Fraud Allegations and Government Contracting

60 Pages Posted: 3 Jan 2019

See all articles by Jonas Heese

Jonas Heese

Harvard Business School

Gerardo Perez Cavazos

Harvard Business School

Date Written: December 17, 2018

Abstract

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

Heese, Jonas and Perez Cavazos, Gerardo, Fraud Allegations and Government Contracting (December 17, 2018). Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3303236

Jonas Heese (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan Hall 397
Boston, MA 02163
United States

Gerardo Perez Cavazos

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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