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The U.S. Department of Justice (DOJ) has announced new national fraud enforcement priorities that may be particularly relevant to federal government contractors. In a memorandum, DOJ identified government procurement fraud as a critical enforcement priority and outlined an increased focus on fraud involving government contracts and taxpayer-funded programs. 

The Department's new National Fraud Detection Center brings together prosecutors, law enforcement agencies, data analysts, and subject-matter experts and uses advanced data analytics to identify potential fraud and develop investigative leads. 

The DOJ identified several areas for increased enforcement attention, including defective pricing, bid rigging, self-dealing, bribery, product substitution, and billing fraud. DOJ also plans to use increased data analytics and coordination among federal enforcement agencies to identify and investigate potential fraud. 

Existing Contractor Requirements Remain Important 

The DOJ announcement does not create a new general compliance requirement for all government contractors. Many of the applicable ethics and disclosure obligations have been part of the Federal Acquisition Regulation (FAR) for years. 

For example, FAR 52.203-13, Contractor Code of Business Ethics and Conduct, applies to certain covered federal contracts and requires contractors to maintain a written code of business ethics and conduct and establish appropriate measures to prevent and detect criminal conduct.  Under the current FAR, the clause is generally included in contracts expected to exceed $7.5 million with a performance period of 120 days or more.  

Covered contractors also have requirements related to internal reporting, training, internal controls, and disclosure of certain credible evidence of misconduct. The increased DOJ enforcement focus provides a good reason for government contractors to review whether their existing compliance processes are current and functioning as intended. 

How Issues May Be Identified 

Government contractors should be aware that potential compliance issues may be identified through employee or former-employee reports, government audits, agency Inspectors General, contracting officials, whistleblower lawsuits, or increasingly through data analytics that identify unusual patterns in government contracting and payment data. 

The government's own description is that it is trying to connect information that previously existed in separate systems and use analytics to generate investigative leads.   

If the government identifies potential misconduct, the contractor may face an investigation, audit, civil or criminal enforcement action, repayment or settlement obligations, and, in serious cases, suspension or debarment from federal contracting. A typical progression can look like this: 

1. Initial inquiry/investigation. DOJ, an agency Inspector General, or another government agency may request records, interview employees, or investigate the allegation. In False Claims Act matters, DOJ has authority to issue a Civil Investigative Demand (CID) seeking documents, written answers, and/or oral testimony.  

2. Internal investigation and cooperation. If FAR 52.203-13 applies, the contractor has obligations concerning cooperation with government audits/investigations. The clause also expressly preserves the contractor's ability to conduct its own internal investigation and defend a proceeding.  

3. Civil settlement or recovery. If the government concludes that the contractor improperly billed or made false claims, the matter can result in repayment, penalties, or a negotiated settlement. The dollar amounts can be substantially larger than the underlying improper payment.  

4. Criminal prosecution. If the evidence supports criminal conduct, DOJ can pursue criminal charges against the company and/or individuals.  

5. Contract consequences. Depending on the circumstances, the contractor can face contract remedies, including termination, withholding/recovery of payments, or other administrative action.  

6. Suspension or debarment. This is potentially the most significant contractor consequence. FAR permits suspension when there is adequate evidence of certain misconduct, including fraud or criminal conduct relating to a government contract. Suspension is temporary and generally remains in effect while an investigation or legal proceeding is pending.  

   
   

Recent Enforcement Examples 

Recent DOJ enforcement actions demonstrate the types of issues that can create significant exposure for government contractors: 

These cases illustrate that government-contract enforcement can involve timekeeping and labor charging, cybersecurity, conflicts of interest, small-business eligibility, procurement practices, billing, and employee reporting. They also demonstrate that issues can be identified through employees, former employees, agency inspectors general, and other government enforcement resources. 

What Government Contractors Should Review 

Contractors should consider the following: 

• Don’t just have policies on paper. Make sure employees know the rules, managers understand their responsibilities, time and billing records are accurate, and there is a functioning process for reporting and escalating concerns—including a confidential or anonymous reporting option. 
  
  A PEO built for government contracting can help maintain these controls across payroll, benefits, and compliance without building the entire infrastructure in-house.

• Review applicable contracts. Determine whether FAR 52.203-13 or other agency-specific ethics and disclosure requirements apply to current contracts or subcontracts. 

• Review the code of conduct. Confirm that the company's business ethics and conduct policy is current and accessible to employees. 

• Confirm reporting procedures. Employees should know how to report suspected fraud, conflicts of interest, bribery, improper billing, or other potential misconduct. 

• Review training requirements. Confirm that employees and other covered individuals receive required ethics and compliance training. 

• Review internal controls. Pay particular attention to controls involving government billing, labor charging and timekeeping, pricing, procurement, subcontractors, cybersecurity, and contract deliverables. 

• Reinforce non-retaliation expectations. Employees should be able to raise concerns through established reporting channels without fear of retaliation. 

• Review escalation procedures. Managers should know where to direct concerns involving potential government-contract misconduct rather than attempting to resolve significant allegations independently. 

• Review disclosure procedures. Make sure the company has a process for promptly involving the appropriate compliance and legal resources when potential misconduct may trigger a contractual or legal disclosure obligation. 

• Document corrective action. Where concerns are substantiated, companies should document appropriate corrective and remedial measures consistent with their policies and contractual requirements. 

  
  

If you're a government contractor reviewing your compliance posture in light of these DOJ priorities, C2 Essentials works with federal contractors to maintain DCAA-compliant payroll, accurate labor distribution reporting, and the documentation standards that keep your contracts defensible. Talk to our team about what a compliance review looks like for a company your size

Government Resources 

• U.S. Department of Justice – Fraud Section: https://www.justice.gov/fraud 

• DOJ – Fraud Division Policies and Guidance: https://www.justice.gov/criminal/criminal-fraud/policy-materials 

• Acquisition.gov – FAR 52.203-13, Contractor Code of Business Ethics and Conduct:  https://www.acquisition.gov/far/52.203-13 

• Acquisition.gov – FAR Subpart 3.10, Contractor Code of Business Ethics and Conduct:  https://www.acquisition.gov/far/subpart-3.10 

• Acquisition.gov – FAR 3.1003, Requirements for Government Contractors:  https://www.acquisition.gov/far/3.1003 

Quantum computing may sound like a technology reserved for scientists and large technology companies, but recent federal investments suggest it is becoming increasingly relevant to the government contracting community. 

The latest development: IBM has finalized a $1 billion award from the U.S. Department of Commerce to support research and development at a new U.S.-based quantum chip foundry. The facility, known as Anderon, is being developed to manufacture specialized quantum computing wafers and help expand the domestic quantum technology supply chain. 

The IBM announcement is part of a much larger federal effort. In May 2026, the U.S. Department of Commerce announced $2.013 billion in planned CHIPS and Science Act incentives for nine companies across the quantum computing and manufacturing ecosystem, including IBM, GlobalFoundries, D-Wave, Quantinuum, PsiQuantum and other emerging quantum technology companies. 

First, What Exactly Is Quantum Computing? 

In simple terms, a quantum computer is a fundamentally different type of computer. Today's computers process information using bits, which represent either a 0 or a 1. Quantum computers use qubits, which can take advantage of unusual properties of quantum physics to process certain types of problems in ways that conventional computers cannot.

That does not mean a quantum computer will replace the laptop or server sitting on your desk. Instead, quantum computers are being developed to tackle certain extremely complicated problems—such as modeling molecules and materials, optimizing complex systems and addressing some problems in cryptography—that could be difficult or impractical for conventional computers.

The technology is still developing, and significant technical challenges remain. But the federal government is treating quantum computing as an important emerging technology with potential national security and economic implications. 

What Does This Mean for Government Contractors? 

For government contractors, the opportunity may not be in building a quantum computer. Instead, opportunities could develop throughout the supporting ecosystem. As federal investment grows, contractors with capabilities in areas such as cybersecurity, software development, engineering, testing, advanced manufacturing, cloud computing, data analytics, systems integration and technical consulting may find opportunities to support larger prime contractors, research organizations and federal agencies. 

For example, Defense Advanced Research Projects Agency (DARPA) continues to actively engage industry on quantum technology.  Its Quantum Benchmarking Initiative is examining approaches to developing utility-scale, fault-tolerant quantum computing, including independent verification and validation. DARPA specifically encourages participation from traditional defense contractors, corporations and startups, and maintains resources for small businesses interested in its programs. 

For contractors looking for potential business-development opportunities, this makes quantum technology worth monitoring—not necessarily because every company needs to become a quantum computing company, but because new technology programs often create requirements for a much broader network of supporting contractors and suppliers. 

DARPA is a U.S. Department of Defense agency that funds and manages high-risk, high-payoff research intended to develop technologies that could provide major advantages for national security. For government contractors, DARPA is relevant because it works directly with industry, universities, startups, and research organizations to develop emerging technologies. 

There Is Also a Cybersecurity Side to the Story 

Quantum computing presents an opportunity, but it also creates a cybersecurity issue that government contractors should understand. A sufficiently powerful quantum computer could eventually threaten some of the encryption methods currently used to protect sensitive information. This is why the federal government and cybersecurity community are already working on post-quantum cryptography (PQC)—security methods designed to withstand attacks from future quantum computers. 

National Institute of Standards and Technology (NIST) has already finalized three federal post-quantum cryptography standards and is encouraging organizations to begin transitioning to quantum-resistant technology. NIST notes that the transition can take years because organizations must identify where vulnerable cryptography is being used and update systems, products and services accordingly. 

For government contractors, this is an important distinction: you do not need to operate a quantum computer for quantum technology to affect your business. 

Contractors that maintain federal systems, develop software, manage sensitive information or provide cybersecurity services may eventually need to address quantum-resistant encryption as part of their technology and security planning. 

What Should Contractors Do Now? 

There is no need for most small and midsize contractors to make major investments in quantum computing today. A more practical approach is to begin monitoring the technology and understanding where it could intersect with your business. Consider: 

• Monitor federal opportunities. Watch agencies such as DARPA, NIST, NSF and the Department of Defense for quantum-related solicitations, research programs and technology-transition opportunities. 

• Look beyond the prime contract. Quantum initiatives will require suppliers, cybersecurity companies, engineers, software developers, testing organizations and other specialized service providers. 

• Talk with your technology partners. Ask whether the systems and products you rely on have a plan for transitioning to post-quantum cryptography. 

• Assess long-term data protection. Information that must remain confidential for many years may warrant particular attention to emerging quantum-related risks. 

• Build awareness internally. Even if quantum computing is not part of your current contract portfolio, understanding the technology can help identify future teaming and subcontracting opportunities. 

The federal government's growing investment in quantum computing signals that the technology is moving from primarily academic research toward a broader national technology and industrial strategy. For government contractors, the takeaway is not that quantum computing is about to transform every federal program.

Rather, the supporting ecosystem is beginning to take shape—and contractors that understand where their existing capabilities fit may be better positioned to recognize opportunities as they emerge. The quantum era is still developing. But for companies serving the federal government, it is a technology worth having on the radar now. 

Resources for government contractors include: 

• DARPA Industry Opportunities: DARPA provides information on current opportunities, including Broad Agency Announcements, Requests for Proposals and Requests for Information, as well as resources for small businesses. 

• DARPA Quantum Benchmarking Initiative: Current quantum-related research and technology-development opportunities can be monitored through DARPA's Quantum Benchmarking Initiative. The initiative is examining whether utility-scale quantum computing can become practical and is currently soliciting participation in several areas. 

• NIST Post-Quantum Cryptography: NIST's resources explain the new quantum-resistant cryptography standards and provide guidance for organizations planning their transition. NIST recommends that organizations begin preparing for migration to post-quantum cryptography. 

• National Quantum Initiative: Quantum.gov provides information on federal quantum research, programs and initiatives across the government, including activities involving quantum computing, networking and sensing. 

The difference between a PEO and an ASO comes down to liability. A PEO enters a co-employment relationship and shares specific employer responsibilities with your business. An ASO means your company remains the employer and does not enter a co-employment relationship — it simply handles administrative tasks on your behalf. Everything else, pricing, benefits access, control, follows from that one structural difference.

Start With What Stays the Same

Both models exist to take HR administration off your plate: payroll processing, benefits enrollment, compliance tracking. If you're comparing them, you've probably already decided you want outside help with that work. The real decision is about how that help is structured, legally and financially, not whether you need support at all.

PEO: Shared Liability Through Co-Employment

A professional employer organization (PEO) enters what's called co-employment,  according to NAPEO, a contractual allocation and sharing of certain employer responsibilities between the PEO and the client company.

In practice, that means:

• The PEO becomes a co-employer of your team, alongside you

• The PEO typically handles payroll tax remittance under its own tax ID

• You still control hiring, firing, day-to-day management, and company culture

• Your employees get pooled into the PEO's larger benefits and insurance plans

Some PEOs are certified by the IRS as a Certified Professional Employer Organization (CPEO), which shifts specific federal employment tax liability to the certified PEO by law, a meaningful distinction worth confirming with any provider you're evaluating.

ASO: You Stay the Sole Employer of Record

An administrative services organization (ASO) is different in one structural way: there's no co-employment. With an ASO arrangement, your company remains responsible for the employer relationship while outsourcing selected administrative functions such as payroll, benefits administration, HR support, or compliance assistance.

With an ASO:

• Your business remains the sole legal employer, with no shared liability

• Payroll runs under your own tax ID, not the provider's

• You typically pick and choose which services to outsource, à la carte

• You keep full control, but you also keep full compliance and risk responsibility

Because there's no co-employment, an ASO generally can't fold your employees into its own master insurance plans the way a PEO can, it typically helps you shop for and administer a plan instead, which usually means less pooled pricing leverage.

Which Model Actually Fits Your Business?

Ask yourself these two questions.

How much liability do you want to share? If you want a provider to assume or administer specific employer responsibilities under a contractual co-employment arrangement, a PEO may fit. The exact responsibilities and liabilities allocated to the PEO depend on the client service agreement. If you'd rather keep full legal control, and the full responsibility that comes with it, an ASO keeps that with you.

How much do you need benefits pooling? A PEO's ability to bundle your team into large-group insurance plans comes directly from co-employment. An ASO can help you shop and administer benefits, but it generally can't offer the same pooled pricing, since your employees stay under your own tax ID rather than joining a shared risk pool.

A Quick Way to Frame It

Think of a PEO as a partnership where two companies share the employer role. Think of an ASO as hiring a very capable back-office team that works for you, not with you as a co-employer. Neither is better in the abstract, it depends on how much control versus liability-sharing your business actually wants at this stage.

Common Situations for Each

A PEO usually fits better when you:

• Want access to Fortune 500-level benefits at your current headcount

• Are growing fast and don't have internal HR infrastructure yet

• Want to offload specific employment tax and compliance liability

• Are trying to compete for talent against much larger employers

An ASO usually fits better when you:

• Already have an internal HR function you want to keep leading

• Want administrative support without sharing legal employer status

• Need only specific services, like payroll, rather than a full HR bundle

• Have a mature compliance program you're not looking to hand off

PEO vs. ASO for Government Contractors

For a government contractor, this isn't just a question of how much liability you're comfortable sharing — it directly affects how SCA fringe benefit compliance gets handled. A PEO's pooled benefits plan may already meet SCA prevailing fringe requirements; an ASO leaves the contractor fully responsible for structuring and documenting compliant fringe benefits on its own.

The model also has to support how you manage payroll, labor allocation, benefits, SCLS requirements, and audit documentation. An ASO may fit a contractor that already has strong internal compliance infrastructure and primarily needs administrative execution. A PEO may make more sense when the company wants broader HR infrastructure and support alongside payroll and benefits administration.

The important question isn't simply "PEO or ASO?" It's whether the provider understands federal contracting requirements in either model.

What Switching Between Models Actually Looks Like

Businesses don't always stay on the same model forever. A common pattern: a company starts with an ASO while it's small, then moves to a PEO once headcount and benefits needs grow enough that pooled insurance access becomes worth the liability-sharing trade-off. The reverse also happens, a business that's built out a strong internal HR and legal function sometimes moves from a PEO to an ASO to regain full control now that it has the infrastructure to manage compliance itself.

Neither transition is instantaneous. Moving into co-employment (or out of it) typically involves re-enrolling employees in new benefit plans, updating payroll tax registrations, and coordinating an effective date that doesn't disrupt a pay period. A good provider will walk you through that timeline before you sign, not after.

What About Cost?

Pricing structures differ enough that a direct dollar comparison rarely tells the full story. A PEO's fee typically bundles administrative support, compliance assistance, and pooled benefits access together. An ASO's fee usually reflects only the specific services you've selected, without the benefits-pooling component baked in.

If cost is the deciding factor either way, it's worth requesting quotes for both models against your actual headcount and current benefits spend rather than assuming one is categorically cheaper.

Questions Worth Asking Either Way

Regardless of which model you lean toward, a few questions cut through the sales pitch on both sides: What specific liabilities does the provider actually assume, in writing? What happens to our benefits and payroll continuity if we switch providers later? And how quickly can we get a straight answer from a real person when something urgent comes up?

Providers on both sides of this comparison should be able to answer all three clearly. If either can't, that's more telling than which model they're offering.

Red Flags Worth Watching For, Regardless of Model

A few warning signs apply no matter which structure you're leaning toward: a provider who can't clearly explain what happens if you need to exit mid-contract, one who won't put pricing logic in writing before you sign, or one who's vague about which carriers are actually on the benefits menu. Those issues aren't specific to PEOs or ASOs, they're signs of a provider relationship that's likely to get harder, not easier, once you're locked in.

The Decision Doesn't Have to Be Permanent

It's worth remembering that choosing one model today doesn't lock you into it forever. Businesses change size, risk tolerance, and internal HR capacity over time, and it's entirely normal to revisit this comparison every year or two rather than treating the initial choice as final.

We Offer Both, So You Don't Have to Guess

At C2 Essentials, we run both PEO and ASO models, so the conversation starts with your actual needs, not with which product we're trying to sell. Talk to our team about which structure fits where your business is today.

Frequently Asked Questions

What is the main difference between a PEO and an ASO?

A PEO shares employer liability with your business through co-employment, while an ASO leaves your business as the sole employer of record and only provides administrative support.

Is a PEO always more expensive than an ASO?

Not necessarily more expensive overall, but the pricing structure differs, a PEO's fee typically bundles liability-sharing and benefits pooling, while an ASO usually charges for specific administrative services you select individually.

Can I switch from an ASO to a PEO later?

Yes, many businesses start with an ASO and move to a PEO as they grow and want more benefits pooling or liability sharing. The transition involves setting up co-employment and typically re-enrolling employees in new benefit plans.

Does an ASO handle payroll taxes?

An ASO can process payroll and help manage tax filings, but it does so under your business's own tax ID, unlike a PEO, which typically remits taxes under its own employer identification number as part of co-employment.

Which model gives me better employee benefits?

A PEO generally provides access to larger, pooled insurance plans because your employees join the PEO's broader risk pool. An ASO can help you shop for and administer benefits, but usually without that same pooled pricing advantage.

Do I lose control of my business with a PEO?

No. Even in a co-employment relationship, you retain control over hiring, firing, day-to-day management, and company culture, the PEO takes on specific administrative and compliance responsibilities, not decision-making authority over your business.