Whistleblowers are entitled to large monetary rewards for reporting companies that lie about being a small business in order to receive SBA contracts or Small Business Administration set-asides.
On August 27, 2013, the new “Presumed Loss Rule,” 13 CFR 121.108(a), issued by the Small Business Administration (SBA) took effect, tightening the vice on dubious federal contractors and subcontractors. Under the new rule, a federal contractor or subcontractor can be held liable under the False Claims Act (“FCA”) for up to three times the total proceeds it receives from a government contract for fraudulently misrepresenting itself as a small business, even if the government received the full benefit of the contractor’s services.
Before the Presumed Loss Rule, federal contractors falsely certifying themselves as small businesses were often only subject to civil penalties – between $5,500 and $11,000 per claim (invoice) – and a criminal fine up to $500,000 and/or imprisonment up to ten years. Courts, however, declined to award additional civil damages in cases where the government still received the benefit provided under the contract, despite the contractor’s fraudulent conduct. Limited damages stifled SBA enforcement and discouraged whistleblowers from bringing FCA actions against fraudulent government contractors for small business false certification.
Now, the Presumed Loss Rule creates a presumption that the loss to the government is the total amount of proceeds expended by the government on the contract, regardless of whether the federal contractor provided value to the government. Because the FCA also allows for an award of treble damages, a federal contractor falsely certifying its status as a small business in connection with a $5,000,000 government contract, for example, may be liable for up to $15,000,000 in civil damages, in addition to the other penalties previously available. The Presumed Loss Rule bodes well for whistleblowers who can receive between 15% and 25% of the treble damages amount, plus costs, fees, and interest under the FCA.
The SBA further broadened the scope of the Presumed Loss Rule to subject federal prime contractors to FCA liability for small business false certification by its subcontractors. Thus, whistleblowers can also seek FCA damages from prime contractors for the fraudulent misrepresentations made by their subcontractors in cases where the prime contractor has not made a good faith effort to review the size and status certifications of its subcontractors. Neglectful prime contractors can no longer avoid FCA liability under the Presumed Loss Rule.
The Presumed Loss Rule has changed the game for whistleblowers in small business false certification cases.
If you know of a company that is lying about being a small business to obtain SBA contracts or small business set-aside contracts under defense contracts, you could be eligible for a significant monetary reward for reporting the fraud. Under the False Claims Act, the U.S. Department of Justice pays rewards of between 15% and 25% of the money the government collects based on you reporting SBA fraud. However, there are some additional steps to take to become eligible, and you should contact an attorney with experience in handling whistleblower reward cases. Your information will be treated as confidential and experienced attorneys generally take these cases on a contingency basis. The initial consultation is also free. So find out now if you may be eligible for a reward for reporting SBA fraud.