FCA 101: Materiality

Key Takeaways

• Supreme Court demands actual influence for materiality.
• EO 14173 and EO 14398 label DEI compliance material.
• Courts may reject per‑se materiality without enforcement.
• Contractors should audit DEI clauses to mitigate risk.
• Implied false certification remains viable FCA theory.

Pulse Analysis

The False Claims Act (FCA) hinges on three elements—falsity, knowledge, and materiality. Materiality is defined as a tendency to influence payment, but the Supreme Court’s 2016 Escobar decision tightened that definition, insisting the misrepresentation must actually affect the government’s decision, not merely exist as a contractual condition. This rigorous standard was designed to keep ordinary contract breaches from being prosecuted as fraud, reinforcing the need for concrete evidence of influence.

In 2025 the Department of Justice launched a Civil Rights Fraud Initiative, and subsequent executive orders—EO 14173 and EO 14398—mandated that compliance with anti‑discrimination and DEI clauses be deemed material to payment decisions. The administration’s approach effectively tries to create a per‑se materiality rule for DEI compliance, a move that diverges sharply from Escobar’s guidance. While the DOJ argues that these clauses should automatically trigger FCA liability, the Supreme Court has warned that labeling a requirement as a condition of payment does not satisfy the materiality threshold without proof of actual impact.

For contractors, the practical upshot is a need for proactive risk management. Companies should audit DEI-related contract language, document compliance efforts, and be prepared to demonstrate that any alleged non‑compliance would have materially affected payment. Without enforcement actions—such as audits, payment withholdings, or explicit government findings—courts are likely to view the per‑se materiality claim skeptically. As litigation looms, firms that align internal policies with both the new executive orders and the Escobar standard will be better positioned to defend against potential FCA suits.