?Cost of Living Adjustment? of Civil False Claims and False Statement Penalties

Overview

The financial
penalties for violating federal contracting obligations are going up beginning July 1, 2016.  Thereafter, there will be annual COLA
increases for such penalties.  Adjusted
penalty levels may increase to as much as 250 percent of the level(s) in effect
in 2015, and each agency is authorized to increase the penalty itself by as much
as 150 percent.  Accordingly, contractors
may face a significant range of penalties depending on the penalty increases
assessed by the individual agencies that they contract with.  The bottom line is that the risks related to
potential false claims and false statements are increasing for federal
contractors.  The details are provided
below.

The
New Civil Penalties

The Federal Civil
Penalties Inflation Adjustment Act of 1990, as further amended by the Federal
Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (“FCPIAA”),
provides for adjustments for inflation to the civil monetary penalties that Executive
Agencies can assess for violations of applicable statutes and regulations,
including those relating to False Statements and False Claims.  The amendment also provides for FCPIAA
escalation of Occupational Health and Safety Act violations.   

The Office of
Management and Budget’s (“OMB’s”) implementing memorandum states that “[i]n
accordance with the 2015 Act, however, agencies shall not increase penalty
levels by more than 150 percent of the corresponding levels in effect on
November 2, 2015.  Note: The 150 percent
limitation is on the amount of the increase; therefore, the adjusted penalty
level(s) will be up to 250 percent of the level(s) in effect on November 2, 2015.”
 Agencies have until July 1, 2016 to
issue their specific interim final rules to adjust civil monetary
penalties. 

Following up on the
FCPIAA and OMB guidance, on May 26, 2016, the Department of Defense (“DOD”)
issued its interim final rule to adjust the civil monetary penalties that it
may access for violations of designated provisions, including notably
violations involving False Claims and False Statements.  Under the interim final rule, the maximum
per-claim penalty for such violations will increase to $10,781 from $5,500.  81 Fed. Reg. 33391.  The stated purpose of the adjustment is to
“improve the deterrent effect of civil monetary penalties and to promote
compliance with the law.”  Id. 
As noted by the interim final rule, the DOD is authorized to issue a “cost-of-living
adjustment” to escalate this amount each year. 

Significantly, the
interim final rule provides that the escalated penalty “must apply only to
civil monetary penalties, including those whose associated violation predated
such increase, which are assessed after the date the increase takes effect
(i.e., July 1, 2016).” [Emphasis added.] 

Take-Away:

  • As
    noted above, these new penalties can be assessed against violations predating
    the escalation.
  • Make
    sure that you have a working compliance program and training to ensure your
    personnel understand the importance of compliance with applicable laws and
    regulations.
  • Federal
    Acquisition Regulation (“FAR”) Mandatory Disclosure rules require reporting of
    credible evidence of actual or suspect violations. Early identification will
    help you to timely report and address such matters. If you become aware of a possible violation of
    covered laws or regulations, take appropriate steps to promptly investigate.

If you have any questions with regard to these matters, please contact Susan Warshaw Ebner, or the FortneyScott attorney with whom you work.