Government procurement fraud occurs when government contractors or vendors mislead, deceive, or manipulate the bidding and billing processes to divert government funds. It’s more common and more expensive than most people realize. In fact, the Department of Justice recovers billions every year through False Claims Act lawsuits, many filed by whistleblowers who saw something wrong and took action.
In essence, procurement fraud is any scheme where a person or entity defrauds the government during the bidding, negotiation, or performance of a contract. That includes everything from falsifying costs to delivering defective products to bribing officials.
It includes:
- Lying on bids or cost proposals
- Delivering defective or substituted goods
- Falsifying labor hours or performance milestones
- Colluding to rig a bidding process
- Concealing conflicts of interest.
Under the False Claims Act, any contractor who knowingly submits a false claim or causes someone else to do so can be held liable. Whistleblowers who file suit on behalf of the government (called “relators”) may be entitled to up to 15% to 30% of the government’s recovery.
10 Procurement Fraud Examples
The following examples are among the most common and damaging procurement fraud schemes uncovered in federal and state contracts.
1. Bid Rigging
Bid rigging occurs when companies secretly agree to manipulate the bidding process to ensure that one party consistently wins. Rigging can involve bid rotation, complementary bidding (fake bids), or agreements not to compete. It often violates both the False Claims Act and the Sherman Antitrust Act.
2. False Labor Hours
Contractors sometimes fraudulently inflate the hours employees spend on government projects. For example, a defense contractor might bill for full-time staff who only worked part-time, or didn’t work at all.
3. Product Substitution
Fraudulent product substitution occurs when a supplier delivers improper or defective goods instead of those required by the contract, such as substituting American-made parts with unauthorized imports. Many federal contracts include “Buy American” requirements, and substituting foreign goods can violate both contract terms and federal law.
4. Inflated Overhead Costs
Contractors sometimes improperly include personal expenses, such as entertainment, luxury travel, or executive perks, as “overhead” costs reimbursable under cost-plus contracts. Doing so is a violation of federal contract cost principles.
5. Phantom Employees or Shell Entities
Companies sometimes create fake subcontractors or bill for non-existent workers to siphon funds. In some schemes, insiders control both the prime contractor and the “subcontractor,” pocketing money on both sides of the deal.
6. Minority-Owned Business Fraud
Some companies falsely claim disadvantaged business status (8(a), WOSB, SDVOSB, etc.) to win contracts that the government has set aside to be awarded to those businesses. These fraudulent self-certifications violate SBA regulations and constitute actionable misrepresentation under the FCA.
7. Kickbacks and Bribes
Vendors might also break the law by bribing procurement officers to win bids or to get favorable terms. The Anti-Kickback Act of 1986 makes it a felony to offer or accept kickbacks in exchange for government business.
8. Progress Payment Fraud
In fixed-price construction contracts, contractors might commit misconduct by falsely claiming they’ve completed work or met milestones to trigger advance payments. If the work hasn’t completed, these are false claims.
9. Failure to Comply with Cybersecurity Requirements
Many government contracts, particularly in defense or technology, require strict adherence to cybersecurity protocols. Falsely certifying compliance with these standards can be grounds for an FCA claim.
10. Double Billing
A contractor cannot bill multiple agencies for the same work or submit duplicate invoices for a single project.
Each of these procurement fraud schemes drains public funds intended to support infrastructure, healthcare, national defense, and other essential services. And each one is often actionable under state or federal false claims laws.
If you recognize any of these red flags in your workplace, you may have a legal right to file a whistleblower suit and to share in the government’s recovery.
Reese Marketos LLP Protects People Who Report Procurement Fraud Schemes
At Reese Marketos LLP, we represent whistleblowers and qui tam relators. Whether the fraud involves military contracts, medical procurement, or infrastructure projects, we investigate, file suit, and fight for the best result under the law.
Our team includes attorneys who have:
- Been honored by Best Lawyers in America;
- Been featured for Top Verdicts and “Big Money Wins” in the National Law Journal and VerdictSearch;
- Been awarded Anti-Fraud Coalition’s 2024 Lawyers of the Year Award for landmark FCA victories;
- Litigated some of the country’s most complex FCA and commercial fraud cases;
- Settled an FCA case for $100 million just before trial; and
- Secured $1.64 billion False Claims Act judgment.
Although our record-setting results speak for themselves, past results do not guarantee future outcomes. Each case is unique and must be evaluated on its own facts. Our focus remains where it matters most: on you – protecting your rights, your future, and your role in upholding public integrity.
Contact us online or call (214) 382-9810 for a confidential consultation. We’ll explain how procurement fraud works and walk you through your options.