Currently before Congress are at least two bills that could significantly increase government contractors’ liability and strengthen whistleblowers’ power to sue on behalf of the government. Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vermont) are spearheading a bipartisan effort to revise the False Claims Act (FCA), the government’s primary tool to recover damages for fraud related to government contracts. Under the FCA, the government may recover treble damages for false claims in addition to a $5,500 to $11,000 penalty per claim. The qui tam provisions of the FCA permit whistleblowers (called “relators”) to sue on behalf of the government and receive up to 30 percent of the government’s total recovery. Since 1986, the government has recovered over $22 billion through the FCA.

Both Senate bills would overturn court decisions that the sponsors (and the plaintiffs bar) allege were too friendly to contractors. The first bill, the Fraud Enforcement and Recovery Act of 2009 (FERA), would expand FCA liability, particularly for subcontractors. The second bill, the False Claims Act Clarification Act of 2009 (FCACA), would eliminate the public disclosure defense and give relators new procedural advantages. Interestingly, as we discussed here, the Department of Justice (DOJ) is already on record questioning the need for some of these provisions in earlier proposed legislation.

The Fraud Enforcement and Recovery Act of 2009 (FERA)

FERA slips momentous FCA amendments into a bill whose primary purpose is to address the current crises of financial institution fraud and frauds related to federal relief programs. Sen. Leahy introduced FERA in February 2009 and the Judiciary Committee released its report on March 23, 2009. Contractors are advised to follow this bill as it appears to be riding the legislative fast track.

FERA would expand FCA liability by:

  • Eliminating the requirement that false claims be presented to the government. As confirmed by then-Judge (now Chief Justice) John Roberts, the FCA attaches liability to a false claim that is presented to the governmentSee United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004). FERA would add liability for false claims presented to contractors, grantees, and other non-governmental recipients if (1) the money sought by the claim is intended (a) to be spent on the government’s behalf or (b) to advance a government program, and (2) the government either provided the money or will reimburse a portion of it. This could expose subcontractors and suppliers to significant liability for billing errors and/or claims for amounts not properly due and owing that are currently addressed through the contractual relationship with the prime contractor.


  • Covering claims for non-United States government money. FERA would redefine the term “claim” to include money that the United States government controls but to which it does not have title. This is intended to reverse a District Court ruling that there was no liability for presenting a false claim for Iraqi funds administered by the United States government. See United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2006).


  • Eliminating the intent requirement for a false statement. Last term, the Supreme Court held, in a case we discussed here, that liability for a false statement requires the defendant to intend that the false statement result in the government paying a false claim. See Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008). FERA would overturn Allison Engine, remove the intent requirement, and instead merely require that the false statement be “material” to a false claim.  FERA adopts two definitions of materiality: material would mean either having a natural tendency to influence the payment or being capable of influencing the payment. In a rebuke to the Supreme Court, FERA would make this provision retroactive to June 7, 2008, the date of the Allison Engine decision. If FERA passes, there will surely be litigation to determine if retroactively enlarging the FCA’s liability provisions violates the Constitution.


  • Eliminating the intent requirement for conspiracies. In Allison Engine, the Court similarly conditioned liability for conspiracy on the requirement of an intent to defraud the government. FERA would reverse Allison Engine and impose liability on anyone who conspires to violate any provision of the FCA, regardless of intent. The likely practical impact of this change will be to add minor defendants for the purpose of increasing settlement amounts.


  • Adding a new category of “reverse false claims” for retaining overpayments. A “reverse false claim” occurs when a person uses a false record or statement to avoid paying money to the government. FERA would create a new type of liability for knowingly concealing or failing to pay the government; no false claim or statement would be required. Additionally, the new law would impose liability for knowingly retaining an overpayment. In an ominous omission, although the Judiciary Committee Report admits that this new liability is not intended to cover overpayments that are subject to a reconciliation process, the proposed legislation does not expressly incorporate this restriction. Based on the literal language, a Medicare contractor could be held liable for being aware of an overpayment if it did not immediately reimburse the government.

The False Claims Act Clarification Act of 2009 (FCACA)

The FCACA revives legislation proposed last year as the False Claims Act Correction Act. Introduced by Sen. Grassley, the FCACA adds advantages to the already empowered relators by:

  • Eliminating the public disclosure defense. The most radical change proposed by the FCACA is the virtual elimination of the public disclosure defense. In its current form, the FCA denies federal jurisdiction to an action brought by a relator who piggybacks on information already known by the government, such as information disclosed by the media, unless the relator was the original source of that information. The FCACA would redefine public disclosure as a non-jurisdictional issue, thereby stripping defendants of the right to invoke the defense. Only the government would be permitted to raise the public disclosure argument and, in practice, would likely only do so to replace a completely parasitic relator, not to dismiss an entire lawsuit.


  • Permitting government employees to be relators. Most government employees are currently ineligible to serve as relators. The FCACA would allow government employees to be relators if they disclose the evidence within the government and wait at least 18 months before filing a complaint. 


  • Sealing court records if the government moves to dismiss a relator. If the government moves to dismiss a government employee as the relator, the defendant would not be permitted to view the court records and thereby learn about the background of the case.


  • Expanding anti-retaliation protection to contractors and other third parties. The FCA currently protects a defendant’s employees from retaliation for acts in furtherance of an FCA action. The FCACA would expand that protection to include efforts to stop a violation, such as complaining to a supervisor, and it would cover acts done by government contractors and agents. 


  • Expanding the statute of limitations period. Relators must currently file an FCA case within 6 years and the government must file within 6 to 10 years, depending on when it learned the material facts. The FCACA would establish a single limitations period of 10 years. Additionally, the government could add related claims after the 10 year period if a relator filed a lawsuit within the 10 year period.


  • Permitting relators to obtain pre-litigation information from the DOJ. The DOJ may use Civil Investigative Demands (CID’s) to obtain information from a potential defendant before filing a lawsuit. The FCACA would permit the DOJ to share the information obtained from CID’s with the relator.


False Claims Act Correction Act of 2009

Another bill introduced by Rep. Howard Berman (D-Calif.), known as the False Claims Act Correction Act of 2009 , shares many of the provisions of FCACA, but proposes more significant changes to the FCA. For example, Rep. Berman’s bill would eliminate the requirement under Rule 9(b) of the Federal Rules of Civil Procedure that fraud be pled with particularity in an FCA complaint.


These proposed amendments, if passed, will likely increase the number of lawsuits brought by relators under the qui tam provisions of the False Claims Act, thereby substantially increasing the risks and potential cost of doing business with the government. The elevated position granted to relators is particularly troublesome in light of the new Federal Acquisition Regulation (FAR) Mandatory Disclosure provision. See Louis D. Victorino and John W. Chierichella, “The FAR’s ‘Contractor Business Ethics Compliance Program And Disclosure Requirements’ Require Significant Changes For All Government Contractors And Subcontractors”, The Government Contractor, December 17, 2008.  With contractors now required to disclose potential FCA violations, relators may exploit the disclosures and subsequent CID responses and file lucrative FCA actions forcing contractors to defend on multiple fronts. These amendments would thus turn the relator provisions on their head, from originally incentivizing whistleblowers to report wrongdoing where the government was unaware of the issues to now enabling relators to recover a bounty with the government’s own information.

Authored by:

Robbie Hurwitz

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