While criminal prosecutions involving construction company executives violating federal, state, and local disadvantaged business enterprise programs (DBE) rightfully receive most of the attention, of equal or greater concern to contractors should be whistleblower lawsuits brought under the False Claims Act for violations of DBE regulations. As I talked about in my recent DBE compliance webinar (available for free by clicking HERE) the False Claims Act makes bounty hunters out of disgruntled former employees because the Act entitles the whistleblower to up to 30% of the amount recovered on behalf of the government.
On May 1, 2014, the FBI announced a $12 million settlement against Chicago based McHugh Construction for violations of the DOT DBE program and similar Illinois and Chicago DBE programs. What is important about the case, is that it was filed under the False Claims Act by a project manager of a subcontractor to McHugh. The case was then picked up — as is often the case under the False Claims Act – by the Department of Justice. For his effort in making the initial filing the project manager will receive in excess of $2 million. Not a bad pay day for the little work that he did in filing the lawsuit.
Now more than ever, contractors cannot ignore their DBE compliance duties. Like with any other criminal activity, the Department of Justice cannot prosecute every case either because they lack the resources or they decline prosecution because of the size of the matter. However, under the False Claims Act, the hundreds of people working on a construction project have incentive to sue contractors for violations of DBE rules.
Plaintiff’s attorney are aggressively pursuing whistleblower claims against contractors that violate the DBE regulations. Moreover, many terminated and disgruntled employees contact an attorney about potentially suing their former employer. Usually that inquiry involves whether they have a claims for some form of discrimination. Many are disappointed to learn they do not, however, you can be sure that the attorney they speak with will ask the potential client about any potential False Claims Act claims. Even when you win a whistleblower action you lose because you are forced to spend significant money defending the action, which is typically not covered by insurance.
Whistleblower actions, yet another reason to make sure your firm is complying with DBE regulations.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
