The Department of Justice (DOJ) has settled and obtained judgments in excess of $2.8 billion for false claims against the government last year. Over $2.1 billion of these cases arose from lawsuits filed under the qui tam provisions of the False Claims Act (FCA) which incentivizes whistleblowers to file claims. Government contractors in the construction industry – both primes and subs – face a higher risk of FCA liability because of the complicated nature of construction contracts and prevailing wage obligations. Below we discuss the top FCA issues facing construction contractors and protection strategies for avoiding them.
The Davis-Bacon Act (DBA) can be a significant source of FCA liability. The DBA is a prevailing wage law that sets minimum standards for pay and benefits on Federal contracts for construction, alteration, or repair on public buildings or public works. The DBA imposes various requirements on construction contractors to ensure employees are paid correctly, including the requirement that contractors certify that they have paid workers the applicable prevailing wage. Falsification or misrepresentation of such information, even if inadvertent, may result in substantive liability under the FCA. Completing certified payroll can be complex and confusing, but it is critical that it is done correctly.
FCA liability exists not just for prime contractors as they perform on a contract, but for subcontractors they engage as well. Prime contractors are also responsible for ensuring subcontractor compliance and ensuring that they submit payrolls from all subcontractors. Failure to comply with these requirements can expose prime contractors to additional FCA liability. Often, contractors forget to ensure that subcontractors know how to submit certified payrolls correctly or forget to flow down DBA obligations altogether. In instances where the subcontractor is small or a sole proprietor, the subcontractor could be long gone, making it extremely difficult to correct any oversight.
Because prime contractors face the added responsibility of ensuring subcontractor compliance, as a prime, it is especially important to include subcontract provisions that protect your company. Some model provisions to incorporate into your subcontract include a clause that indemnifies the company if costs are incurred as a result of subcontractor non-compliance and the right to review information that assures you of subcontractor compliance. Construction contractors should always be on the lookout for suspicious activity that could compromise their compliance with the DBA or expose them to liability.
The FCA covers not just those who set out to defraud the government, but government contractors that are negligent in fulfilling their obligations or that turn a blind eye to non-compliance. To help government contractors understand the False Claims Act and develop protection strategies, PilieroMazza’s GovCon Live! has launched “Ex Rel. Radio,” a multi-part podcast series on potential pitfalls for your company, enforcement issues, and emerging trends. Check out our latest episode, where Sarah Nash and Jon Williams discuss how the False Claims Act relates to construction contractors, real-world examples of FCA cases brought against them, and strategies for protecting your company from an FCA claim. Visit this link for more information.