Are You Violating The False Claims Act?

One of the great things about living in a large city is being able to walk everywhere. I like walking because it is when I do my thinking. Sometimes I do too much thinking that it causes me to walk several blocks past my intended location. We sometimes lose focus on what is happening around us while we are focused on the task at hand. It is easy to lose focus on the bigger picture on a complex construction project with its multiple moving parts, men, and material. Unfortunately, the consequences of losing your focus on a construction project are much worse than simply walking past your intended location.

In recent years, federal prosecutors have raised the stakes for contractors that lose focus on a construction project. One area where you can easily lose focus is in complying with the multiple federal laws that apply to the project. Under the False Claims Act, contractors — and their executives — can be prosecuted for failing to assure that their subcontractors are following certain those laws.

A False Claims Act violation occurs when a person “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government.” Importantly, unlike common law fraud, the government need not show that you intended to defraud the government when you submitted your claim. The false certification need not be an expressly false statement for there to be a False Claims Act violation. Under the implied certification theory of liability you can be liable for violating the “continuing duty to comply with the regulations on which payment is conditioned.”

The case U.S. ex rel. Wall v.Circle C Construction, LLC, is a good example of what can happen when you fail to make sure that your subcontractors are following federal regulations before submitting an application for payment. The defendant, Circle C Construction, had a contract with the Army to perform work on buildings at Fort Campbell in Tennessee. Prosecutors claimed that Circle C violated the False Claims Act by submitting applications for payment falsely claiming that all of its subcontractors paid prevailing wages under the Davis Bacon Act.

As is typically the case, Circle C’s contract with the Army required Circle C and its subcontractors to pay prevailing wages, to submit certified payroll showing the payment of prevailing wages, to insure its subcontractors complied with the Davis Bacon Act, and to assure that the certified payroll submitted to the Army was accurate and complete.

Circle C, however, neglected to submit certified payroll for its electrical subcontractor, Phase Tech. The reason for the failure to submit accurate certified payroll for Phase Tech was not because of some scheme to defraud the government by Circle C, rather, it was Circle’s C sloppiness in determining who was working on the project. In other words, it was not intentional. However, intent was not required because the court applied the implied certification theory of liability and found against Circle C and awarded the government over $500,000 in damages, which it then trebled (tripled) under the False Claims Act, for a total damage award in excess of $1.5 million.

The Circle C case is just one example of easily you can run afoul of the False Claims Act by failing to be diligent that you and your subcontractors are following the federal laws and regulations regarding your project. Other examples where contractors have run into similar False Claims Act issues are when it fails to assure that federal DBE rules are being complied with on a project. You should be particularly concerned about the False Claims Act because False Claims Act prosecutions have nearly doubled over the last few years and there have become “en vogue” for federal prosecutors.

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