President trump signs another anti-dei executive order for federal contractors, threatening false claims act enforcement

In late March, President Trump signed an Executive Order entitled Addressing DEI Discrimination by Federal Contractors, which mandates that, within 30 days of the Order, all federal contacts contain a clause under which the contractor or subcontractor agree that it will “not engage in any racially discriminatory DEI activities.” The Order defines “racially discriminatory DEI activities” to mean “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.” The Order states that noncompliance with this mandate could result in cancellation, termination, or suspension of the contract, and that the contractor or subcontractor may be debarred.

It is another provision of the Executive Order, though, about which federal contractors should be concerned: Each federal contract will also provide that “The contractor recognizes that compliance with the requirements of this clause are [sic] material to the Government’s payment decisions for purposes of the [False Claims Act].”

The False Claims Act (FCA) prohibits, among other things, knowingly submitting false or fraudulent claims for payment to the federal government, or knowingly making false records or statements material to such a claim. Violations of the FCA can result in treble (three times) damages plus penalties between $13,900 and $27,800 per claim. Violations can also result in administrative exclusion or debarment from federal programs or contracting.

One of the elements that an FCA plaintiff (whether the federal government or a private whistleblower, known as a “qui tam Relator”) must prove is materiality, which is defined as something having a “natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” The United States Supreme Court has held that the FCA’s materiality standard is a “rigorous” and “demanding” standard.

Presumably that is why President Trump’s Executive Order makes clear that compliance with it is material to the federal government’s decision to pay. But is this contract language sufficient to establish FCA liability? Unlikely. The Supreme Court has held that while a contractual requirement being labeled a “condition of payment” is relevant to the materiality determination, it is not dispositive. Moreover, in addition to materiality, an FCA plaintiff would also have to prove falsity and knowledge (defined to include actual knowledge, reckless disregard, or deliberate ignorance).

Although the contract language mandated by the Executive Order might not be enough, in itself, to result in FCA liability, even just an FCA investigation can be disruptive and expensive, putting aside the potential for astronomical damages and penalties, along with devastating administrative consequences. It is therefore important for all federal contractors to make sure they understand what they are agreeing to and ensure that they are in compliance with all contractual requirements, including the requirements outlined in the latest Executive Order.

GWB represents and advises federal contractors of all types and sizes in connection with a wide variety of legal, regulatory, and compliance matters, including False Claims Act investigations and litigation. Should you need assistance, please feel free to contact us.