On January 14, 2021, the Department of Justice released its updated statistics for False Claims Act (FCA) recoveries in FY 2020. The Civil Division reported that it recovered $2.2 billion in settlements and judgments in the previous fiscal year—down nearly $900 million from FY 2019, and off nearly two-thirds from the government’s high-watermark collections of $6.1 billion in FY 2014. Although $2.2 billion in net FCA recoveries represents DOJ’s lowest FCA haul in a decade, it is still a remarkable figure considering court closures and pandemic-slowed dockets across the country over the past eleven months.

During the Obama Administration, DOJ averaged FCA recoveries of $3.9 billion each year between FY 2009 and FY 2016. Recoveries went down markedly during the Trump Administration to an annual average of $2.9 billion between FY 2017 and FY 2020, with only a small percentage of that decline attributable to 2020’s unique pandemic-related circumstances. Notably, in January 2018, DOJ issued a memo signaling a new emphasis on dismissing qui tam lawsuits where the U.S. declined to intervene due to perceived lack of merit in the underlying cases (the “Granston Memo”). By 2020, DOJ announced that it had moved to dismiss nearly 50 qui tam suits—more than it had sought to terminate in the prior thirty years combined. While the FCA was a potent weapon in the Trump DOJ’s arsenal, the Civil Division wielded it far more selectively and relied more heavily upon qui tam relators (i.e., whistleblowers)—especially in the healthcare arena.

As the incoming Biden Administration takes office and as the vaccine rollout continues, we are confident that FCA investigations and activity at the federal level will return to (and likely exceed) what we all experienced during the eight years of FCA enforcement under President Obama’s Department of Justice. The Civil Division, inspectors general, and would-be relators are all on high alert for FCA enforcement opportunities—and for good reason. From the CARES Act and the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, to all of the other government efforts intended to boost economic activity over the past year (including the President-Elect’s new $1.9 trillion stimulus package), at no point in recent memory has the economy been so awash in federal money. Those federal dollars all come with a multitude of strings and accompanying risks. For example, any recipient of federal funding that fails to account for and use the money in accordance with Uncle Sam’s terms and conditions faces enhanced scrutiny and the looming risks of an FCA inquiry, which includes the possibility of treble damages and penalties for every misstep. We fully anticipate that FY 2021 and FY 2022 could see the largest increase in FCA enforcement activity in the past two decades.

Contractors should also be mindful that these DOJ recovery statistics do not necessarily tell the entire story. Costs associated with defending against an FCA case may well be unallowable under FAR 31.205-47, which means that a company could continue to feel the financial impacts of a settlement or judgment for many months or years after DOJ cashes the check.

This was illustrated most recently in a DOJ Settlement Agreement with Institu, Inc., a wholly owned subsidiary of The Boeing Company. While Institu steadfastly denied all of the United States’ and the relator’s allegations, the parties nevertheless agreed that several categories of Institu’s costs would be considered unallowable for purposes of future direct and indirect charges to United States contracts. These costs included all costs associated with the matters covered by the Settlement Agreement itself, as well as costs associated with the United States’ accompanying audits and investigations and Institu’s own investigation, defense, and corrective actions undertaken in response. Further, as part of the settlement, Institu not only agreed that it would separately account for such unallowable costs in the future—and pledged not to charge those unallowable costs directly or indirectly to any United States contract—but also promised it would retroactively identify and repay any unallowable costs included in previous payments, to include, “at a minimum,” any overpayment “plus applicable interest and penalties” associated with these unallowable costs.

This case provides an important further reminder that, although the headline may be “Contractor Pays Millions to Settle False Claims Act Case,” the actual costs of an FCA enforcement action may be far higher than advertised. Even where, as in the Institu case, a matter does not proceed to judgment and the contractor maintains its innocence, the contractor may still be forced to absorb the substantial costs of defending and then taking corrective action in response to FCA allegations. Thus, contractors can and should take this moment to ensure that the controls they currently have in place—both to police internal ethical issues that can lead to FCA allegations and to track costs appropriately—are aligned with existing regulations and guidance and are being faithfully followed to ensure they do not become the subject of DOJ’s next headline.