Morgan Lewis Government Contractor Guidebook

Recent developments in government contracting highlight continued expansion of False Claims Act (FCA) enforcement and growing federal attention to supply chain resilience. The latest updates include two Department of Justice (DOJ) FCA resolutions involving organizational conflicts of interest and grant administration, the department’s first healthcare declination under its revised corporate enforcement policy, and a new executive order directing sweeping changes to defense supply chain sourcing and oversight.

Sierra Nevada Company recently agreed to pay $7.75 million to resolve allegations arising from its employment of a government official who allegedly continued participating in three contracts involving the company. DOJ alleged that the official who evaluated and secured approvals for Sierra Nevada products simultaneously recommended those products while serving as a company consultant, creating an organizational conflict of interest (OCI).

According to the government, false statements, certifications, and omissions regarding the conflict induced the contract awards.

The settlement demonstrates that OCI issues are not limited to bid protests or contract administration. Where an alleged conflict affects certifications, invoices, or award decisions, DOJ may pursue the matter under the FCA, exposing contractors to potentially significant damages.

The allegations also illustrate the risks of treating OCI reviews as a one-time proposal exercise. After contract award, conflicts may arise through new hires, consultants, changing government responsibilities, or evolving contract performance. Contractors should establish ongoing processes for identifying, evaluating, and escalating potential conflicts while ensuring that recruiting, ethics, business development, and contracts personnel share relevant information in the event of a change.

Battery manufacturer Ascend Elements agreed to pay approximately $7.5 million to resolve allegations involving inflated reimbursement claims submitted under a Department of Energy grant. DOJ alleged that the company sought reimbursement for inflated labor hours, excessive tool purchases, unnecessary equipment rentals, and other wasteful expenses, resulting in more than $5.3 million in challenged payments.

The settlement reinforces that FCA exposure transcends procurement contracts. Organizations receiving federal grant funding should apply the same discipline to labor charging, purchasing, cost allocation, and reimbursement practices that government contractors apply under cost-reimbursement contracts.

DOJ also credited the company for timely self-disclosure, conducting an internal investigation, and cooperating with the government’s investigation. While those actions did not eliminate liability, they appear to have influenced the resolution and demonstrate that voluntary disclosure and meaningful remediation may reduce enforcement consequences.

DOJ recently declined to prosecute Campus Eye Management after the company voluntarily disclosed an alleged fraudulent billing and kickback scheme, cooperated extensively with investigators, strengthened its compliance program, and agreed to pay $1 million in victim compensation. DOJ separately indicted the company’s founder, who allegedly caused approximately $3.4 million in fraudulent Medicare claims to be submitted.

While the matter arose in the healthcare industry, the decision provides useful guidance for government contractors and grant recipients evaluating potential voluntary disclosures. The resolution suggests that DOJ will continue placing significant weight on prompt self-disclosure, meaningful cooperation, operational compliance improvements, and investments in ongoing monitoring and training.

The matter also demonstrates that DOJ may extend declination treatment to a cooperative organization while continuing to pursue individuals allegedly responsible for the misconduct.

A July 20 executive order directs the Department of War to significantly restrict waivers related to specialty metals and magnets beginning January 1, 2027, unless contractors submit approved mitigation plans documenting noncompliant sources, efforts to identify domestic alternatives, and schedules for eliminating foreign sourcing.

The order extends well beyond specialty metals. It directs the department to require prime contractors and subcontractors at every tier to map critical supply chains from raw materials through finished products, submit complete indentured bills of materials, and evaluate suppliers for financial distress, foreign ownership or control, and manufacturing concentration.

Contractors would also be required to report significant supply chain risks within 15 days of completing supplier reviews, submit corrective action plans within 45 days of completing supplier reviews, and monitor mitigation efforts through completion.

The order also provides agencies with additional leverage to suspend task orders, decline contract options, or terminate contracts where contractors fail to qualify compliant domestic sources.

Defense contractors should begin identifying supply chain gaps, evaluating contractual rights to obtain supplier information, and documenting domestic source qualification efforts while awaiting implementing regulations.

These latest developments reflect DOJ’s continued willingness to pursue FCA theories across a broad range of compliance issues, from organizational conflicts and grant administration to voluntary disclosure decisions.

The administration continues expanding contractor obligations in areas viewed as critical to national security, including domestic sourcing and supply chain visibility. Contractors should continue strengthening compliance programs, evaluating disclosure protocols, and preparing for additional regulatory requirements affecting both contract performance and supply chain management.