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    Government Contracting Database

    Qui Tam Actions

    Rewards For Workers Who Turn In Employers: A Strengthened Whistle-Blower Law

    The False Claims Act, as amended in 1986, allows private citizens to file civil lawsuits, known as “qui tam” actions, against those who defraud the government, and to share in any financial recovery. With increased penalties for violators, lower standards of knowledge and intent required for a violation, and substantial, financial rewards for whistle-blowers, the amendments have sparked a wave of suits by disgruntled, as well as ethically motivated, workers against their employers in the hopes of obtaining a financial windfall.

    A qui tam action is commenced when a private citizen files suit in federal district court. The action must then be investigated promptly by the United States Justice Department. The Department has sixty (60) days to decide whether the matter has sufficient merit for the government to take over its prosecution. Given the serious repercussions associated with qui tam actions, most of these cases remain under seal, and thus unavailable to the public, until the Department determines whether it will participate in the prosecution. In cases where the Attorney General decides to pursue alleged violators, the private citizen remains, in effect, a co-plaintiff. When, however, the Department elects not to prosecute a case, the whistle-blower must decide whether to proceed alone.

    If the Department enters its appearance and prosecutes the case, the private citizen is entitled to a maximum of 25% of any funds recovered by the government as a result of a verdict or settlement. If the Department, however, elects not to participate and the whistle-blower proceeds alone, the maximum award increases to 30%. In most cases, the minimum award is 15%, but in certain situations, the award can be as low as 10%. Reasonable attorneys’ fees, costs, and expenses may also be awarded.

    Qui tam actions have thus become one of the most prominent, and hotly-debated, tools in the fight against contracting abuses. Although the 1986 legislation was primarily intended to root out fraud in military procurement and most cases have involved defense department suppliers, the new amendments apply to all Government contractors. Since 1986, approximately 5,000 qui tam actions have been filed and approximately $13.5 billion has been recovered of which whistleblowers have received over $1.4 billion. In FY2003 alone, the Justice Department recovered $1.5 billion in fraud payments. While the initial cases involved defense contracts, most qui tam actions now involve health care fraud.

    Such finger-pointing should make contractors more diligent in policing themselves. Moreover, by providing an incentive to employees in high management positions (with access to detailed contract documentation) to come forward with allegations of fraud against their companies, abuses in government contracting should be curtailed. Nevertheless, while the law has been and should continue to be effective, business and contractor groups alike have criticized the “McCarthy-like” tactics which these amendments have generated. Indeed, critics argue that the law has created a modern class of bounty hunters, made up largely of disgruntled, or well-meaning but ill-informed, employees who are encouraged to file suits with the hopes of receiving large sums of money. Interestingly, while qui tam actions had a long history in English law, they were ultimately abolished in England in response to the abuses wrought by a small group of professional qui tam bounty hunters.

    The qui tam suit is but one in the arsenal of weapons used to combat fraud in government contracting. Contractors are therefore well advised to police their activities, and their employees, carefully. If they do not, contractors must be prepared to encounter not only government investigations but also employee-generated lawsuits.

    Updated: July 3, 2018

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