A coalition of business groups is preparing to turn up the heat this year on reforming the False Claims Act, which they claim is being used not to root out fraud by federal contractors--as the act intends--but rather to punish companies for unintentional errors they've made while carrying out federal contracts.
"Fraud is supposed to have intent," said Tony Pagliaro, the director of government relations for the American Council of Independent Laboratories, one of more than a dozen trade groups that have joined the False Claims Working Group, the main lobbying arm that is mobilizing against the False Claims Act.
Amendments made to the False Claims Act in 1986 allow anyone who knows about fraud to sue companies on the government's behalf. It also entitles the government to recover three times its losses. In October, the Justice Department announced that it had recovered $2.2 billion from civil fraud cases brought under the whistleblower provisions of the act since 1986.
Pagliaro says there's little stopping federal officials from invoking the act, even when it's the company itself that brings errors to the government's attention. "Say you have a performance mistake," Pagliaro says. "They can decide to prosecute that as fraud. That turns a simple contract dispute into fraud ... instead of trying to work together in a cooperative manner."
The working group is tilted toward companies that offer--or want to offer--their services to the Pentagon. It includes the Aerospace Industries Association, the American Electronics Association, the U.S. Chamber of Commerce, the Electronic Industries Alliance, the Information Technology Association of America, the Information Technology Industry Council and the National Federation of Independent Business.
In addition, several big defense contractors, including Boeing, General Dynamics, Lockheed Martin, Litton Industries, United Defense and United Technologies are on record as supporting the effort. Mark Gitenstein, a lobbyist with the law firm Mayer, Brown and Platt, has been retained by United Technologies and Boeing to push revisions to the False Claims Act.
Despite efforts over the past several years, the law's critics in the defense sector have been unable to get reforms passed. This year, the working group will be redoubling its efforts to insert favorable language into the defense authorization bill, lobbyists aligned with the effort said. For the first time, the law's critics may decide to propose their own bill, rather than waiting for Pentagon officials to offer language themselves.
Such a bill would have two elements, said one strategist. "We want to raise the court's standard from 'a preponderance of the evidence' to 'clear and convincing evidence,' " the strategist said. "And we want to change the standard from an innocent mistake to a higher-level intent. Both parts are designed to screen out the more frivolous complaints."
The Justice Department and various agencies' inspector generals' offices defend the act. So does Sen. Charles Grassley, R-Iowa, who sponsored the 1986 amendments to the 1860s-era act. Citing the Justice Department's announcement of more than $2 billion in recovered claims, Grassley told GovExec.com in a statement, "To those inclined to gut the False Claims Act, I have two billion more reasons why we need it more than ever."
The False Claims Act affects more contractors than just those who do business with the Pentagon. In fact, as popular concern has grown about waste, fraud and abuse, federal officials have found the False Claims Act to be one of their major weapons in contract oversight.
After facing multiple challenges under the act, health care providers who serve Medicare and other federal health programs last year promoted reform legislation sponsored by Bill McCollum, R-Fla., and William Delahunt, D-Mass., in the House and Ernest Hollings, D-S.C., and Thad Cochran, R-Miss., in the Senate. The legislation was never approved, but the act's critics did succeed in convincing the Justice Department and the Health and Human Services Department inspector general to issue guidelines on how they would enforce the act.
In addition, the omnibus spending bill passed late this year included a provision that ordered the General Accounting Office to independently monitor agencies' enforcement of the False Claims Act in health-care cases. Defense contractors were unaffected by these legislative and administrative changes.
New uses for the False Claims Act are still being undertaken. Earlier this year, Andrew Cuomo, the Secretary of Housing and Urban Development, announced that he planned to use the act to combat fraud in federal home-mortgage programs.
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