Who this charge targets
Section 1031 is aimed at fraud inside federal spending. Think defense contractors billing for work not performed, suppliers substituting cheaper parts than the specifications required, construction firms inflating change orders on a federal project, service contractors billing phantom labor hours, and grant recipients diverting program funds. The common thread is federal money on the table plus deception in how it was obtained or kept.
For the broader context of federal fraud and deception cases, start with the Federal White Collar Criminal Defense hub.
The $1,000,000 threshold in § 1031, and what it measures
The most misunderstood part of this statute is the dollar figure. Section 1031 applies where the value of the grant, contract, subcontract, subsidy, loan, guarantee, insurance, or other form of federal assistance, or any constituent part thereof, "is $1,000,000 or more". That is a jurisdictional value, not a loss amount. A contract worth $1,000,000 or more opens the door even if the alleged overbilling is a fraction of that. A smaller piece of a larger vehicle can also qualify, because the statute counts any constituent part. Task orders, option years, subcontracts, and supply agreements are litigated on exactly this question.
Two drafting details matter. First, the statute covers both sides of federal spending: grants and assistance programs on one side, and procurement of property or services on the other, reaching prime contractors and subcontractors or suppliers alike. Second, the text added in 2009 expressly includes assistance through rescue and stimulus programs and the government purchase of troubled assets, so the law is not limited to classic defense procurement. Where the vehicle falls below the line, prosecutors typically charge a different statute rather than dropping the case, which is why the neighbour comparison below matters.
What the government must prove
The charge opens with the words "Whoever knowingly executes, or attempts to execute, any scheme or artifice with the intent". That sentence does heavy work. The government must prove the defendant acted knowingly, that there was a scheme or artifice rather than an isolated error, and that the defendant acted with one of two intents: "to defraud the United States", or "to obtain money or property by means of false or fraudulent pretenses, representations, or promises". Either prong supports the charge. The first covers schemes aimed at cheating the government generally. The second covers schemes that use lies to get federal money or property.
Beyond intent, the government must tie the scheme to covered federal business. The scheme must operate in a qualifying grant, contract, subcontract, subsidy, loan, guarantee, insurance, or other form of federal assistance, or in procurement as a prime contractor or as a subcontractor or supplier under a prime contract with the United States. And it must prove the $1,000,000 value described above. Attempts are punished the same as completed offenses under this section, because the opening verbs cover both executing and attempting to execute a scheme. That means a failed bid rig or an unaccepted false invoice can still support the charge if the government proves the scheme and the intent behind it.
Penalties under § 1031: prison maximums, fines, and time limits
Section 1031 sets ceilings, not floors. A violation "be fined not more than $1,000,000, or imprisoned not more than 10 years, or both". There is no mandatory minimum prison term in the section. The penalty clauses state maximums only, and any sentence below those ceilings depends on the guideline calculation and the judge.
Fines have their own ladder. The base maximum is $1,000,000. The fine may rise above that otherwise applicable maximum, up to $5,000,000, where "the gross loss to the Government or the gross gain to a defendant is $500,000 or greater", or where "the offense involves a conscious or reckless risk of serious personal injury". Defective parts, falsified testing, and substituted materials in safety critical contracts are the cases where the second trigger appears. For a prosecution with multiple counts under the section, the total maximum fine "shall not exceed $10,000,000". The section also preserves any other sentence available under federal law, including a fine of up to twice the gain or loss under the general fine statute. That general provision allows a fine up to "the greater of twice the gross gain or twice the gross loss" where figuring gain or loss does not unduly complicate sentencing, and it sets a general felony ceiling of "for a felony, not more than $250,000" for an individual where no higher amount applies.
Time limits favor the government more than usual. A prosecution under this section "may be commenced any time not later than 7 years after the offense is committed", plus any additional time otherwise allowed by law. That is two years longer than the general five year rule for non capital federal offenses, which matters in slow moving contract audits where the alleged conduct surfaced years after payment.
Two civil provisions sit inside the criminal statute and surprise clients. The Attorney General may in special circumstances pay informants from Justice Department funds up to $250,000, with court ordered reimbursement from a criminal fine. Separately, an employee who is punished by an employer for lawful acts in furtherance of a section 1031 prosecution, and who did not participate in the violation, may bring a civil action for full make whole relief including reinstatement, doubled back pay with interest, special damages, and attorney fees. These provisions explain why internal disputes on government contracts sometimes reach prosecutors through a coworker first.
How the sentence is calculated under guideline section 2B1.1
The Statutory Index in the Guidelines Manual refers section 1031 offenses to guideline section 2B1.1, the guideline for theft, fraud, and deceit. That reference decides the starting framework for almost every major fraud case. The base offense level turns on the statutory maximum. Level 7 applies only where the offense of conviction carries 20 years or more. Because section 1031 carries 10 years, a major fraud case starts at "6, otherwise." From there, the specific offense characteristics add levels.
Loss is the engine of the guideline. The rule is short: "Loss is the greater of actual loss or intended loss." The loss table then adds levels as loss grows, from no increase at $6,500 or less up to 30 added levels above $550,000,000. Those are the current Manual's figures. For sentencings on or after November 1, 2026, Amendment 2 of the Sentencing Commission's 2026 amendments raises them to $9,000 and $750,000,000, unless Congress acts. In contract cases the loss number is often fought harder than anything else, because credits for work actually performed, materials actually delivered, and services actually rendered can reduce loss, while the government often starts from the full contract price.
Procurement cases have their own loss rule, and it is page specific. The commentary provides that in procurement fraud, reasonably foreseeable harm includes the administrative costs of repeating or correcting the procurement plus any increased cost to procure the product or service involved. In plain words, the cost of recompeting the contract, inspecting and retesting delivered goods, and paying a replacement contractor more to do the job right can count as loss even where no single invoice states those sums. Defense contractors who delivered nonconforming parts and forced the agency to retest an entire lot feel this rule directly.
Other enhancements apply when their facts are present. Cases with many victims or substantial hardship add levels. Cases run with sophisticated means, such as falsified test laboratories, shell subcontractors, layered invoices, or altered quality records, can add levels for intentional sophisticated conduct. Cases that created a conscious or reckless risk of death or serious bodily injury add levels under the guideline, which parallels the statutory fine trigger for risk of serious personal injury. Cases where the defendant falsely claimed to act on behalf of a government agency can add levels for that misrepresentation. None of these apply automatically. Each needs its factual predicate proved.
Criminal history, role in the offense, acceptance of responsibility, and grouping with other counts all move the final number, and the judge must still weigh the statutory purposes of sentencing. Nobody's guideline range can be read off this page. To see how ranges work in general, read Federal Sentencing and try the inputs on the Federal Sentencing Guidelines Calculator. Those numbers are ranges, not predictions, and the facts of a case change everything.
The closest neighbour: false claims under 18 U.S.C. § 287
Major fraud and false claims travel together in indictments, and clients confuse them. Section 287 punishes anyone who "Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States", or to any department or agency, any claim against the United States, "knowing such claim to be false, fictitious, or fraudulent". The punishment is that the defendant "shall be imprisoned not more than five years" plus a fine. Three differences decide which charge fits.
First, section 287 needs a claim presented to the government. Each false invoice is its own unit. Section 1031 needs a scheme or artifice in covered federal business, which can span many invoices, bids, and statements over time. A single inflated invoice with no broader plan fits section 287 more naturally. A sustained pattern of bid rigging, progress payment fraud, or product substitution fits section 1031.
Second, only section 1031 has the $1,000,000 contract value threshold. Below that line, section 287 carries the case with its five year maximum. Above that line, section 1031 doubles the prison exposure to ten years and brings the higher fine ladder.
Third, knowledge works differently in practice. Section 287 asks whether the defendant knew the particular claim was false when it was made or presented. Section 1031 asks whether the defendant knowingly executed a scheme with the required intent. A billing clerk who submitted one invoice the boss signed may face different questions than the manager who designed the billing practice. How single claims differ from schemes is explained further on the False Claims page, and false statements outside a claim are addressed on the False Statements page.
Wire fraud sometimes appears alongside both. That statute punishes anyone who devises a scheme and, to carry it out, "transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce" writings, signals, or sounds. Emailing a false progress report or wiring an inflated invoice can satisfy the wire element, which is why a procurement indictment may charge section 1031 for the scheme, section 287 for specific invoices, and wire fraud for the transmissions. Related scheme plus transmission conduct is covered on the Wire Fraud page.
Defenses that actually arise under this statute
Defenses start with the $1,000,000 valuation, because it is an element, not background. The government must prove the value of the grant, contract, or assistance, or a constituent part, reaches the line. Defense counsel test how the vehicle is defined: whether option years were actually exercised, whether separate contracts were improperly combined, whether a small subcontract is being measured against the prime contract it never touched, and whether the valuation uses the contract price or some inflated estimate. Falling below the line does not end the case, since section 287 or another charge may follow, but it removes the ten year charge.
Knowledge and intent are the center of most trials. The statute demands a knowing execution of a scheme with intent to defraud or to obtain money or property by false pretenses. Cost overruns, failed performance, testing disputes, and aggressive interpretations of vague specifications are not schemes by themselves. The government usually proves intent through emails, meeting notes, revised test data, dual books, and the defendant's own statements to auditors. Each of those can be challenged on what it actually shows about this defendant's mind at the time.
Scheme versus mistake or contract dispute is the related fight. Federal contracts generate constant disagreements about scope, allowability, specifications, and acceptance. A contractor who delivered late, delivered imperfectly, or billed costs the contracting officer later disallowed has not necessarily committed fraud. The question is whether the government can prove deception rather than disagreement. Contemporaneous records help here: specifications, submittals, inspection reports, cure notices, and correspondence showing what each side understood at the time.
Prong mismatch matters because the government must prove at least one intent prong. A scheme that sought to delay or obstruct without seeking money or property may not fit the second prong, and conduct that obtained money through hard bargaining without deceit may fit neither. Constituent part arguments cut both ways and need care: the government may point to a large prime contract to pull a small supplier into the statute, while the defense may show the supplier's actual agreement was a small fixed price order with no connection to the federal terms alleged.
Attempt, limitations, and multiplicity round out the picture. Because attempts are punished the same as completed offenses, walking away before payment does not automatically defeat the charge, but it can undercut proof of intent and loss. The seven year limitations period gives the government unusual room, so limitations fights focus on when the offense was committed and whether charged conduct falls inside the window. Where the same invoices support sections 1031, 287, and wire fraud together, counsel examine whether the counts punish the same conduct and how they group at sentencing, since that changes the real exposure more than the number of counts suggests.
If you are under investigation
Procurement investigations move slowly and then fast. They often start with a contracting officer finding, a Defense Contract Audit Agency report, a suspension and debarment notice, or a qui tam filing you never see, then surface as a subpoena, a civil investigative demand, or agents at the office. Preserve everything from the first sign: bids, proposals, cost records, timecards, test data, calibration logs, emails, messages, and subcontract files. Do not delete, retest, rewrite, or backdate anything, because that creates new exposure on top of the contract dispute. Do not contact employees or subcontractors to align accounts. If parallel money movement is at issue, those counts are addressed on the Money Laundering page. Get a lawyer involved before the first auditor interview, not after, because the facts of a case change everything.