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Government Contracting and The Ostrich Defense: What You Don’t Know Could Put You In Jail

One key to a successful public construction project is understanding and implementing a strategy to deal with the potential risks associated with the project. To facilitate a successful project, the background and history of the design professionals, contractors, subcontractors, and suppliers working on the project is critical. How are they staffed? What is their reputation in the industry? Are they financially solid? Have they been involved in litigation? In short, a party to a government contract, be it the public owner or the general contractor, needs knowledge of the parties they are contracting with in order to avoid risk.

Recently, I attended an ABA seminar entitled “Minority Contracting Programs: A Growing Criminal Risk to Corporations.” The program touched a variety of MBE/WBE/DBE issues, but what really caught my attention was the concept of the “ostrich jury instruction.” This instruction may be given to jurors in criminal cases involving contractor fraud in obtaining government contracts with set-aside programs. Below is an excerpt from a 7th Circuit case that describes the ostrich instruction:

[Ostriches] are not merely careless birds. They bury their heads in the sand so that they will not see or hear bad things. They deliberately avoid acquiring unpleasant knowledge. The ostrich instruction is designed for cases in which there is evidence that the defendant, knowing or strongly suspecting that he is involved in shady dealings, takes steps to make sure that he does not acquire full or exact knowledge of the nature and extent of those dealings. A deliberate effort to avoid guilty knowledge is all the guilty knowledge the law requires. United States v. Giovanetti, 919 F.2d 1223, 1228-29 (7th Cir. 1990).

The take away from the ostrich instruction is that a deliberate lack of knowledge is little defense to the risk of criminal prosecution for fraud on a public construction project. Given these facts, public owners and the contractors that bid on such projects would be better served keeping well informed about the activities of their contractors instead of turning a blind eye and hoping the parties are doing what is required under federal and state law.