Pricing Lies: Government Contracts and the False Claims Act

Authors

Fernando Mendoza López

Abstract

Courts have recognized the federal government’s use of government contracts not only as a commercial transaction but also as an instrument of policy. Governments routinely seek to promote small business interests, domestic industry, women-owned, minority-owned, and veteran-owned businesses. However, in cases of fraud involving these policy provisions, courts have consistently failed to recognize this dual nature of government contracts.

The intangible benefits that governments gain from these preferential policies complicate damage calculations for courts when dealing with fraud. Such complications have led to inconsistencies and the emergence of three main approaches. First, some courts have assessed that the government has suffered no damage when it is defrauded with respect to policy compliance and not in relation to the quality of the purchased good or service. The second approach is to award damages for 100% of the contract value. Here, the court reasons that but for the fraudulent misrepresentation, the government would not have awarded the defendant the contract and is therefore entitled to restitution. Finally, some courts calculate damages as the difference between the full value of the contract minus the private market value of the good or service.

In this Article, I argue that the current approaches to calculate fraud damages under the False Claims Act (FCA) are inadequate as they are designed to compensate for damages of a commercial nature and therefore fail to address the damages to the government’s policy interests. This approach ignores the premiums that the government pays to ensure statutory and regulatory compliance by their contractors. To address these issues, instead of looking to the private market value of the good to mitigate the damages caused by the fraud, courts should consider the public market value of the good or service. In other words, instead of applying a reasonable person standard, we should be using a reasonable government standard or a reasonable person, acting on behalf of the government, standard. The history and purpose of both the FCA and policy objectives in government contracting indicate that Congress intended this type of fraud to be redressed and deterred.

Ultimately, this analysis seeks to provide an understanding of fraud in policy provisions of government contracts and their implications on calculating damages. The Article argues for a comprehensive approach that ensures fair compensation for the government while reinforcing broader socioeconomic policy objectives.

Repository Citation

Fernando Mendoza López, Pricing Lies: Government Contracts and the False Claims Act, 109 Marq. L. Rev. 821 (2025).
Available at: https://scholarship.law.marquette.edu/mulr/vol109/iss2/8