We get Contracting: Episode 2 — Civil Rights Compliance Opens New Path to FCA Claims

Transcript

Scott Pechaitis

Principal, Denver

Welcome back, everyone. I'm Scott Pechaitis, and I'm a co-leader of Jackson Lewis' Government Contracts and Compliance group. This is the second session of We Get Contracting. I'm joined today by my fellow co-leader, Jeremy Schneider. Today, we're diving into a hot topic: the False Claims Act and the Department of Justice's Civil Rights Fraud Initiative. If you're a government contractor, you're going to want to stick around for this one because this could impact you in a big way.

First, a little bit about Jeremy, because Jeremy is going to talk us through this today. Jeremy has tremendous experience in this space. Everything from handling whistleblower complaints to doing investigations to looking at potential fraud issues to defending litigation to advising counsel around mitigating risk. Jeremy has really seen it all.

Jeremy, let's start off with some basics here. What is the False Claims Act?

Jeremy Schneider

Principal, Washington, D.C. Region 

Thanks, Scott. The False Claims Act is a law that was first enacted during the Civil War. In fact, it's often referred to as Lincoln's Law. During the Civil War, the Union Army found itself being ripped off by unscrupulous contractors who sold them barrels of gunpowder that were half-filled with sawdust and that sort of thing or injured donkeys and whatever else. The idea behind the FCA is that it's a bounty law; it encourages whistleblowers to report suspected government fraud by allowing them to share in the proceeds of whatever the government recovers as a result of the tip.

Today, the FCA is the government's chief tool for combating government fraud. The Department of Justice investigates whistleblower complaints alleging government fraud in contracting, healthcare, construction, pharmaceuticals, housing, and many other industries. It litigates and settles these cases, and the government recovers approximately $4 billion a year in FCA enforcement.

Pechaitis

That's the False Claims Act. What is the Department of Justice's Civil Rights Fraud Initiative? Is this something different or new?

Schneider

Traditionally, the DOJ has gone after fraudulently obtained funds related directly to the performance of a contract or the participation in a particular government program. For example, a contractor certifies that its payrolls are accurate when it submits its invoices to the government for payment, but if those payrolls or the hours worked are inflated, then the government would say you've made a false claim for payment.

Now, the Civil Rights Fraud Initiative creates a new requirement for contractors. In May of last year, Deputy Attorney General Todd Blanch issued a memorandum introducing the Civil Rights Fraud Initiative. That memorandum directs all DOJ attorneys to use the FCA to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws. The initiative adds teeth to President Donald Trump's Executive Order 14173, which was entitled "Ending Illegal Discrimination and Restoring Merit-Based Opportunity" and was issued on his first or second day in office. In short, the DOJ is now going to pursue FCA cases when federal fund recipients knowingly violate civil rights laws, so think Title VII, Title IX, and other federal anti-discrimination statutes.

Pechaitis

Jeremy, if a contractor is signing off on this certification saying they're compliant, but they're not…

Schneider

That's the issue – false certification can be treated as fraud under the FCA, which means treble damages, hefty penalties, and even criminal liability.

Pechaitis

For contractors, then, why is this a big deal? Contractors, like all employers, already have an obligation to comply with Title VII of the Civil Rights Act and other anti-discrimination statutes. What changes here?

Schneider

Well, look, that's true. Contractors are like other employers in that they must comply with Title VII and other statutes. In that way, the initiative doesn't change any of that for contractors, but this is a big deal because DOJ is widening the lens. Civil rights compliance is now going to be front and center. Executive Order 14173 largely concerns what the administration calls ‘illegal DEI’, or diversity, equity, and inclusion practices. By making contractors certify compliance with federal anti-discrimination laws, the administration is telling contractors that it intends to investigate and prosecute employers who not only discriminate or retaliate against their employees in the classic fashion, but also contractors who have DEI programs, diversity scholarships or fellowships, and inclusive 

Pechaitis

Wow, and has the Department of Justice actually done anything about this yet?

Schneider 

Yes, they have. The DOJ has begun issuing what are called civil investigative demands. There have been a number of media reports about them, and we can confirm that this has happened. Essentially, CIDs are subpoenas that an employer or a contractor has to respond to. They're asking specifically about DEI programs, hiring practices, and the like. We're not aware of any lawsuits yet, but these initial investigative tools are being used.

Pechaitis

What are the risks, and maybe more importantly, what should contractors do to mitigate these risks?

Schneider

You really have to know whether these requirements apply to you. A safe bet is that if you receive federal funds or participate in a federally funded program, you are a contractor for the purposes of the Civil Rights Fraud Initiative. This means traditional government contractors, medical providers who bill Medicare or Medicaid, construction companies on federal projects, housing providers who participate in federal housing assistance programs or pharmaceutical companies who are subject to anti-kickback laws. All of those industries are at risk.

You aren’t here to hear just the doom and gloom, so here are six really practical tips that we contractors can do in the short term to help themselves get ready.

First, you want to update your risk assessments to include civil rights compliance. Allegations of discrimination, retaliation, or so-called unlawful DEI practices are now something that could trigger larger-scale compliance issues like FCA enforcement.

Second, contractors need to double-check their certifications. You need to know what you're certifying to. At the end of every federal government contract is a long list of FAR, federal acquisition regulation, requirements that each contractor is certifying to compliance with. You should take the time to read those and speak with counsel, so that you understand what it is that you're agreeing to comply with and that you're actually complying with those things in practice. You want to review your DEI programs and practices to ensure that they comply with federal law. The government is focusing on large contractors and large employers whose DEI practices have received notoriety or media coverage and have been out in the public forum for a long time. Really, this is low-hanging fruit for the administration. They are looking for a big impact, at least right now. You should look at these practices to make sure that they're in compliance with federal law.

Fourth, you want to train leadership and procurement teams on civil rights obligations. Fifth, you want to be ready for DOJ document requests. You should have a process in place.

Sixth, you want to strengthen whistleblower reporting and internal review systems. I know it seems weird to want to encourage whistleblowers to come forward, but if they report things to you internally before going to the government, you will have an opportunity to investigate and take action if it's appropriate before it turns into a larger issue. We recommend that our clients have robust whistleblower and compliance programs that include an anonymous option, for example. That's one thing that you should be working on if you're a contractor.

Pechaitis

Absolutely. Thank you, Jeremy. Bottom line here, folks, civil rights compliance is now an FCA issue. Contractors need to act fast, tighten controls, review their DEI programs, and stay ahead of the enforcement trends.

Of course, tune in next time as we bring you more from the federal contracting space. Thank you very much for tuning in. Again, I'm Scott Pechaitis with my colleague Jeremy Schneider, and this has been We Get Contracting. Thank you.