Wednesday, June 17, 2015

What is "Credible" Evidence of Fraud?

Yesterday we discussed a case where the President of a contractor for the State Department had credible evidence of fraud but didn't report it to the Government. According to the press release from the Justice Department, FAR (the Federal Acquisition Regulations) required the contractor (the President in this case) to report credible evidence of fraud. Someone immediately asked where that requirement was found in FAR and another asked about the definition of "credible". So, we'll answer both of those questions here.

The mandatory disclosure rule has been around since 2008 and we've written about it a few times. See for example here and here. The policy guidance is found in FAR Part 3.10, Contractor Code of Business Ethics and Conduct. (FAR Part 3 in generally is a good place for contractors to find information when developing ethics programs). The associated contract clauses are FAR 52.203-13, Contractor Code of Business Ethics and Conduct, and FAR 52.203-14, Display of Hotline Poster.

Briefly, these contract clauses require contractors (and subcontractors) to disclose to the Government whenever they have obtained "credible evidence" of criminal violations, a violation of the civil False Claims Act, or a significant overpayment in connection with the award, performance or closeout of a Government contract or subcontract. As we saw from yesterday's posting, failure to do so could land a contractor in jail or, more likely, fined.

Now for the term "credible evidence" question. FAR does not define the term "credible evidence". However, the FAR Councils have noted that the term represents a higher standard than say, "reasonable grounds to believe". To go from "reasonable grounds" to "credible evidence" means that a contractor must have time to properly investigate matters. Once the matter has reached the "credible evidence" stage however, a contractor (or subcontractor) is required to promptly notify the Government.

While the term "credible evidence" is not defined in FAR, the DoD FAR Supplement (DFARS) provides a definition for "credible information" which may be helpful. DFARS 252.246-7003, covering a contractor's affirmative duty to disclose potential safety issues to the Government, defines credible information as information that, considering its source and the surrounding circumstances, supports a reasonable belief that an event has occurred or will occur.

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