Fraud Allegations and Government Contracting
60 Pages Posted: 3 Jan 2019
Date Written: December 17, 2018
This paper examines whether fraud allegations affect firms’ contracting with the government. Using a dataset of whistleblower allegations brought under the False Claims Act against firms accused of defrauding the government, we find that federal agencies do not reduce the total dollar volume of contracts with accused firms; however, they substitute approximately 14% of the harder-to-monitor cost-plus contracts for fixed-price contracts. This effect is concentrated in the procurement of services and explained by contract and service substitution. Lastly, we find that after the conclusion of the investigation, the government reduces the contract dollar volume by approximately 15% for cases that resulted in a settlement. Our findings indicate that contract-design changes are used to mitigate uncertainty in suppliers’ reputation.
Keywords: Whistleblower; Fraud Allegations; False Claims Act; Government Contracting; Risk Allocation
JEL Classification: D82, G18, M41, H57 , K23, K42, L33
Suggested Citation: Suggested Citation