The False Claims Act Explained: What Every Federal Contractor Should Know

This article is part of an ongoing legal series designed to provide insight and practical guidance on current and emerging workplace compliance issues. These insights shared by lawyers are based on their interpretation of existing regulations and proposed changes, and intended for informational purposes, not to be regarded as legal advice.

Federal contractors complete projects for the federal government through a contractor bidding process. Contractors must carefully follow federal regulations throughout the registration, bidding, and performance phases. The False Claims Act is a federal law designed to enable the government to recover public money that federal contractors obtain or use in violation of the law.

Here, we explore what federal contractors need to know about the False Claims Act to minimize risk and stay compliant. Outsolve helps federal contractors avoid potential pitfalls by providing tools and guidance that support ongoing compliance efforts. 

Who Are Federal Contractors?

Federal contractors are businesses that contract with the federal government to provide goods or services. Federal contracts offer businesses opportunities to reach new markets and complete unique projects while requiring contractors to take specific steps to become eligible and retain their eligibility to receive contracts. 

What Is the Federal False Claims Act?

The federal False Claims Act establishes mechanisms for the government to recoup funds and penalize federal contractors who commit fraud at some point during the federal contracting process, from registration through contract completion (or failure to complete). 

False Claims and Liability

A false claim is a request for money or property related to government-provided funds that is partially or entirely fraudulent. False claims often involve issues with how a business used federal funds or what work it performed related to its federal contracts. 

A contractor may be held liable if they submit a claim:

• For work that was never done or is incomplete;
• That inflates time, cost, or scope of work to increase payment;
• That includes misleading or deceptive information during the application process, especially if the government would not have awarded the contract if it had known the truth;
• That relates to controlling or transmitting government funds when some percentage of the money is unaccounted for;
• Using receipts that the contractor knows or should know are inaccurate; 
• For a purchased debt, despite the seller not having the right to sell;
• Lying or misleading about their ability or intention to reimburse the Government; or
• That reduces an outstanding debt owed to the Government without authorization.

Helping someone else submit a false claim also violates the act.

To Knowingly Submit a False Claim

A contractor knowingly submits a false claim if they know or should have known about the fraudulent elements of the claim. 

You “knowingly” submit a false claim when:

• You actually know the claim is fraudulent, and you submit it;
• You deliberately ignore indications that the information in the claim could be untrue; or
• You recklessly disregard whether the information is accurate or not.

False Claims Act Penalties

If the government concludes that a contractor submitted a false or fraudulent claim, it may impose False Claims Act penalties, including:

• The costs of the civil action,
• Three times the amount of damages the government incurred, and
• A civil penalty adjusted for inflation ($11,000 in 2025).

The government can also impose criminal penalties in particularly egregious cases. These criminal penalties can include additional fines and imprisonment of up to five years.

The government may reduce the False Claims Act penalties if:

• The contractor provides all known information about the violation to the government within 30 days of it occurring;
• The contractor fully cooperates with the investigation; and 
• When the violator provides the information, the government has not initiated a related investigation.

Under these circumstances, the government may impose double rather than triple damages. 

How the Government Enforces the False Claims Act

The False Claims Act authorizes the government to recover damages in two ways:

• The Attorney General. Through the Attorney General’s office, the government may investigate independently and demand that the contractor provide certain information for it to determine whether the contractor violated the law. If the contractor fails to cooperate or a violation appears likely, the Attorney General may initiate a civil action. 
• Private Citizen. A private individual may initiate a “qui tam” lawsuit, where they sue on behalf of the government. As an incentive, they are generally entitled to recover legal fees and between 15% and 25% of the total damages the government recovers. 

The government may intervene in qui tam lawsuits, essentially taking them over. If the government intervenes, the person who brought the qui tam action may be entitled to recover 25% to 30% of the overall recovered damages. 

This system incentivizes individuals to bring qui tam lawsuits, making the act's enforcement more effective. However, it also means individuals may be more likely to bring weak claims with little chance of success.

Common False Claims Act Violation Examples 

The False Claims Act applies to many different industries, and common False Claims Act violation examples include:

• Billing fraud, such as charging for work not actually performed, inflating hours beyond work actually completed, or reporting hours worked by fictional employees;
• Contract procurement fraud, such as lying or misleading the government about what your company is, what it does, or your ability to complete a project using requested funds;
• Healthcare fraud, such as billing for unnecessary prescriptions;
• COVID-19 pandemic fraud, such as misusing relief funds;
• Military fraud, such as overcharging for equipment; and
• Cybersecurity fraud, including failing to implement required security systems.

In 2024, the government recovered over $2.9 billion through the False Claims Act, and over $2.4 billion came from qui tam lawsuits.

What Federal Contractors Need to Know About the False Claims Act

To stay compliant with the False Claims Act, contractors should:

• Understand each step of the federal contract process and ensure compliance with federal contractor requirements; 
• Maintain clear organizational and recordkeeping systems; and
• Have a plan to respond to complaints of violations.

Crucially, a request for funds may count as a false claim if you submitted information that is not true at some point in the application process, and that untrue information affected the government’s decision to grant the contract. 

Compliance with Federal Regulations

To become a federal contractor, a business must:

• Register and get a unique entity identifier (UEI);
• Get certified as a small business or a Schedule holder (a designation that applies to specific projects), or both; and  
• Follow contract terms exactly if awarded. 

If you cannot meet your obligations, notify the agency as your contract requires.

To qualify for additional federal contracts, federal contractors must follow federal regulations related to employment, equal opportunity, and non-discrimination. While engaged in a federal contract or actively bidding on a contract, contractors must also refrain from contributing to federal political parties or candidates. 

Stay Organized

Keeping your business operations organized can help you avoid or quickly respond to allegations of false claims. Carefully track:

• How you use funds, 
• When you use funds, and
• What work you complete.

If you handle money or property for the government, account for every instance where any part of the funds or property changes hands.

Anticipating Risks and Creating a Response Plan

Understand that false claim actions often come from individuals in qui tam lawsuits. You can anticipate possible risks by comparing your business procedures to those of contractors already targeted under the False Claims Act. 

Next, create a response plan that:

• Outlines procedures for self-reporting violations,
• Addresses what steps to take upon learning of a potential violation, and
• Trains employees to identify risks and violations.

Ensure everyone who needs to know about the plan knows about it.

Get Assistance 

Outsolve offers tools and support to help you organize your business, maintain compliance, and respond effectively when issues arise. Good organization, compliance procedures, and a solid response plan can help avoid False Claims Act issues. Contact Outsolve to learn more about the resources we offer.