a DCAA audit that uncovered accounting discrepancies.
Or look at SP Global Institute. DCAA's Operations Investigative Support Division assisted a criminal investigation that resulted in executives Thomas Burns and Daniel Trolley being ordered to pay over $12 million in restitution.
The pattern is clear. What starts as a routine audit can become a criminal investigation without you ever knowing the nature of the inquiry has changed. The DCAA auditor asking follow-up questions might already be working with federal prosecutors. Your helpful, cooperative responses to audit questions might be building the evidence file that destroys your company.
Suspension: Destroyed Before Proven Guilty
Theres a phrase you need to understand: suspension is immediate. Not after trial. Not after conviction. Not after any hearing were you get to present your side. Immediate.
Under federal acquisition regulations, a suspension excludes your company from "participating in Federal contracting and financial assistance awards government-wide on any new contracts or financial assistance awards dated on or after the date of the suspension." This suspension takes effect the moment its issued - before you've had any oportunity to defend yourself.
Worse, your name gets published on SAM.gov, the System for Award Management. Every federal agency, every prime contractor, every business partner you have can see that you've been suspended from federal contracting. The reputational damage happens instantaneously.
For companies that primarily do business with the federal government, attorneys who practice in this area describe suspension or debarment as a "corporate death penalty." Once your suspended, existing contracts cant be renewed. New bids cant be submitted. Your employees see the SAM.gov listing and start looking for new jobs. Your subcontractors refuse to work with you. Your bank reviews your credit lines.
And remember - suspension doesnt require conviction. It doesnt even require indictment in some cases. The government can suspend you based on "an indictment, information, or the agency's independant, adequate evidence" that you committed fraudulent conduct. They can destroy your business based on thier own assessment of evidence you havent seen and cant respond to.
The new FAR rules effective January 2025 made this even worse. A contractor is now precluded from obtaining ANY new federal contracts "immediately upon receiving a notice of proposed debarment." Not after the debarment is final. Upon recieving notice. You get a letter, and your effectively frozen out of federal contracting that same day.
The Numbers They Dont Want You To Calculate
Lets talk about what federal contract fraud actually costs. The False Claims Act imposes penalties of up to $27,894 per false claim submitted. That sounds manageable until you realize how claims multiply.
A single government contract might involve dozens or hundreds of invoices. Each invoice is potentialy a separate "claim." A three-year contract with monthly billing? Thats 36 claims. A contract with multiple line items billed seperately? Each line item could be a claim. Progress payments, milestones, reimbursable expenses - every submission to the government is potentialy another $27,894 in penalties.
But wait - thats just the per-claim penalty. The False Claims Act also allows for treble damages. Whatever the government claims you defrauded them of, they can seek three times that amount.
So if the government alleges you overbilled by $500,000 on a contract with 50 invoices, your looking at:
- $500,000 x 3 = $1.5 million in treble damages
- 50 claims x $27,894 = $1.4 million in penalties
- Total: Nearly $3 million
And that assumes the government dosent pursue criminal charges seperatly. Criminal penalties for government contract fraud can include up to 20-30 years in federal prison for felony convictions, plus fines up to $500,000 for companies.
Look at real cases. Daniel Criswell Lee, a project manager - not an owner, not an executive, a project manager - received 33 months in federal prison and was ordered to pay $2.8 million in restitution. The TRICARE fraud defendants? 21 years in prison and $107 million in restitution for a $65 million fraud scheme.
These arent abstract numbers. There real sentences, real payments, real lives destroyed.
What Happens After The Indictment
The cascade of consequences after a federal contract fraud indictment moves faster then most contractors can comprehend.
Day 1: Indictment announced. Suspension from federal contracting effective immedietly. Your name published on SAM.gov within hours.
Week 1: Media coverage of the indictment. Your customers - federal and commercial - begin asking questions. Key employees start interviewing elsewhere. Bank reviews your outstanding loans.
Month 1: Prime contractors who relied on your subcontract work notify you theyre finding replacements. Bonding company increases rates or cancels your bonds entirely. Health insurance renewals questioned. Credit lines called or frozen.
Month 3: Remaining employees resign as the company's future becomes uncertain. Customers who hadnt heard the initial news now see SAM.gov listing. Business development comes to complete halt.
Year 1: Trial preparations consume all executive attention. Legal fees mount. Without new work, cash reserves deplete. Bankruptcy becomes likely scenario.
Year 2+: If convicted, prison. If acquitted, your company probably dosent exist anymore anyway. The years of fighting destroyed everything even if you "win."
As Todd Spodek has explained to many clients, the punishment in federal contract fraud cases often begins long before any courtroom verdict. The process itself is designed to be destructive.
Fighting Back: What Defense Actually Looks Like
If your facing federal contract fraud allegations, you need representation that understands both the criminal justice system and the government contracting world. These cases sit at an unusual intersection - prosecuted by attorneys who specialize in fraud, defended in courts where the presumption of innocence means nothing to your suspended contracts and departed employees.
At Spodek Law Group, we approach these cases with full understanding of what your actually facing. Not just the criminal charges - the regulatory consequences, the debarment proceedings, the civil qui tam liability, and the business destruction happening in real-time.
Defense in a federal contract fraud case might include:
- Challenging the "reckless disregard" characterization by demonstrating affirmative steps taken to ensure accuracy
- Negotiating civil resolution to prevent or limit criminal exposure
- Fighting suspension through administrative proceedings while criminal case proceeds
- Managing simultaneous investigations across multiple agencies
- Protecting individual executives from personal criminal liability
- Documenting good-faith compliance efforts that counter prosecutorial narratives
The first step is understanding exactly what your facing. If theres a qui tam lawsuit, when was it filed? Has the government intervened? What specific claims are being alleged? What evidence exists and what dosent?
Heres the reality: if the government has decided to intervene in a qui tam lawsuit against you, they believe they can win. Their conviction rates in cases they choose to pursue exceed 90%. But that dosent mean your defense is hopeless - it means your defense requires sophistication, experience, and the willingness to fight on multiple fronts simultaneously.
The clock started when you learned about this investigation. Every day that passes without proper representation is a day the government spends building their case while you wait. Call Spodek Law Group at 212-300-5196. The investigation may have started without your knowledge. Your defense shouldnt.
