Claims involving fraud: contracting officer limitations during procurement fraud investigations

Introduction

A natural tension exists between the procurement fraud and contracting communities. Fraud investigators and litigation attorneys want sufficient time to investigate allegations of fraud and are concerned that contracting officers will neglect to bring suspected fraud to their attention. Furthermore, investigating agents and attorneys assigned to pursue any potential civil or criminal action against a contractor will be wary of any contracting officer's efforts to address the fraud for fear that the case will in some way be compromised, if not legally, then at least in terms of jury appeal, the creation of potential defenses, (1) or evidentiary issues. In contrast, the agency contracting office usually wants to move the procurement forward, often sees misunderstandings and mistakes rather than fraud, and is culturally oriented toward working issues out with its "partners" in the private sector. Indeed, as noted in the applicable portion of the Federal Acquisition Regulation (FAR): "[t]he Government's policy is to try to resolve all contractual issues in controversy by mutual agreement at the contracting officer's level." (2)

This article provides guidance on resolving a reoccurring issue raised during procurement fraud investigations: what authority does a contracting officer (CO) retain once fraud is suspected on a claim? Depending upon the specific stage of the investigation or litigation, the primary restrictions on the CO are contained in section 605(a) of the Contract Disputes Act (CDA), FAR section 33.210, the Department of Justice's (DOJ) statutory litigation authority (28 U.S.C. [section] 516), and agency policy directives and regulations. (3)

Limitations on the Contracting Officer's Authority

Once a claim is suspected of being fraudulent, a number of responsibilities and restrictions come into play. For ease of organization, this note addresses those rights and responsibilities through the various stages of litigation.

Prelitigation

General Overview of the Law

Federal regulations impose mandatory reporting requirements on a CO whenever a claim is suspected of being fraudulent. The FAR mandates that whenever "the contractor is unable to support any part of a claim and there is evidence that the inability is attributable to misrepresentation of fact or fraud on the part of the contractor, the CO shall refer the matter to the agency official responsible for investigating the fraud." (4) Similarly, when a Termination Contracting Officer (TCO) "suspects fraud or other criminal conduct related to the settlement of a terminated contract, the TCO shall discontinue negotiations and report the facts under agency procedures." (5) Further, individual agency regulations or policies may trigger reporting requirements. For example, by regulation the Army requires a "Procurement Fraud Flash Report" whenever (1) the procuring agency has referred the matter for investigation, or (2) "there is a reasonable suspicion of procurement fraud or irregularity." (6)

In addition to mandatory reporting requirements, the CO loses a significant degree of authority over a tainted claim. Federal Acquisition Regulation section 33.210(b) removes from the CO's authority "[t]he settlement, compromise, payment or adjustment of any claim involving fraud." (7) Similarly, CDA section 605(a) prohibits the agency head from administratively resolving a claim involving fraud. (8) The same section of the CDA also removes from the CDA's contract dispute resolution process "a claim or dispute for penalties prescribed by statute or regulation which another Federal agency is specifically authorized to administer, settle, or determine." (9) Falling within that exclusionary language are section 604 claims (10) and False Claims Act disputes and claims, (11) both of which fall within the exclusive authority of the DOJ.

Although the FAR addresses the authority of the CO, and the last sentence of section 605(a) restricts the authority of the agency head, the two provisions are related. The CDA's prohibition on an agency head's administrative resolution of a claim involving fraud was added by Congress "to insure that cases involving fraud [were] not subject to the [contract dispute resolution] provisions of [[section] 605(a)]." (12) Similarly, FAR section 33.210(b) was intended to interpret section 605(a) and further "admonishes the CO not `to decide or settle ... claims arising under or relating to a contract subject to the [CDA] ... involving fraud.'" (13) Courts have relied upon section 605(a), as well as FAR section 33.210(b), when discussing the contracting officer's lack of authority to resolve fraudulent claims. (14) Section 605(a)'s fraud exclusion for agency heads necessarily encompasses subordinate COs. (15)

Court opinions in various areas of the law provide some guidance to help establish the parameters of a CO's authority. (16) Many of the restrictions seem obvious. Government employees have neither the authority to permit contractor violations of federal statutes or regulations, (17) nor to waive such violations once they have occurred. (18) Procurement officials should not make statements concerning a contractor's lack of potential criminal or civil liability, (19) but a CO may express "concern about the possibility of fraud." (20) Clearly, making a determination whether fraud actually exists is beyond the CO's authority. (21)