A legal expert told Nextgov/FCW the possibility underscores how the federal government is “fully unprepared for how bad” AI-driven procurement fraud is going to get. #
The Civilian Board of Contract Appeals recently found that a contractor may have used Grok to alter financial documents during discovery for a contract termination dispute.
The board concluded that if the Department of Veterans Affairs had not “detected the manipulations and redactions to the financial statements, it would unfairly and unknowingly have to defend itself against” a claim overinflated by more than $1.1 million dollars, according to an August 18 filing.
The case
In October 2023, Venergy, a construction management company, appealed a VA contract termination and later requested the government pay it back roughly $4.23 million in damages for delaying the contract.
In December 2024, a VA contracting officer denied the request and asked Venergy to pay the government about $1.84 million because of the contractor’s failure to complete a project by a specified deadline. Those two cases were consolidated into one in January 2025.
Venergy produced audited financial documents during discovery for the combined case. A VA construction damages expert, however, struggled to reconcile the documents with previous information the department received, according to the filing.
VA alleged someone at Venergy used electronic white boxes to manually hide schedules of earnings from contracts, schedules of contracts in progress and schedules of completed contracts, the filing adds. The alterations were found on the 2020, 2022 and 2023 financial statements.
Venergy called VA’s allegations inaccurate and produced clean copies of the financial documents in February 2026, the filing states.
Last month, VA and Venergy held a fact-finding hearing on alleged misconduct during discovery. The company’s CEO and external certified public accountant testified that neither of them altered financial records.
But the CEO indicated “that a now-former employee who was assisting with the production and who was a proponent of Grok, an artificial intelligence (AI) tool, would have had access to the CEO’s Adobe Acrobat account but does not know if that employee manipulated” the documents, according to the filing.
Venergy had not contacted the former employee for information or undertaken an internal investigation to figure out who manipulated the financial documents, the board found.
The board dismissed Venergy’s $4.23 million claim as a sanction but did not toss out the company’s appeal of the contract termination or the government’s request for $1.84 million.
Counsel for Venergy did not return multiple requests for comment on the board’s finding.
The repercussions
The case is the first of its kind, in which a procurement tribunal found generative AI may have manipulated documents in discovery, David Timm, a partner at the Burr & Forman law firm, posted on LinkedIn.
“There could be criminal, not just civil, but also criminal penalties if [the Justice Department] were able to prove who [falsified financial documents] and who did it with intent” under the False Claims Act, Timm told Nextgov/FCW. Such a case would go hand in hand with an ongoing Office of Inspector General investigation into the manipulated financial records, he added.
But the Venergy-VA case could have broader lessons for the federal government as it looks to clamp down on suspected procurement fraud.
Detecting AI-driven fraud “either depends on whistleblowers or something so obviously bad that a human can detect it. But as AI tools get more sophisticated, it's going to be increasingly difficult for people to detect AI fraud, whether that's in the procurement process itself or it's in some sort of documentation,” Jessica Tillipman, associate dean for government procurement law studies at George Washington University Law School, told Nextgov/FCW.
“We are underestimating or we are fully unprepared for how bad this is going to get,” she added.