In this year’s set of legislative proposals forwarded to Capitol Hill, DoD and NASA have again requested changes to the Program Fraud Civil Remedies Act (“PFCRA”) to create, in the government’s view, a more viable administrative remedy for fraud and false claims totaling less than $500,000. The administrative process would proceed similarly to the suspension and debarment process with a fixed administrative record and an administrative decision official within each agency. See proposed Section 805 in the Fifth Package of Legislative Proposals Sent to Congress for Inclusion in the National Defense Authorization Act for Fiscal Year 2017.
PFCRA (Chapter 38 of Title 31, United States Code) was enacted in 1986 as a government wide administrative mechanism for combating small-dollar fraud. As it stands, PFCRA allows federal executive branch agencies, with Department of Justice (“DoJ”) approval, to address false, fictitious, or fraudulent claims and statements where the alleged liability is less than $150,000. At the time of its enactment, Congress considered PFCRA to be a remedy to DoJ’s declination to pursue criminal or civil penalties where the alleged fraudulent activity resulted in little to no financial loss to the government. Since then, however, PFCRA has been viewed by some government agencies, including the DoD, as being cumbersome to the point of making it impractical for government agencies to pursue a remedy under the Act. Indeed the purpose for the proposed amendments is to create an “effective” administrative remedy.
As a result of the existing PFCRA’s apparently burdensome administrative scheme, DoD and NASA have proposed that Congress add a new Chapter 164 to Title 10 of the United States Code to establish what they deem to be a more workable remedy to address fraud in procurement programs and acquisitions. Under this new process, a “responsible official” determines whether there is adequate evidence to believe that a person is liable under the Act. The proposal defines responsible official as “a designated debarring and suspending official . . .” If adequate evidence is found to exist, the responsible official must provide DoJ with a written notice of his/her intent to initiate an action. DoJ must then decide whether it approves or disapproves of such action. Upon receiving approval, the responsible official may then initiate an action by mailing a notice to the respondent. To the extent a genuine dispute of material fact is raised by the respondent, the responsible official must hold a hearing to address the disputed facts. Any decision issued by the responsible official is subject to judicial review under Administrative Procedures Act (Chapter 7 of Title 5, United States Code).
This legislative proposal includes various deviations from PFCRA. Notably, it increases the ceiling on false claims from $150,000 to $500,000. Additionally, it places the decision on whether or not adequate evidence of liability exists in the hands of a designated suspending and debarring official. While DoD claims that the “important distinction between penalties to punish misconduct and suspension and debarment . . . would be preserved,” such an expansion of a suspension and debarment official’s authority raises serious concerns for contractors. It is easy to imagine a scenario where the suspension and debarment official – regardless of his or her intentions – could be mistakenly perceived as leveraging the possibility of suspension or debarment to negotiate a more favorable settlement under PFCRA. This has important implications for the traditional independence of the suspending and debarring officials within DoD, and for their self-professed desire to achieve an appropriate, informal, business-oriented solution to integrity concerns. Even a mistaken perception that there could be a link between writing a substantial check and being removed from suspended or proposed for debarment status could raise significant constitutional concerns.
The proposed changes also leave many questions unanswered. One of which is the role that DoJ will play in the process. While DoJ must approve whether the responsible official may initiate an action, the role DoJ will play once the action is initiated is unclear. Moreover, the proposed changes do not carve out a role for the Armed Services Board of Contract Appeals (“ASBCA”), when the argument could be made that the ASBCA is in the best position to resolve these small-dollar fraud issues due to its expertise with the federal procurement process.
While many agree that PFCRA has not been an effective tool across the government for addressing small-dollar fraud, DoD and NASA’s proposal raises many of the same concerns as in years past. A key gating issue would be separating the function from the cognizant suspending and debarring official and prohibiting information sharing between PFCRA decision makers and suspending and debarring officials (and their respective support staffs and remedies coordinators). We will be watching carefully as the discussion about these proposed changes heats up.