Uptick in Buy American Enforcement Means Increased False Claims Act Risks
Following Executive Order 13788 issued April 18, 2017, “Buy American and Hire American,” contractors and subcontractors should prepare for increased enforcement of the Buy American Act (BAA), Buy America legislation, the “Little Buy American Acts,” and related civil or criminal prosecution under the False Claims Acts (FCA).
In recent years, the Department of Justice has increased efforts to prosecute FCA violations in concert with BAA or Buy American violations. In 2016 alone the Department of Justice obtained more than $4.7 billion in settlements and judgments from civil cases under the FCA, its third highest recovery.
Every contractor or subcontractor on a federally funded project supplying construction materials must certify that the materials used are in compliance with the BAA. Construction work for the DOT, DoD, and other federal agencies may trigger compliance requirements under both with the BAA and Little Buy American Acts. Certificates of compliance, however, can be fruitful grounds for federal prosecutors looking for FCA violations.
When a certificate of compliance does not accurately reflect the origin of the materials used under the BAA or Little Buy American Acts, there is a high likelihood that FCA liability may follow. Executive Order 13788 is likely to bring additional attention to the dual enforcement of buying American under the FCA.
A few recent cases illustrate the FCA risks arising from BAA and related laws that require compliance certifications:
- In 2016, Wisconsin-based architectural firm Novum Structures LLC entered a guilty plea and agreed to pay $3 million to resolve its criminal and civil liability under the False Claims Act 18 U.S.C. § 1001 arising from its concealment of the use of foreign materials on construction projects involving federal funds. Novum has also agreed not to contest its debarment from federal funded projects.
- Even smaller scale projects have received scrutiny due to the efforts of whistleblowers.
- Inflated invoices for labor costs will also invite FCA scrutiny.
Given the likelihood of increased scrutiny by the Department of Justice and federal agencies overseeing projects, contractors and subcontractors must take steps to ensure BAA Compliance. The penalties for non-compliance with the BAA and, in turn, the FCA may include administrative debarment from federally funded projects in addition to significant fines. Initial steps to limit BAA and FCA liability include:
- Actively monitor compliance with all BAA requirements;
- Self-report when non-compliance is uncovered;
- Create and foster internal reporting mechanisms at all levels to limit the likelihood of qui tam lawsuits brought by whistleblowers;
- Train employees to comply with the BAA to reduce the likelihood of submitting false certificates of compliance; and
- Implement the Contractor Code of Business Ethics and Conduct even for contracts that do not require it.
Given the potential for increased FCA scrutiny, where penalties may include large fines or administrative debarment, there is ample reason to step up your BAA and Little Buy America Acts compliance measures.