DOJ Affirms Cooperation Principles in Government Contract Fraud Investigations

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Those of us who have had more than a few discussions with the Civil Fraud Section of the Department of Justice (DOJ) over the years about federal procurement and grant fraud have come away with a clear enough understanding of a few basic principles of cooperation. First, while it is cliché to say that the “multiple” on single damages that the DOJ might demand in settlement of a civil False Claims Act (FCA) case varies depending on the circumstances, the general understanding is that if a defendant settles at or before the time the DOJ must file its complaint, then the DOJ may be more willing to forego the statutory “per invoice” penalties under the FCA. Such is the case whether the matter arose from an independent government investigation or from an investigation commenced by the filing of a qui tam lawsuit. Second, it was further generally understood that counsel could expect the discussion to center primarily on the question of determining the actual harm. In some instances – overcharges, for example – both the logic and the math may be relatively easy. For other circumstances – programmatic violations that cause harm in a socioeconomic way – that discussion can be more philosophical when the conduct did not cause a direct financial loss to the government (or direct financial gain to the defendant).

Set as a counterpoint to the government investigation settlement is the typical default for a settlement of a matter arising entirely because a defendant (or potential defendant) has brought the matter to the government’s attention: whether or not the regulatory or contractual definition of a “mandatory” disclosure has been clearly met. In those instances, the pattern has largely been that the government (typically the agencies themselves) has more readily agreed to accept a settlement that does not involve any multiple or penalties. Companies can increase that likelihood with a robust presentation that the underlying issue has been remedied and the company has a vigorous corporate compliance program.

As a result, the receipt of an Inspector General subpoena or DOJ civil investigative demand largely led to one range of resolutions, whereas the internally generated disclosure led to the possibility of a far better range of outcomes. For company counsel, then, the likeliest outcomes have largely been dictated before any action could be taken, and rarely was there the opportunity to shift one type of matter into the other. No company counsel has the time to root out and discover all possible errors and violations, so counsel have largely been stuck with the dichotomy of when they were first presented with the problem and whether the government already got wind of the issue from someone other than the contractor.

The DOJ has recently announced formal guidelines in the Justice Manual for its civil cooperation decisions. It promotes the benefits of actively engaging and cooperating with the DOJ, in contrast to burying one’s head in the sand, when it comes to potential wrongdoing. It makes clear that the DOJ has the discretion to provide credit to contractors that not only disclose wrongdoing but also cooperate and/or remediate even if the contractor was not the initiator of the government investigation.

As my colleagues note in summarizing the new guidance here – explaining in detail the nature of disclosure, cooperation, and remediation at all stages of a matter that might engender credit – there is now a more clear, public, and concrete set of reasons for our clients to consider early self-assessments and engagement with cognizant government officials: there is formal policy that recognizes the credit that can be obtained, not only for voluntarily, self-disclosing wrongdoing but also for cooperating with the government and implementing an effective compliance program.

Indeed, the greatest amount of ongoing cooperation could mean that the contractor will not suffer any FCA consequences at all, but merely return the government to the status quo ante with a payment of the actual damages suffered by the government. At the very least, the new guidance bridges some of the distance that corporate counsel could not control; there at least now is an opportunity, through early cooperation after receipt of a government-instituted investigation, to obtain substantial credit through meaningful cooperation and additional disclosure. We are encouraged by this trend, and expect that in-house counsel will be as well.