Federal and state governments purchase products and services from thousands of businesses every year.  The Small Business Administration reported that in 2011, the federal government awarded $91.5 billion in contracts to small business. Much more was spent with larger businesses. Overall, the federal government also spends more than $500 billion a year on contracts with for-profit firms. A significant amount of money is spent on defense contracting. The Pentagon alone obligates more than $300 billion each year to private contractors, much of it through more than 100,000 single-bid contracts. The sheer volume of purchases and contracts, coupled with limitations on the government's ability to oversee all of the transactions creates an environment that is ripe for fraud.

 There are many ways in which contract fraud can occur.  Contract fraud occurs in ways that are obvious, and, in many instances, in ways which you may not even realize.  Below are examples of government contract fraud.  If your employer contracts with the federal government, please take notice of these examples: 

• ·         Charging for goods and services that were not provided
• ·         Submitting false cost or pricing data to the government during the negotiation of a contract to obtain an artificially inflated contract price (commonly referred to as "Defective Pricing")
• ·         Failure to give the government the "best price"  (where the contract has a "Price Reduction Clause" that requires the contractor to provide the government with the lowest price offered to other customers)
• ·         Submitting false or fraudulent claims for goods or services sold to the Army, Navy, Air Force, Marines, or Coast Guard
• ·         Submitting claims for substandard goods sold to the Army, Navy, Air Force, Marines, or Coast Guard
• ·         The contractors' failure to satisfy the performance requirements under the contract with the government
• ·         The contractors' failure to comply with sourcing requirements under federal law
• ·         Billing for labor, materials, or equipment that were not used to perform the government contract
• ·         Exposing military personnel to health risks by improperly disposing of hazardous materials
• ·         Falsely representing that a company is a minority-owned business in order to obtain a  government contract
• ·         Failing to pass along discounts to the government, where the contractor receives such discounts for volume, prompt payment, etc., from the suppliers and subcontractors used by the contractor
• ·         Fraudulently billing for labor costs not incurred, such as providing "journeyman" rates in a bid and then using lower-paid apprentices to perform the work under the contract
• ·         Falsely claiming that products were made in America

·         Including costs which are not allowed under the government contract, such as marketing, sales, and lobbying costs, when the contractor invoices the government

The Office of Inspector General (OIG) states that each year, potentially billions of dollars in federal funds are lost as a result of procurement fraud.  Federal Acquisition Regulations govern the awarded contracts and schedules. The Federal Acquisition Regulations state that "purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only."  As mentioned, contractors which do business with the federal government must generally give the government the "best price" that the contractor or vendor charges any of its other customers. 

The federal government's General Services Administration ("GSA"), typically executes Multiple Award Schedule ("MAS") contracts which govern the sale of goods and services. Under the MAS Program, contractors seeking to obtain a government contract agrees to disclose its commercial pricing policies and practices to GSA.  Once the MAS contract is awarded, Federal Acquisition Regulations require the contractor to disclose any changes in its commercial pricing practices to the GSA, including any new discounts that are offered to commercial customers after the MAS contract is put in place. Simply, the MAS Program creates a "simplified process for obtaining commonly used commercial supplies and services," and provides an opportunity for contractors to sell commercial items to the Government.

Many of the awarded government contracts contain a Price Reduction Clause ("PRC").  The PRC requires the contractor to file a report with the government's contracting officer which identifies "all price reductions" provided to its other customers. The contractor must certify that it has offered a price to the government that is either less than or equivalent to the price it gives its other customers.  The contractor's failure to give the government the best price can constitute fraud under the False Claims Act.  For example, the Medicaid Drug Rebate Program requires name-brand drug manufacturers to specify the "best price" given to private commercial customers. The drug manufacturer must pay rebates to state Medicaid programs anytime the government has paid more that the "best price" for those medications. The practice works to guarantee that Medicaid programs are offered the same deep discounts enjoyed by large commercial customers.   Best price violations can result in very significant damages to the government because of the government's "overpayment" for the drug. Some major pharmaceutical companies have been involved in False Claims Act lawsuits because of such violations.

 Be on the lookout for such activity. Fraud against the government impacts us in many ways. Higher taxes and reduced government benefits are a consequence to us all, so that the government can offset the costs of fraud. Government contract fraud costs the taxpayers billions of dollars every year.  Speak up.  You have the right NOT to remain silent.