Many of our clients have been calling to ask whether failure to comply with the Administration’s Executive Order imposing vaccine mandates on federal contractors could lead to False Claims Act liability, and what steps they can take to minimize the risk of liability.  Much remains unknown, especially what specific obligations will be included in the FAR clause to be released on October 8.  However, we have highlighted a few key considerations that should be front of mind for all contractors and subcontractors.

On September 9, 2020, President Biden signed an Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors, and on September 24 the Safer Federal Workforce Task Force issued a Guidance to implementing the Executive Order.  Our prior posts describing the requirements those actions impose on Federal contractors can be found here and here.  However, neither the Executive Order nor the Guidance address the consequences of non-compliance by covered contractors.  One question repeatedly being asked by our clients is whether non-compliance could trigger False Claims Act (“FCA”) liability and lead to enforcement by the Federal government or qui tam plaintiffs.  We address that issue below.

Noncompliance Could Lead to FCA Liability.  The FAR clause to be released on October 8 is expected to track the Guidance that the Government issued on September 24, although the precise contours of the clause are unknown.  The language in the clause will dictate the specific obligations imposed on contractors and subcontractors (including flow-down requirements), and will serve as the baseline against which contract compliance will be measured.  A failure to comply with the clause could lead to a finding that invoices or other payment requests submitted under covered contracts are “false” under the FCA.  Contractors should familiarize themselves with the clause as soon as it is released.  Quick action will be needed to ensure compliance by the December 8 deadline.

FCA Liability Can Be Imposed Only if Noncompliance is Material to Payment.  Contractors that fail to achieve compliance with the obligations in the FAR clause can face liability only if the Government or qui tam plaintiffs can establish that noncompliance is “material” to payment, under the standards set forth by the Supreme Court in the Escobar decision.  The question of materiality will depend on a variety of factors, including not only the language in the FAR clause, but also on how government agencies enforce noncompliance with the clause.  If the government routinely pays contractor claims notwithstanding evidence of noncompliance, contractors will have strong arguments under Escobar that any noncompliance was not material and they should not face FCA liability.  (Note that Senator Grassley and others have introduced controversial legislation that if enacted could affect the burden of proof on materiality.)

New Contracts and Modifications Pose Risk of “Fraudulent Inducement” Claims.  Contractors that enter into contracts or contract modifications with the new FAR clause while knowing they will be unable to comply fully with its requirements could face allegations that they fraudulently induced the awards of those contracts or modifications.  Such allegations of fraudulent inducement have become increasingly prevalent in recent years, and under some case law can lead to the argument that all amounts paid under the contract constitute damages.  However, contractors should have substantial arguments that such claims are not viable absent specific, knowing false statements of future compliance in advance of the contract award.

Qui Tam Risk is High.  The vaccine mandate to be imposed on Federal contractors and subcontractors has been highly publicized, and the energetic qui tam bar can be expected to pay close attention to the possibility of knowing or reckless noncompliance.  We predict a high likelihood of qui tam lawsuits alleging FCA liability predicated on noncompliance with the vaccine mandate.

Stay tuned for more developments.  We will provide our readers an information booster shot after the FAR Council releases the new contract clause.

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Photo of Peter B. Hutt II Peter B. Hutt II

Peter Hutt represents government contractors in a range of complex investigation, litigation, and compliance matters, including False Claims Act and fraud investigations and litigation, compliance with accounting, cost, and pricing requirements, and contract claims and disputes.
Peter has litigated more than 20 qui…

Peter Hutt represents government contractors in a range of complex investigation, litigation, and compliance matters, including False Claims Act and fraud investigations and litigation, compliance with accounting, cost, and pricing requirements, and contract claims and disputes.
Peter has litigated more than 20 qui tam matters brought under the False Claims Act, including matters alleging cost mischarging, CAS violations, quality assurance deficiencies, substandard products, defective pricing, Iraqi procurement fraud, health care fraud, and inadequate subcontractor oversight. He has testified before Congress concerning proposed amendments to the False Claims Act.

Peter has also conducted numerous internal investigations and frequently advises clients on whether to make disclosures of potential wrongdoing. He is recognized for his work by Chambers USA, which notes that Peter is not only “an excellent litigator,” but is “great to work with and very knowledgeable.”

Peter also represents clients in a wide range of accounting, cost, and pricing matters, as well as other contract and grant matters. He is experienced in addressing issues concerning pensions and post-retirement benefits, contract formation, TINA and defective pricing, claims and terminations, contract financing, price reduction clauses, subcontracting and supply chain compliance, specialty metals compliance, and small business and DBE compliance. He has litigated significant cost, accounting, and contract breach matters in the Court of Federal Claims and the Armed Services Board of Contract Appeals.

Photo of Frederic Levy Frederic Levy

Frederic Levy is one of the nation’s leading suspension and debarment lawyers, focusing his practice on the resolution of complex compliance and ethics issues. He has successfully represented numerous high-profile corporations and individuals under investigation by the government in civil and criminal matters…

Frederic Levy is one of the nation’s leading suspension and debarment lawyers, focusing his practice on the resolution of complex compliance and ethics issues. He has successfully represented numerous high-profile corporations and individuals under investigation by the government in civil and criminal matters, including False Claims Act cases, and in suspension and debarment proceedings to ensure their continued eligibility to participate in federal programs. He has also conducted numerous internal investigations on behalf of corporate clients, particularly in the areas of program fraud and export controls, and often involving sensitive personnel or fiduciary matters. He has also advised corporations in voluntary or mandatory disclosures to a variety of federal agencies. Mr. Levy regularly counsels clients on government contract performance issues, claims and terminations, and he litigates such matters before the boards of contract appeals and in the Federal Circuit.

Robert Huffman

Bob Huffman represents defense, health care, and other companies in contract matters and in disputes with the federal government and other contractors. He focuses his practice on False Claims Act qui tam investigations and litigation, cybersecurity and supply chain security counseling and compliance…

Bob Huffman represents defense, health care, and other companies in contract matters and in disputes with the federal government and other contractors. He focuses his practice on False Claims Act qui tam investigations and litigation, cybersecurity and supply chain security counseling and compliance, contract claims and disputes, and intellectual property (IP) matters related to U.S. government contracts.

Bob has leading expertise advising companies that are defending against investigations, prosecutions, and civil suits alleging procurement fraud and false claims. He has represented clients in more than a dozen False Claims Act qui tam suits. He also represents clients in connection with parallel criminal proceedings and suspension and debarment.

Bob also regularly counsels clients on government contracting supply chain compliance issues, including cybersecurity, the Buy American Act/Trade Agreements Act (BAA/TAA), and counterfeit parts requirements. He also has extensive experience litigating contract and related issues before the Court of Federal Claims, the Armed Services Board of Contract Appeals, federal district courts, the Federal Circuit, and other federal appellate courts.

In addition, Bob advises government contractors on rules relating to IP, including government patent rights, technical data rights, rights in computer software, and the rules applicable to IP in the acquisition of commercial items and services. He handles IP matters involving government contracts, grants, Cooperative Research and Development Agreements (CRADAs), and Other Transaction Agreements (OTAs).