If you are a federal contractor and engage in any diversity or DEI activities, the answer is yes. In Executive Order 14173, President Trump wrote that contractors may be subject to FCA claims based on their DEI activities. Although there are conflicting rulings on the DEI certification by courts in the 4th and 7th Circuits concerning both the 14173 and 14151 certifications, once the DEI certification comes into effect, it could be a field day for plaintiff attorneys, and it doesn’t just apply to the contractor but also their subs.
The contractor needs to keep monitoring their subcontractors. It is very likely that the failure to monitor subcontractors for their DEI or other activities may fall under the “deliberate ignorance of the truth or falsity of the information” submitted to the government.
Most recently, the Department of Justice (DOJ) on May 19, 2025, issued a memorandum establishing the Department of Justice’s “Civil Rights Fraud Initiative.” The program “will utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws,” led by a team of attorneys from the DOJ’s Civil Rights Division and Civil Division’s Fraud Section who will “aggressively pursue this work together,” while consulting with the DOJ’s Criminal Division and other federal agencies. They will be asking the public to assist in identifying wrongdoers.
Therefore, federal contractors should worry. They will also be likely held accountable for their subcontractors.
The False Claims Act (FCA), 31 U.S.C. §§ 3729 - 3733 was enacted in 1863 by a Congress concerned that suppliers of goods to the Union Army during the Civil War were defrauding the Army. The FCA provided that any person who knowingly submitted false claims to the government was liable for double the government’s damages plus a penalty of $2,000 for each false claim. Since then, the FCA has been amended several times. In 1986, there were significant changes to the FCA, including increasing damages from double damages to treble damages and raising the penalties from $2,000 to a range of $5,000 to $10,000. The FCA has been amended three times since 1986. The FCA also covers federal “subcontracts” and grants.
Liability under the FCA derives when a person has submitted, or caused the submission of, the false claim (or made a false statement or record) with knowledge of the falsity. What does this mean? In § 3729(b)(1), knowledge of false information is defined as being (1) actual knowledge, (2) deliberate ignorance of the truth or falsity of the information, or (3) reckless disregard of the truth or falsity of the information. It can arise when a contractor “knowingly” submits a false claim which can be billed to the federal government; cause another to submit a false claim to the federal government (think subcontractors); or knowingly make a false record or statement to get a false claim paid by the federal government. In the latter situation, the issue of the DEI certification, which is currently on hold, can give rise to liability.
“Knowing” is defined by the FCA as having actual knowledge of the information; or acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information. There is no requirement to have intent to defraud.
An FCA claim may be filed either by the government or by a private individual through a “qui tam” action. These private individuals are typically whistleblowers who bring the claim on behalf of the government agency involved in the contract. In return, they may be awarded a portion of the damages the government recovers as a result of the false claims. A qui tam claim is initially filed under seal, and the government is required to investigate the allegations in the complaint; if the government cannot complete its investigation in 60 days, it can request an extension.
Who generally is a private party? Likely an unhappy employee. However, no matter how unhappy, the employee is protected against retaliation, including termination (even if by agreement).
Why would a private party file? Simple, money. If the government intervenes in the qui tam action, the private party is entitled to receive between 15% and 25% of the amount recovered by the government through the qui tam action. If the government declines to intervene in the action, the private party’s share is increased to 25% to 30%. So, in a case with a $5 million claim of Medicare fraud, the private party could receive anywhere from $1.25 million to $1.5 million. It would be like winning the lottery
The three most common types of FCA claims are Medicare and Medicaid fraud; contract kickbacks (typically among suppliers or contract competitors artificially running up the cost of the federal contract/subcontract/grant); and false certifications of compliance with government contract terms and conditions. In 2023, the healthcare industry remained the predominate area of FCA enforcement with more than $1.8 billion in total dollars recovered, but other sectors, in particular, cybersecurity, COVID-related fraud, customs and tariffs, small business contracting, and telecommunications saw increased enforcement.
With respect to DEI FCA claims, the federal government is employing AI bots to identify the federal contractors who have DEI on their website in one form or another. The website should be reviewed for these references and likely scrubbed.
Therefore, the compliance function of the contractor is more than in the past and with greater reach. It is recommended that federal contractors and subcontractors (who are responsible for their subs) work with legal counsel to set up a compliance system that would review and reduce the likelihood of FCA claims arising. Further, the business practice insurance needs to be reviewed to ensure FCA claims are covered.
Source: Law360 5/21/25, Proskauer Rose 5/20/25, Department of Justice primer to False Claims Act, Foley Hoag 4/30/25, Outsolve 4/21/25 , Reed Smith 2/14/25