Blowing the Whistle on Public Construction and the False Claims Act
Contractors hoping to take advantage of incoming infrastructure spending should implement False Claims Act protections now.
While promises made during a presidential campaign can’t always be taken to the bank, the construction industry is nonetheless preparing for a rise in federally-funded projects based on the Trump campaign’s promise of increased infrastructure spending. Contractors taking on this work must take steps to prepare for a whole new realm of potential liability under the False Claims Act (the “FCA”).
What is the False Claims Act?
The FCA is a federal law that creates civil penalties for any party who defrauds the federal government. The statute imposes liability for knowingly submitting a false or fraudulent claim for payment by government, or for knowingly avoiding or wrongfully reducing an obligation to pay the government. 31 U.S.C. § 3729. This means contractors on federal projects who inflate payment applications, falsify progress reports and equitable adjustment requests, or fail to return overpayments do so in violation of the FCA.
Payment issues aren’t the only areas that can cause problems for contractors under the FCA. Claims can also be brought due to Davis-Bacon Act violations regarding prevailing wage laws and DBE certification compliance violations. Also, contractors can violate the FCA by providing substandard or non-compliant labor or materials to a project.
The takeaway for contractors should be this: nearly any breach of a federal contract is a potential FCA violation.
How are FCA Claims Asserted?
Here’s where False Claims Act cases really distinguish themselves from typical civil claims. Usually, the claims aren’t asserted by the government itself, but are instead asserted by “whistleblowers” (the statute calls them “relators”). These relators stand in the shoes of the government and essentially bring the case on the government’s behalf. Anyone with knowledge of misconduct can be a relator, but they typically come in the form of current or former employees, competitors, subcontractors/suppliers, or accountants.
After the suit is filed by the relator, the government will investigate the allegations asserted in the lawsuit. Based on its findings, the government may decide to intervene in the lawsuit. Intervention likely means bad news for the defendant as the case is then prosecuted by the U.S. Attorney. As a result, relators enjoy reduced attorney expenses in cases with government intervention. But, their potential recovery is also lessened. If it intervenes, the government will keep more of the judgement or settlement to offset its own expenses. Relators have the option of pursuing the claim on their own if the government does not intervene.
Relators can potentially score huge financial windfalls in False Claims Act cases, regardless of intervention. As of August 1, 2016, each violation of the FCA is subject to a penalty between $10,781.40 and $21,562.80, and most cases typically involve numerous violations. These penalties are assessed in addition to any damages deemed to have been suffered by the government. Depending on the nature of the violation, the government’s damages could match the contract price. And, any damages incurred by the government are automatically tripled by the statute. These factors can combine for huge awards, and relators can be awarded up to 30% of the total judgement or settlement.
What Can You Do to Protect Yourself?
This potential financial gain provides plenty of motivation for relators to “blow the whistle.” Combine this with a potential uptick in federal infrastructure spending, along with the continual growth of FCA litigation, and it becomes apparent that these claims aren’t going away any time soon. So, if you’re performing or contemplating work under a federal contract, consider implementation of the following:
- Written policies against false claims
- Company-wide protocols regarding maintenance of project records (i.e., daily reports)
- Review of all cost-related submissions (proposals, pay applications, requests for equitable adjustment, etc.)
- Mandatory employee training regarding False Claims Act liability
- Third-party DBE compliance auditing
- Exit interviews of departing employees to identify potential violations
- Careful screening of subcontractor/pass-through claims