Earlier this year, the Department of Justice (DOJ) announced it amassed a record $6.8 Billion in fraud and False Claims Act (FCA) recoveries in Fiscal Year 2025. New FCA matters also increased substantially, driven in large part by a significant rise in suits brought by whistleblowers. As part of DOJ’s and whistleblowers’ relentless focus on pursuing claims of fraud committed against the federal government, construction contractors have come under heightened scrutiny. Recently, two Ohio asphalt companies paid a combined $30 Million to settle FCA allegations that they submitted fraudulent testing data for federally funded highway projects. This FCA settlement is an important reminder for construction contractors doing business with the federal government: compliance with statutory, regulatory, and contractual obligations is critical, and taking shortcuts can cost the company far more in the long run than they save in the short term.
The Cases
Kokosing Inc.
The whistleblowers[1]—both engineers employed by the Ohio Department of Transportation (ODOT)—sued construction contractors Kokosing Construction Company, Inc. and Kokosing Materials, Inc. (Kokosing) under the FCA’s qui tam provision. The state of Ohio requires asphalt mix design testing at various stages of an asphalt paving project to ensure the finished asphalt product will be of a minimum satisfactory quality and perform in accordance with expectations after the project is complete. This testing is completed by the contractor, by Ohio officials, and by independent third parties. Federal regulations also require random sampling of asphalt mix for quality assurance purposes. To ensure quality, state law mandates contractors use an approved job mix formula, a specific recipe for the asphalt mix that dictates the type and ratios of aggregate and asphalt cement. Contractors must submit test results with their proposed job mix formulas and then again for quality checks during the paving process.
Relators alleged they discovered anomalies in the submitted testing data dating back to 2012. According to relators, the testing results did not follow an expected bell curve distribution, and data that should be random appeared to have been faked or intentionally manipulated. Certain data points appeared to have been copied from other tests, rather than generated during actual testing of the asphalt mix in question. The copied data also appeared to have been obtained from multiple sources, which relators alleged reduced the chance of detection. Through their review, relators came to the opinion that hundreds of submissions were manipulated.
Relators’ complaint alleged Kokosing likely hoped to avail itself of the potential cost-saving benefits of asphalt that fails to meet testing standards. Asphalt consists of three ingredients: asphalt cement, aggregates, and air. Asphalt cement is the most expensive, costing $700 per ton, while the aggregates cost $15 per ton. Therefore, utilizing less asphalt cement in the mixture can generate significant cost savings for contractors. Ultimately, the relators alleged Kokosing submitted false testing data to hide that it substituted cheaper, lower quality, non-compliant asphalt (such as untested asphalt or asphalt that used an incorrect binder content or inferior aggregates) to increase its own profits. They allegedly manipulated and falsified testing data prevented detection so Kokosing could avoid penalties, shutdowns, and demands to remedy the laid asphalt. Relators further alleged that because the non-compliant asphalt mix would falter faster, Kokosing’s own faulty performance gave rise to future opportunities for additional contracts to repair or replace its own work.
As part of the settlement negotiated with DOJ, Kokosing paid $17.5 Million to resolve the allegations. The government intervened in the litigation for settlement purposes. In an FCA matter where the government intervenes, the whistleblower will receive between 15% and 25% of the total recovery. Although specific settlement distribution data was not publicized for the Kokosing case, relators likely recovered between $2.625 Million and $4.375 Million for their efforts, plus attorneys’ fees.
Barrett Paving Materials, Inc.
The same relators also filed suit against Barrett Paving Materials, Inc. (Barrett), a highway paving company performing asphalt contracting work on federally funded highway projects in Ohio. Relators alleged Barrett submitted false or fraudulent job mix formula data and quality control test results, in much the same manner as Kokosing.
Again, the government intervened for purposes of settlement and resolved the allegations for $12.5 Million. Relators likely received between $1.875 Million and $3.125 Million for their whistleblowing activity.
One factor contributing to the lower settlement figure was that, unlike Kokosing, Barrett received cooperation credits—discounts from the government’s standard liability calculations permitted when a contractor self-discloses its alleged wrongdoing or otherwise provides substantial cooperation in the government’s investigation. During the government’s investigation, Barrett conducted its own internal investigation to discover the falsified job mix formula and quality control tests. The company terminated those responsible for the false testing and implemented new internal controls and procedures to reduce the chance of future violations. Barrett also conducted extensive training for all quality control personnel.
Key Takeaways
- Federal contractors must ensure they follow required statutes, regulations, and contract provisions throughout the federal contracting process. A party is liable under the FCA where it knowingly submits a false claim or false statement related to a claim to the government. When a contract is performed in a way that does not comply with applicable statutes, regulations, or contract provisions, there is a substantial risk that any invoice or request for payment submitted to the government could be deemed false and subject to FCA liability. Government contractors must know the statutes, regulations, and contract provisions that apply to them on each project and take steps to ensure compliance, including by implementing appropriate internal controls.
- Companies should be wary of implementing cost-cutting measures that may render performance deficient. With the rising costs of products and materials, particularly in the construction industry, the imposition of unprecedented tariffs, and ongoing trade disputes impacting foreign material manufacturers, it is important for construction contractors to identify ways they can cut costs on projects while still providing high quality services to the government. One way construction contractors may believe they can reduce costs includes utilizing lower cost materials or adjusting product formulas. While in some cases, this may be an effective way of reducing overall costs, contractors must be wary of the risks associated with those efforts. Where the products or materials used or services provided fall short of statutory, regulatory, or contractual obligations, or where the finished product is not what the government bargained for due to shortcuts taken during contract performance, contractors run the risk that the government may reject the work altogether, force re-performance, or take other adverse action, including referring the contractor for investigation under the FCA.
- Whistleblowers are heavily incentivized to report statutory, regulatory, and contractual non-compliance. Current or former employees, competitors, vendors, consultants, and sometimes even bystanders can become whistleblowers when they have access to, or believe they have discovered, information that might constitute an FCA violation. And whistleblowers have a lot to gain and very little to lose by initiating an FCA matter. Relators are entitled to recover between 15% and 25% of the government’s total recovery in an FCA suit where the government intervenes in the litigation, or between 20% and 30% where the government declines to intervene. Relators also may recover their attorneys’ fees when any FCA matter results in liability or a settlement. These incentives are driving significant increases in whistleblower activity under the FCA. Companies must implement robust internal controls and build a culture of compliance in order to limit the risk of FCA liability.
- Cooperation may create a viable pathway to reduced sanctions. The Barrett litigation also highlights the benefits of taking remedial steps to correct non-compliance (before or after being notified of an FCA investigation) and cooperating with the government when an investigation is initiated. When a company faces allegations that it has violated federal law, a company may be eligible for cooperation credits in some circumstances—usually where the company was not aware of the underlying wrongdoing and took immediate steps to correct the misconduct upon discovery. While cooperation credits are not available in every case, as shown in the Barrett matter, cooperating with the government’s investigation, providing additional information, and taking affirmative steps to correct and prevent future misconduct can help reduce some of the FCA liability companies face when they engage in statutory, regulatory, or contractual non-compliance.
If you have questions about the FCA or are the subject of an FCA investigation or lawsuit, please reach out to Matt Feinberg and Kane Smith, the authors of this blog, or another member of PilieroMazza’s False Claims Act or Audits & Investigations teams.
[1] Known as “relators” under the FCA.
