While government procurement fraud can take many different forms, certain forms are more common than others. These forms of fraud within the procurement process cost taxpayers hundreds of billions of dollars per year, and they impact agencies across the federal government. 

Although federal agencies have the authority to audit their contractors, and while the U.S. Department of Justice (DOJ) and Offices of Inspectors General (OIGs) specifically target procurement fraud, the federal government still relies heavily on whistleblowers to report fraud, waste, and abuse. This makes it critical for whistleblowers to come forward when they have information that could help uncover procurement fraud cases—and the False Claim Act’s whistleblower reward provisions provide a direct financial incentive to do so. 

“Whistleblowers play a critical role in the federal government’s ongoing fight against government procurement fraud. From bid rigging and collusion to violations of the Buy American Act (BAA), whistleblowers can receive financial rewards for reporting all types of procurement fraud to the appropriate federal authorities.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

With all of this in mind, when can (and should) employees, former employees, and others consider serving as a federal whistleblower? Here is an in-depth look at three of the most common types of government procurement fraud: 

3 Common Types of Government Procurement Fraud

1. Bid Rigging and Collusion 

The U.S. General Services Administration’s Office of Inspector General (GSAIG) identifies bid rigging and collusion as being among the most common types of government procurement fraud. It specifically identifies five forms of bid rigging and collusion that are particularly common within the federal contracting sector: 

• Bid Rotation – Bid rotation involves “tak[ing] turns submitting the lowest (winning) bid on a series of contracts” based on a “pre-established agreement.” 
• Bid Suppression – Bid suppression involves an agreement “not to bid, or withdraw a previously submitted bid, so a designated bidder is ensured to win.” 
• Bidding Collusion – Bidding collusion involves contractors agreeing to “set prices they will charge . . . , set a minimum price they will not sell below, or reduce or eliminate discounts.” 
• Complementary Bidding – Complementary bidding involves certain contractors “submit[ting] bids which are intentionally high or which intentionally fail to comply with bid requirements.”
• Customer and Market Division – Customer and market division involve contractors agreement “not to bid or submit only complementary bids for customers or geographic areas.”

Even when competitive bids are submitted, the integrity of the bid evaluation process can be compromised through coordinated efforts to mislead contracting officials. As a result, recognizing unusual patterns in the bids governments receive can be a key first step toward identifying collusion or fraud in the procurement process. 

If left undiscovered and unreported, all forms of bid rigging and collusion can lead to federal agencies paying more than necessary for essential products and services. In many cases, contractors will engage in multiple forms of bid rigging, price fixing, and collusion in an effort to create the appearance of legitimate competition. Contractors’ current and former employees will often have access to information that federal agencies have no practical way of discerning on their own—and this is one of several reasons why whistleblowers play such an important role in the federal government’s fight against procurement fraud. 

According to the GSAIG, the following are common indicators (among others) of potential bid rigging and collusion: 

• Competing bids that contain identical line items or lump sums 
• Bids that greatly exceed the contracting agency’s estimated contract value 
• Bids that greatly exceed the total contract value of competing bids 
• Last-minute alterations or withdrawals of competitive bids 
• Contractors giving different bid amounts for the same line items on different contracts 
• Non-submission of bids by qualified contractors 
• Frequent interactions or communications between bidders near the time of submission 
• Certain contractors never (or rarely) bidding against others 
• Contractors only bidding for certain types of contracts despite broader capabilities 
• Joint venture submissions when both contractors have the ability to perform individually 

2. Defective Pricing and Other Pricing Violations 

Defective pricing and other pricing-related violations are also extremely common forms of procurement fraud. Here too, federal agencies often rely heavily on whistleblowers to inform them of suspect pricing practices, as they otherwise have limited options for uncovering pricing violations without initiating a costly and time-consuming audit or investigation. While conducting an audit or investigation can be well worth it when there is something to find, auditing all federal contractors to search for evidence of a potential pricing violation or another fraudulent scheme simply is not feasible. 

Some common examples of pricing-related violations in the federal procurement sector include: 

• Defective Pricing – Defective pricing is defined as “provid[ing] incomplete, inaccurate or not current disclosures during contract negotiations.” While federal agencies can reduce government contract prices under the Federal Acquisition Regulations (FAR) in the event of defective pricing, again, agencies are often reliant on whistleblowers to inform them that action is warranted. 
• Price Reduction Violations – Price reduction violations involve contractors failing to lower their prices for government agencies when they offer discounts to other clients or customers. While these price reductions are not required across the board, non-compliance with this requirement (when it applies) is fairly common. 
• Progress Payments Fraud – Progress payments fraud involves “submit[ting] a request for payment with a false certification of work completed or falsified costs such as direct labor not rendered and materials not purchased.” This is a common form of fraud as well that can also be difficult for contracting agencies to uncover on their own—particularly in certain industries. 

Similar to bid rigging and collusion, pricing-related violations can result in substantial overpayments and allow unqualified contractors to acquire contracts they wouldn't win with accurate pricing disclosures. Whether intentional or inadvertent, these violations warrant correction to help preserve taxpayer funds and maintain the integrity of the federal procurement system. When committed intentionally, defective pricing and other pricing-related violations may warrant criminal enforcement action as well. 

According to the GSAIG, the following are common indicators (among others) of potential pricing-related violations under federal contracts: 

• Nondisclosure of standard concessions 
• Nondisclosure of standard discounts
• Nondisclosure of standard rebates 
• Failure to provide updated pricing information to the federal government 
• Delays in releasing updated pricing information 
• Failure to disclose third-party customer agreements that contain more favorable pricing than that offered to the federal government 
• Offering better pricing on the open market than offered to the federal government 
• Providing financial data and pricing information for different time periods
• Inability to explain why certain supplies or materials were necessary 
• Reporting hours worked that are inconsistent with hours documented on employees’ timecards 

3. Charging Violations 

Charging violations also involve improperly billing the government under procurement contracts, but they relate more to the products and services provided (or lack thereof) than the pricing offered. For example, as identified by GSAIG, some of the most common forms of government procurement fraud that involve charging violations are: 

• Charging for Products Not Used or Delivered – Charging federal agencies for products not used or delivered is an extremely common form of government procurement fraud. This includes charging for materials and supplies that contractors have purchased but not used as well as billing federal agencies for end products that have not been delivered. 
• Charging for Services Not Performed – Charging for services not performed is another extremely common form of government procurement fraud. Many federal procurement fraud investigations focus on allegations that contractors have altered their employees’ timecards or inflated the time spent on contract-related activities. 
• Charging for Inferior Products or Services (Substitution) – Charging for inferior products or services (also commonly referred to as service or product substitution fraud) is common as well, especially when contractors fail to meet contract specifications. Federal contractors have an obligation to deliver in accordance with the terms to which they have agreed, and delivering inferior products or services violates this obligation. 
• Cost Mischarging – Cost mischarging involves “charg[ing] the government for costs which are not allowable, reasonable, or allocated directly or indirectly to the contract.” This includes misrepresenting charges as allowable, concealing unallowable costs within government billings, and hiding unallowable costs in accounts that are difficult for federal agencies to audit effectively.
• Improperly Charging Under a Time and Materials (T&M) Contract – Charging expenses under a time and materials (T&M) contract that should be billed under a contractor’s firm fixed price (FFP) contract with the government is also a common type of charging violation. This, too, can be difficult for federal agencies to identify without whistleblowers’ help.

Violations of the Buy American Act (BAA) and Trade Agreements Act (TAA) fall into this category as well. The BAA requires the federal government to buy “articles, materials, and supplies” from domestic producers unless an exemption applies, while the TAA restricts the sources of end products delivered to federal agencies. Noncompliance with these statutes and falsely certifying compliance with these statutes are both common forms of federal procurement fraud. 

According to the GSAIG, the following are common indicators (among others) of potential charging violations: 

• Costs billed under T&M contracts that exceed contract estimates 
• Products or services billed under FFP contracts that fall below contract estimates 
• Billing costs under a T&M contract that are not related to the subject matter of the contract 
• Using vague terms or descriptions when billing for discrete products or services 
• Modification of purchase orders or timecards 
• Inadequate documentation to support charges under federal contracts 
• Increases in labor hours without corresponding increases in output
• Billing for labor hours at or extremely near the budgeted amount 
• Efforts to prevent auditing, inspection, or testing of delivered products or products in development 
• Irregularities in dates, signatures, and other details pertaining to charged amounts 

Again, these are just three of the most common types of government procurement fraud. From manipulating the bidding process to paying kickbacks and falsely claiming small business or veteran-owned status, procurement fraud can take many other forms as well. If you believe that you may have information about any form of procurement fraud and are thinking about serving as a federal whistleblower, you should consult with an experienced attorney promptly.