Justice Department Nearly Doubles Penalties under False Claims Act

Last week, the Department of Justice issued an interim rule (with request for comments) which, among other provisions, will nearly double penalties under the False Claims Act from a range of $5,500 to $11,000 per false claim to a range of $10,781 to $21,562 per false claim. Justice is calling this increase an inflation caused adjustment - the last increase came 20 years ago. Now, according to the Bipartisan Budget Act of 2015, the inflation adjustment will occur annually.

The new penalty amount apply to civil penalties assessed after August 1, 2016 whose associated violations occurred after November 2, 2015 (the date that the Bipartisan Budget Act was enacted). Violations occurring before November 2, 2015 and assessments made prior to August 1, 2016 whose associated violations occurred after November 2, 2015 will continue to be subject to the old penalty amounts.

This is a significant increase in penalties and some commentators have expressed concern that it will adversely affect contractors' willingness to settle disputes. While penalties under the False Claims Act are mandatory courts have discretion within the stated range. Additionally, courts have discretion in deciding what constitutes a false claim. In one very old case involving timecard improprieties, the Government argued that each questionable timecard entry was a false claim. The court sided with the contractor who argued that there could be no false claim until a voucher (i.e. an invoice) for the labor costs represented by those timecards were submitted to the Government. Thus, hundreds of potential false claims became one.

You can read the full text of the interim rule here. Although termed an interim rule, its unlikely that anything substantive will change between it and the final rule as it is essentially based on a statute (the Bipartisan Budget Act of 2015) with proscribed formula for determining and measuring increases in penalty ranges.