SBJA 2010 Changes: False Claims Act implications

05/16/2011

The Small Business Act has always had an enforcement trigger for violations, but with the 2010 act changes the hammer has gotten bigger. Section 1341 of the Small Business Jobs Act of 2010 (SBJA), referred to as the “Presumed Loss Rule,” has new incentives to both federal and whistleblower enforcement. Essentially, the act’s language now presumes the government suffers loss based on the total amount the government expends on a contract where the small business status has been misrepresented, with no offset or credit for the value or benefit actually received by the government.

That is, even if the work was fully conforming, the entire contract value is presumed as a value loss to the government because of size status misrepresentation. Furthermore, under the False Claims Act, damages can be trebled (tripled) based on that presumed loss value; a significant risk for anyone making such a size misrepresentation. The Committee Report that established the bill noted its intention that the presumption be irrebuttable, even though the statute only speaks of the loss being presumed; leaving interpretation up to the courts. The SBJA does direct the SBA though to promulgate regulations to establish defenses for innocent mistakes, but the SBA has not yet done so. But expect those defenses to be very limited, and likely very hard to establish.

Bottom line, status misrepresentation has always been subject to penalty; however, the SBJA now makes those penalties much more severe, and much easier to enforce.

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