Since 1986, the little brother to the civil False Claims Act, known as the Program Fraud Civil Remedies Act of 1986 (“PFCRA”), has seen very little use. Section 5203 of the Fiscal Year 2025 National Defense Authorization Act (“NDAA”) seeks to breathe new life into the law by renaming it the “Administrative False Claims Act of 2023” (“AFCA”) and by making several substantive enhancements. What is unclear is whether Congress’s attempts to revitalize the PFCRA will ultimately be thwarted by the Supreme Court’s decision in SEC v. Jarkesy. The AFCA complements the more widely known and widely used civil False Claims Act by providing an administrative process by which federal executive branch agencies can address relatively small dollar value false claims that might not warrant the attention of the Department of Justice. The liability provisions of the AFCA remain closely modeled on those in the False Claims Act. The principal differences between the False Claims Act and the AFCA are that the AFCA does not include a qui tam enforcement mechanism, covers false written statements even in the absence of a claim, and provides for administrative rather than judicial resolution.
NDAA Changes
The principal changes introduced in the NDAA are as follows.
- The AFCA raises the original $150,000 PFCRA ceiling on claims that may be handled administratively to $1 million, and provides for periodic adjustment of this cap for inflation in the same manner that civil monetary penalties are increased under the civil False Claims Act.
- The AFCA seeks to provide a concrete incentive for agencies to bring administrative claims, by specifying that amounts recovered under the law will be credited first to reimburse the agency for its costs of investigating and prosecuting these small false claims, including court or hearing costs, with additional amounts deposited as miscellaneous receipts in the U.S. Treasury.
- The AFCA expands the lists of officials to whom AFCA cases can be referred for administrative hearings, to include members of the board of contract appeals for any agency that does not employ administrative law judges.
- The AFCA amends the PFCRA’s 6-year statute of limitations to mirror the limitations provision in the civil False Claims Act, by adding an alternate limitations period of up to 10 years if an action is filed within 3 years of the date that material facts “were known or reasonably should have been known by the authority head.”
- The AFCA amends a number of provisions to align the AFCA with the civil False Claims Act, for example by conforming the definitions of “materiality” and “obligation” to match those in the civil False Claims Act and specifying that materiality should be determined in the same manner as under the civil False Claims Act.
Agencies and board of contract appeals are directed to update existing regulations and procedures to comply with these NDAA legislative changes.
Possible Constitutional Infirmity
The AFCA, like other administrative proceedings, may be vulnerable to the Supreme Court’s June 2024 decision in SEC v. Jarkesy. In that case, the Supreme Court held that when the SEC seeks civil monetary penalties from a defendant for securities fraud, the Seventh Amendment entitles the defendant to trial by jury. The Supreme Court based its conclusion in part on: (1) the “close relationship between federal security fraud and common law fraud,” (2) the fact that civil monetary penalties designed to punish offenders are a type of relief traditionally meted out under courts of law as opposed to courts of equity, and (3) its conclusion that the “public rights exception” to Article III court jurisdiction did not apply. While the Supreme Court’s holding in Jarkesy only applies to securities fraud, the AFCA—much of which is rooted in common law fraud, and provides for civil penalties of up to $5,000 per claim, in addition to an assessment of damages of not more than twice the amount of the claim—may be susceptible to the Supreme Court’s reasoning in Jarkesy.
Time will tell whether the AFCA will be revitalized as intended by the NDAA, or whether the Supreme Court’s decision in Jarkesy will gut the statute and continue the PFCRA’s legacy as a largely forgotten law.
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This blog is the second in a series of Covington blogs on the 2025 NDAA. The first blog summarized (1) NDAA sections affecting acquisition policy and contract administration that may be of greatest interest to government contractors; (2) initiatives that underscore Congress’s commitment to strengthening cybersecurity, both domestically and internationally; and (3) NDAA provisions that aim to accelerate the Department of Defense’s adoption of AI and Autonomous Systems and counter efforts by U.S. adversaries to subvert them.
Future posts will address NDAA provisions targeting China, supply chain and stockpile security, and Congress’s effort to mature the Office of Strategic Capital and leverage private investment to accelerate the development of critical technologies and strengthen the defense industrial base. Subscribe to our blog here to get these updates.