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What is Government Contract Fraud?

In carrying out their duties, the federal government and state governments routinely do business with private companies. From hiring a construction company for a public works project to buying the weapons that arm the military, all sorts of transactions take place within the government sphere. All these transactions require an official contract between the government and the private company. When someone involved with that contract breaks the rules, the resulting crime is known as government contract fraud.

Fraud can occur at various levels of government and on vastly different scales. From multimillion-dollar scams to minor infractions, all instances of fraud are punishable by law. As the federal government increases its vigilance, private-sector contractors need to be especially assiduous in avoiding government contract fraud.

Who Typically Commits Government Contract Fraud?

In theory, any contractor that works with the government could commit government contract fraud. In practice, fraud is especially prevalent in certain key industries. Defense contractors, or the companies that supply the military with supplies, sometimes commit fraud in their dealings with the government. Infrastructure projects and detention facilities, due to their scope and complexity, are also given to illegal activity. Professionals who work as consultants for the government can commit fraud, as can software or technology experts. Even subcontractors that don’t have direct contact with the government can commit government contract fraud if they engage in certain illegal behaviors.

Common Types of Government Contract Fraud

Not all instances of government contract fraud take the same form. There are many ways to defraud the government, and the only thing they share is their illegality. Here are five of the most common behaviors that fall into the category of government contract fraud.

Bid Rigging

To win a government contract, private companies typically compete with other firms to offer the lowest price. This process is called bidding, and it’s meant to happen in a climate of fairness and competition. Sometimes, however, companies will act as if they’re competing when they’re actually working together to keep the cost of the contract higher. This type of activity is illegal, and it falls squarely within the category of government contract fraud.

Kickbacks

Sometimes, a company will pay secret fees in exchange for the receipt of a contract. These illegal payments are called kickbacks, and, if discovered, they can land a company in serious legal trouble.

Conflict of Interest

For contracts to be awarded fairly, all government officials should be looking out for the general welfare, not pursuing their own interests. If an official involved with the process has a financial incentive to choose one company over another, they’re obligated to disclose the fact. Any undisclosed conflict of interest may be illegal, especially if it results in the unfair rewarding of a contract or an inflated price.

Bribery

Perhaps the oldest trick in the book, bribery is when a company gives illicit gifts, often in the form of money, to an official in exchange for a government contract. Companies may also bribe officials to ignore overcharges and other fraudulent behavior. No matter where in the process the bribery occurs, it constitutes flagrant government contract fraud.

Overcharging for Materials and Time

The dollar amount that private contractors charge the government usually depends on the time and materials needed to complete the project. Some companies inflate these numbers to increase their profits. Whether or not this behavior is accompanied by bribes to officials, it is considered both fraudulent and illegal.

Investigating and Prosecuting Government Contract Fraud

The federal government is fully aware that these types of schemes exist, and it puts considerable resources into uncovering and prosecuting them. Official audits search for unscrupulous behavior, and government employees are encouraged to come forward if they witness anything untoward. While some suspicious cases turn out to be nothing more than a reporting error or unfortunate misunderstanding, others are genuine examples of egregious government contract fraud.

Someone credibly accused of government contract fraud can be prosecuted in a court of law. Potential penalties include hefty fines and even lengthy prison sentences. This process promotes a fair, clean system for awarding and carrying out government contracts.

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