Civil Investigative Demands (CIDs) and Federal Investigations Targeting Government and Private Contractors

Federal authorities are actively targeting government and private contractors for a number of “common fraud schemes.” If you have received a civil investigative demand (CID) or been contacted by a federal agency, it is important that you speak with an attorney immediately.

Government and private contractors have an unfortunate reputation. Although most contractors are well-intentioned and law-abiding, incidences of fraud, waste, and abuse are prevalent enough that consumers are wary and federal authorities have begun to aggressively target contractors suspected of over-billing their private and public customers. 

Have You Received a CID or Been Contacted by Federal Agents?

Most contractors learn about federal investigations in one of two ways—either: (i) they receive a civil investigative demand (CID); or, (ii) they are contacted directly by a federal agent with an Office of Inspector General (OIG), the U.S. Department of Justice (DOJ), or the Federal Bureau of Investigation (FBI). In either case, the federal government has typically been looking into the contractor’s practices for some time already; and, as a result, the contractor faces an uphill battle to avoid civil penalties and the potential for federal criminal prosecution.

If you have received a CID, or if you have been contacted by a federal agent, you need to seek legal representation promptly. Regardless of the merits of the investigation, you must defend your business (and yourself) effectively in order to avoid severe consequences. At Oberheiden, P.C., our federal defense attorneys have a proven record of success in federal investigations and trials, and we can work quickly to protect you and your business from unnecessary consequences.

10 Forms of Government and Private Contractor Fraud 

While federal investigations targeting government and private contractors can involve a broad range of allegations, federal authorities have identified 10 “common fraud schemes” that are currently top federal law enforcement priorities. These are:

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Dr. Nick Oberheiden

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Amanda Marshall
Amanda Marshall

Former U.S. Attorney

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Lynette S. Byrd
Lynette S. Byrd

Former Federal Prosecutor

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Aaron L. Wiley
Aaron L. Wiley

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Subodh Chandra

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Elizabeth K. Stepp
Elizabeth K. Stepp

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Roger Bach
Roger Bach
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Former Special Agent, OIG

Dennis A. Wichern
Dennis A. Wichern
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Former Special Agent-in-Charge

Chris Quick
Chris Quick
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Former Special Agent, FBI

Kevin M. Sheridan
Kevin M. Sheridan
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Retired Supervisory Special Agent, FBI

Ray Yuen
Ray Yuen
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Former Supervisory Special Agent, FBI

Gamal Abdel-Hafiz
Gamal Abdel-Hafiz
(Non-Lawyer)

Former Supervisory Special Agent, FBI

1. Bid Rigging

The U.S. Department of Transportation’s Office of Inspector General (OIG) describes bid rigging as follows: “In bid rigging and collusion, contractors misrepresent that they are competing against each other when, in fact, they agree to cooperate on the winning bid to increase job profit.” During bid rigging investigations, federal agents will typically be looking for red flags such as:

  • “Competing” bids that are unusually close and/or unusually high;
  • Bids that contain round numbers;
  • Unsolicited bid reductions when new “competitors” submit bids;
  • Rotation of winning bidders for repeat government contracts;
  • Winning bidders hiring losing bidders as subcontractors;
  • Submission of identical bid amounts on non-standard items; and,
  • Only one contractor submitting a complete bid while all others are non-compliant or hastily drafted.

2. Conflicts of Interest

In the government contracting context, conflicts of interest arise when a federal official has an undisclosed financial interest in the outcome of the bidding process. If this conflict results in a contract award with an unnecessarily-high cost, both the official and the contractor can be charged with government contract fraud. According to the OIG, some of the factors examined during conflict-of-interest investigations include:

  • “Unexplained or unusual favoritism” of an individual contractor;
  • Disclosure of confidential information about competing bids;
  • Discussions between an official and a bidding contractor regarding potential employment;
  • Unexplained employment-related decisions, such as declining a promotion in order to stay involved in the bidding process; and,
  • Failure to file Conflict of Interest or Financial Disclosure forms.

3. Disadvantaged Business Fraud

When a contract requires or offers incentives for using disadvantaged business enterprises (DBEs), misrepresenting subcontractors as DBEs constitutes fraud. Using unqualified DBEs (often by providing them with direct assistance or performing work on their behalf) constitutes fraud as well. The OIG’s red flags for minority- and women-owned business fraud include:

  • The DBE that supposedly performed the work lacks the necessary resources;
  • Orders and payments being issued by non-DBE employees;
  • Consistently using the same purported DBE for multiple contracts;
  • The existence of a financial agreement between the contractor and a DBE; and,
  • The absence of sufficient documentation regarding the DBE and its services.

4. Kickbacks

A “kickback” is a fee paid in exchange for the opportunity to participate in a government contract which results in unnecessary cost to the federal government. As a general rule, the government will not pay referral fees (or other similar types of fees), so any such fee constitutes an unnecessary – and unlawful – expense. Factors commonly examined during federal kickback investigations include:

  • Limiting the number of potential subcontractors;
  • Continuing to work with subcontractors that perform poor-quality work;
  • Awarding a subcontract to an entity that did not submit the lowest bid;
  • Utilizing the services of an unqualified or unlicensed subcontractor; and,
  • Lack of procedures and controls for oversight of the subcontracting process.

5. Materials Overcharging

According to the OIG, “Under this fraud scheme, a contractor misrepresents how much . . . material was actually used on the job and then is paid for excess material to increase job profit.” Evidence that may be used to prosecute a contractor for billing for materials not actually provided includes:

  • Discrepancies between invoices and visually-observed materials;
  • Lack of documentation to substantiate materials costs;
  • Submission of photocopies or other alterable images rather than original receipts and invoices;
  • Irregularities in the methods used to calculate materials needs; and,
  • An unusually-high purchase volume from a particular vendor (which may be viewed as evidence of collusion or a conspiracy to defraud the federal government). 

6. Product Substitutions 

The opposite of billing for materials not actually supplied is billing for materials that were supplied at an inflated rate. The most-common example of this involves bidding a contract with a high-quality (and more-expensive) material and then substituting an inferior-quality (and lower-cost) material without disclosing this to the government. Examples of issues that federal agents will often look for in product substitution investigations include:

  • Mislabeling of materials and other products;
  • Attempting to prevent or evade government inspections at the time of delivery;
  • Highly-selective sampling for quality testing;
  • Photocopies instead of originals, high failure rates, and other irregularities; and,
  • Missing or unsigned certifications.

7. Quality Control Testing

Federal authorities have raised repeated concerns over contractors, “misrepresent[ing] the results of quality control tests to earn contract incentives falsely or to avoid production shutdown.” As a result, CIDs and federal investigations targeting contractors’ quality control practices will often seek information related to:

  • Transportation of quality control samples;
  • Recordkeeping related to quality control sample transportation, handling, and storage;
  • Interactions and transactions between contractor personnel and quality control inspectors;
  • Alteration or influencing of quality control test results; and,
  • Purported test results that are identical to sample data reports.

8. Time Overcharging

Time overcharging can involve either (i) charging for hours not actually worked, or (ii) charging for employees at an inflated overhead rate. This is similar to materials overcharging, and CIDs and federal investigations will often seek to uncover evidence of both types of fraudulent practices. According to the OIG, some of the federal government’s red flags for time overcharging include:

  • Alteration of time cards and other employee records;
  • Billing for services at or near budgeted amounts;
  • Completion of timecards by supervisors and managers rather than by individual employees;
  • Time and rate billings that are “inconsistent with contract progress;” and,
  • Inadequate documentation to substantiate time and rate billings.

9. Debris Removal Fraud

Federal authorities have identified a particular issue with debris removal, most often in conjunction with federally-funded cleanup following tropical storms, hurricanes, and other major weather events. Some of the OIG’s top red flags for debris removal fraud include:

  • Cost inflation and double-billing;
  • False load tickets, invoices, and payroll records;
  • Bribery and kickbacks; 
  • Other forms of federal contract billing fraud; and,
  • Conflicts of interest during the bidding process.

10. Household Goods Moving Fraud

Moving companies will often face CIDs and federal investigations based upon consumer complaints of cost inflation, “bait and switch” billing, holding belongings hostage, and other similar types of fraudulent practices. According to the OIG, factors that may be viewed as evidence of household goods moving fraud include:

  • Lack of a physical address or Federal Motor Carrier Safety Administration (FMCSA) registration;
  • Failure or refusal to conduct an onsite inspection prior to moving;
  • Failure to provide customers with a copy of “Your Rights and Responsibilities When You Move,” which is required by the FMCSA;
  • Demanding large deposits and/or cash payments; and,
  • Using rented box trucks rather than branded company-owned moving vehicles.

What Should You Do if You are Being Targeted in a Federal Fraud Investigation?

If federal agents are probing your company’s records or conducting on-site inspections, you need to exercise your right to legal representation. At Oberheiden, P.C., we have extensive experience in these types of matters, and there are steps we can take to help ensure that the investigation is resolved as quickly and favorably as possible. We can also help you and your employees avoid potentially-costly mistakes, and we can deal with the authorities on your behalf so that you do not say anything that could jeopardize your defense. 

 

Speak with a Federal Defense Lawyer at Oberheiden, P.C.

Do you need a federal defense lawyer? If you have received a CID or have any other reason to believe that you may be the target of a federal contract fraud investigation, we urge you to contact us promptly that you may be the target of a federal contract fraud investigation, we urge you to contact us promptly for a free and confidential case assessment. To speak with a member of our federal defense team as soon as possible, call 214-469-9009 or inquire online now. 

 

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