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.

 

Our friends at the Commonwealth Foundation reported that six bills passed the Pennsylvania General Assembly which would amend Pennsylvania’s Prevailing Wage Law and potential save taxpayers millions.  Accord to the Foundation:

•HB 1271: Defines “maintenance work” to include road repairs, which reduces the number of projects subject to Prevailing Wage Act requirements.

•HB 1685: Requires using federal occupational classifications to clarify the application of the law to jobs on construction sites.

•HB 1329: Raises the minimum amount to which the Prevailing Wage Act applies to $185,000 (from $25,000) and adjusts for inflation in future years.

•HB 1541: Exempts projects where more than half the funding comes from private sources from the Prevailing Wage Act.

•HB 709: Allows school districts to opt out of the Prevailing Wage Act for school construction projects.

•HB 1191: Allows all local governments to opt out of the Prevailing Wage Act.

As I previously reported, Pennsylvania’s Prevailing Wage Law is particularly onerous because, unlike its big brother the Davis Bacon Act, it defaults to the union wage rate as the prevailing wage wage per se.  This costs taxpayers millions.  We are glad to see that our elected officials are taking a stand and changing things for the better.

Earlier this week I posted about the GAO study which found serious flaws in the way the DOL formulates prevailing wage rates that must be paid to employees on federally funded construction projects. 

The Davis-Bacon Act applies only to federally funded construction projects.  However, most States have so called “little Davis-Bacon” Acts which require prevailing wages to be paid on State funded construction projects.  Pennsylvania is one of those States. 

I mentioned that one of the most troubling flaws in the way the DOL determines wage rates on federal projects was the concept of “union prevailing” wage rates.  As I noted, if DOL wage rate surveys reveal that the wage rate in an area is equal to the union rate then the wage rate become pegged to the union rate basically forever. 

Pennsylvania’s little Davis Bacon Act goes a step further than its Big Brother and requires that the prevailing wage rate on State funded construction projects is the union wage rate per se.  In fact, the Deparment of Labor & Industry uses data from collective bargaining agreements in determining the prevailing wage rate for State projects.  Well, it looks like Rep. Ron Miller, R-York, chairman of the House Labor and Industry Committee is fixing to do something about it.

As reported in on www.paindependent.com, the Independent reports that Rep. Miller wants to replace the “prevailing wage” with “occupation wage,” which would take into account all wages paid at the county level including non-union rates.  Rep. Miller estimates that the change in how Pennsylvania determines its wage rates on State funded projects would result in cash strapped local and state authorities saving between 25%-75% on labor costs. 

Understandably Big Labor has circled the wagons in response to Rep. Miller’s proposition.  Rep. Bill Keller, who’s district I can see from my front porch, said “[t]he prevailing wage does protect the taxpayers … by making sure that public works projects are done with the highest skill available.”  The Pennsylvania Building and Construction Trades Council has also spoken out against Rep. Miller’s proposal.

We will continue to monitor this legislation.  If it proceeds, Pennsylvania could become the latest front in the organized labor war.

K&L Gates published an interesting review of a GAO study that – shockingly – found flaws in Davis – Bacon Prevailing Wage Act Determinations. 

As readers probably already know, the Davis-Bacon Act requires contractors on federally funded construction projects to pay employees “prevailing wages” and benefits.  The Department of Labor’s Wage-Hour Division sets the “prevailing wage” rate that must be paid by a contractor.  The rate varies by jurisdiction.  The Department of Labor determines what the prevailing wage is in a specific area by conducting voluntary wage rate surveys of contractors on federal, state, and private construction projects.  Based upon responses to those surveys, the DOL extrapolates what a majority of workers are earning on similar construction projects in the area.      

While the GAO report highlighted several flaws with the DOL methodology for determine wage rates.  I thought the most interesting flaw related to the concept of “union prevailing” rates. 

 The GAO criticized the DOL policy of defaulting to “union prevailing” wage rates when wage rate surveys found that the wage rate is the same as the union rate for the area.  The main problem with the union prevailing rate is that as union adjusts their rates in response to new wage rates reflected in collective bargaining agreements, so does the DOL.  In other words, once the DOL has determined the wage rate for an area is “union prevailing” the wage rate will remain pegged to the union rate in the area, until a new survey is completed.  Unfortunately, completing an accurate new wage rate survey is no easy task because

“63 percent of Davis-Bacon wage determinations are based upon union prevailing wages, notwithstanding the fact that unions only represent 14 percent of construction workers nationwide.   This overrepresentation is a result of the fact that unions actively mobilize their members to complete and return DOL wage surveys.”

As K&L Gates points out the problem this creates is obvious:

“if a union is present, DOL has traditionally defaulted to the union’s hourly burdened wage to establish the local prevailing wage, even if non-union contractors are performing the same type of work. This has, in effect, forced non-union contractors to pay union wages to its employees on federal construction projects.”

In order to combat this problem the GAO suggest that merit shop contractors accurately complete wage rate surveys.  However, this is often a Catch – 22 scenario for merit based firms because they are often reluctant to disclose sensitive wage rate data based on a well founded fear that they will be making proprietary information public and also providing foder to Big Labor who often criticize merit shop contractors for paying substandard wages. 

The K&L Gates is thorough and this post only touches on the GAO finding regarding the “union prevailing” wage rate.  Therefore, the remainder of the report is worth the read. 

Perhaps the solutions lies with Congress who has the power to require the DOL to keep wage rate surveys private or at least anonymous.  What is certain is that until this disparity is fixed, taxpayers will continue to get overpay for labor on construction projects and a majority of non-union merit based firms will continue to get squeezed out of federal founded projects.