In a unanimous Judgment, the SCOTUS resolved long simmering legal uncertainty by deciding that federal prosecutors may hold federal contractors and federal grant recipients criminally liable for fraudulently promising compliance in contract bid proposals even where the fraud caused no economic harm to the federal contract or grant agency.
SCOTUS’ new ruling strongly suggests the need for federal contractors/grantees to affirmatively review the bases for all certifications and contract performance promises made in contract bid documents. And, of course, this new SCOTUS decision comes on the eve of new coming federal contract and grant certifications that federal contractors/grantees will soon be asked to make in federal contract/grant proposals, as we have previously described HERE and HERE.
The new case decision of concern is Kousisis v. United States, No 23-909 (May 22, 2025). Remarkably, the Kousisis case decision has flown under the radar since its issuance a month ago. However, the case decision now adds enormous new legal risk to federal contract and grant bidders now facing potential double-barrel legal trouble: new “fraudulent inducement in contract/grant procurements” under federal wire fraud and conspiracy to commit wire fraud laws courtesy of the Kousisis case decision, and pursuant to the already well known perils of the False Claims Act (as we earlier described HERE and HERE).
Federal prosecutors in the Kousisis case adopted a new legal theory to attack recipients of federal monies. The federal government’s new “fraudulent inducement” argument that the SCOTUS endorsed is that fraudulent statements of compliance in contract and grant bids, or with the terms or certifications set out in contracts and grants, may cause the contracting or grant agency to award the contract or grant when it might otherwise not have awarded the contract. Justice Amy Coney Barrett wrote the Opinion for the Court and framed its legal holding as follows:
“Under the fraudulent inducement theory, a defendant commits federal fraud whenever he uses a material misstatement to trick a victim [i.e. a federal contract or grant agency] into a contract that requires handing over her money or property—regardless of whether the fraudster, who often provides something in return, seeks to cause the victim net pecuniary loss.”
Background Note: Federal law (18 U.S.C. Section 1343) makes it a criminal offense to “…devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce”. So, one may commit a “wire fraud” by merely hitting “Send” on a federal bid proposal containing fraudulent representations you are submitting via the Internet.
Kousisis was a “Project Manager” at Alpha Painting in Philadelphia. Alpha won two RFPs that Kousisis wrote to win two contracts to paint the iconic Philadelphia Girard Street Bridge and the 30th Street (train) Station (over $65 million in grant monies total and $20M in gross profit). While these were state contracts, federal U.S. Department of Transportation (DOT) grants funded both projects to paint major transportation hubs. The federal grants, in turn, required the successful bidder on the state contracts to create a “Disadvantaged Business Enterprise” (DBE) program to involve in a “commercially useful” way the DBE and to allocate at least 6% to 7% of the grant monies to the DBE.
Kousisis signed the state contract proposals and falsely represented in Alpha’s contract bid that Alpha Painting would buy $6.4M of its paints from a DBE by the name of Markias. Instead, Kousisis used Markias only to invoice Alpha and pass along paint orders to paint suppliers. As Justice Barrett put it:
“…Markius was no more than a paper pusher, funneling checks and invoices to and from Alpha’s actual suppliers. Not only did this arrangement contradict Kousisis’s prior representations, it also contravened DOT’s rule that a contributing disadvantaged business must perform a commercially useful function.”
Alpha paid Markias only about $170,000 for its paper “pass-through” services.
SCOTUS faulted Kousisis for two different transgressions:
Now think about the qualitative assessments federal contractors and grant recipients will soon be making that the services they are delivering under a federal contract or grant services come from a company or institution not violating any federal nondiscrimination law and not sponsoring any unlawful DE&I programs. To avoid successful “fraudulent inducement in the formation of contract” claims, federal contractors and grantees will therefore need to review company policies and practices to be able to truthfully certify that the qualitative conditions the contract/grant sets down (non-discrimination in company policies and practices) are being met.
We have previously described in two Blogs (Part 1 and in Part 2) in specific detail what federal contractors and grantees must do to properly position themselves to make truthful, informed, and comprehensive certifications and/or warranties in response to the coming federal contract and grant bid proposal certifications.
As said so well in the Ghostbusters song:
So, the feds have now successfully busted Mr. Kousisis for wire fraud and conspiracy to commit wire fraud. Mr. Kousisis will now have a criminal record and depending on the federal District Court (trial) Judge on remand from SCOTUS, Mr. Kousisis may also be sentenced to serve time in a federal prison. The silver lining in this sad story is that in federal prisons, you get 1/3 time off for good behavior. And since Kousisis knows how to paint, I am sure he will be able to paint over all the terrible graffiti he is going to write about the feds on the walls of his cell, thus hastening his departure from his hoosgow in exchange for his “good conduct time credits.”
“PRAEMONITUS, PRAEMUNITAS” (For those of you who didn’t go to Catholic or Episcopalian school: “Forewarned is forearmed”). Get ready now. Do your homework. Check your company’s/institution’s policies and practices so you may confidently warrant and certify. “Shakin’ it here, boss. No unlawful discrimination here, boss.”
You have to do the work if you want to bid on federal contracts and grants without problematic legal issues haunting your work. PERIOD. “Price of doing business” is what the feds and the courts always say when the private sector screams bloody murder about the cost burdens of compliance with federal contracts decorated with numerous onerous social responsibility requirements.
Here is what Judge Royce Lamberth (a University of Texas graduate and a Ronald Reagan appointee) had to say in November 2011 when he was the Chief Judge of the District of Columbia federal District Court. In a case which caught the attention of the entire federal contractor community, Judge Lamberth found himself confronted by strident and strenuous contractor cries of woe and objection after OFCCP had issued an especially onerous and costly (to the contractor) request for data and documents in a routine audit of the compensation practices at a federal contractor establishment of a leading federal contractor (United Space Alliance: ”United Space”):
“The Court understands that United Space and the entire community of federal contractors are keenly interested in how OFCCP decides whether to request additional data on a contractor’s compensation practices, but that interest does not allow those companies or this Court to interfere with the agency’s investigatory practices. Submission to such lawful investigations is the price of working as a federal contractor.” (emphasis added)
So, it is time to get with the program folks. No more stalling. No more bellyaching about compliance costs, or time diversion, and/or staffing burdens…IF, IF, IF you seek to bid on federal contracts or grants.
You get to make your own bed, but then… you also get to lie in it.