New Federal Rule Mandates 3-Year Ban on Contracts for Felony Fraud Convicts

The Federal Program Integrity and Fraud Prevention Act of 2025 is a straightforward piece of legislation aimed at tightening the screws on federal fraud. Simply put, this bill creates a mandatory three-year timeout for individuals convicted of specific federal fraud felonies, barring them from receiving any federal contracts, grants, loans, or other financial assistance. If you’re caught defrauding the government, the government won’t be doing business with you or funding your projects for a while.

The Automatic Exclusion List

This bill makes the exclusion automatic. If an individual is convicted of one of the listed “covered felonies”—which spans a wide range of fraud, theft, and conspiracy charges (like those under 18 U.S.C. 1341, 1343, and 1344)—the Attorney General has to notify the General Services Administration (GSA). The GSA then lists that person as an excluded source on the System for Award Management (SAM) Exclusions list for three years. This means if you run a small business that relies on federal contracts or grants, a conviction could instantly shut off that revenue stream for 36 months.

The Broad Definition of 'Convicted'

One detail that jumps out is the bill’s definition of “convicted.” It’s not just about a formal judgment after a trial. It includes situations where a federal court has accepted a plea of guilty or nolo contendere, or even if the individual has entered a first offender, deferred adjudication, or similar program where judgment was withheld. For a busy person, this means that even if you take a deal to avoid a full conviction and trial—a common scenario in the justice system—you could still trigger the mandatory three-year ban on federal funding. This broad definition ensures that the penalty kicks in quickly, but it also applies the same hammer to those who might be in a diversion program as it does to those who serve jail time.

The Agency Loophole

While the exclusion is mandatory, the bill includes a significant escape clause: the Agency Waiver Authority. The head of any federal agency can grant a written exemption from this three-year ban if they determine it is “warranted.” This is where things get interesting—and potentially messy. The bill doesn't provide any criteria for what makes an exemption “warranted.” It’s entirely up to the discretion of the agency head. The only requirement is that they send a copy of the written exemption to Congress immediately after making the decision. For regular people, this means the effectiveness of the ban might depend heavily on which agency you’re dealing with and how subjective their criteria for granting waivers turns out to be. If the goal is clear, consistent integrity, a loophole this wide could lead to inconsistent application across different federal departments.

What Happens Next

To make this system work, Section 3 mandates that the Attorney General, in consultation with the GSA, must issue guidance for implementing and complying with these new requirements within one year of the law’s enactment. This guidance will be critical because it will likely lay out the procedures for reporting convictions and managing the SAM exclusion list. For anyone involved in federal contracts or grants—from defense contractors to university researchers—this bill introduces a new, non-negotiable risk layer. If you or key personnel on your team have a history that touches any of these fraud statutes, you now face an automatic, mandatory exclusion, unless an agency head decides you’re worth the waiver.