Last week, I posted about how whistleblowers continue to receive large settlements related to DBE fraud. A somewhat recent case from the federal court in Maryland shows how whistleblowers are ferreting out DBE fraud on construction projects receiving any form of federal funding.

The Case

The case involves a bridge painting project in Maryland that was let by the Maryland State Highway Administration. The contract required the prime contractor to meet a 15% DBE participation goal.  The prime contractor submitted a bid stating it would have 15.12% DBE participation.  After it was awarded the contract, the prime contractor – as is typical – submitted additional forms certifying to the MSHA that 15.12% of its contract price would be performed by a DBE firm.  The prime contractor indicated that one DBE subcontractor, Northeast Work and Safety Boats, LLC (“NWSB”), would perform the 15.12% of the work.

Two employees of another subcontractor, Brighton Painting Company, brought a claim against the prime contractor under the False Claims Act.  They alleged that Northeast was merely a pass through entity that performed no commercially useful function on the project and that the work was actually performed by Brighton, a non-DBE firm.

Plaintiffs’ False Claims Act case was based on five categories of allegedly false documents submitted by the prime contractor to MSHA: (1) the initial bid proposal; (2) payroll documents; (3) quarterly DBE participation reports; (4) contractor progress estimates; and (5) documents related to the prime’s request for final payment.  In all of these documents, the prime contractor made some form of certification about its DBE utilization and its compliance with the DBE program.

The prime contractor moved to dismiss the case.  In denying the motion to dismiss, the District Court held that all of the five categories of documents satisfy the “claim” requirement under the False Claims Act.  Moreover, the District Court ruled that all of these documents could be material false statements because the false statements had the “natural tendency” induce the government to make payment.

The Takeaway

There are several:

  1. Because of the number of documents a prime contractor submits to a transportation agency that make representations concerning utilization of DBE subcontractors, transportation contracts are ripe for False Claims Act cases.
  2. The documents that the prime contractor submitted in the Maryland case are required in one form or another in all jurisdictions.  For example, on PennDOT projects the prime contractor is required to submit (a) a monthly DBE status report (FORM EO-402); (b) an annual DBE Commercially Useful Function Report (FORM EO-354); and (c) a DBE Participation form (FORM EO-380).  Additionally, PennDOT contracts contain language stating that failure of the prime contractor to carry out the requirements of the Department of Transportation’s DBE program is a material breach of contract.
  3. Anyone on the project with knowledge of the pass through scheme can act as a potential plaintiff.
  4. The case has probably cost the prime contractor several hundreds of thousands of dollars in legal fees thus far.
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