False Claims Act liability doesn’t stop on the whistle

Failing to ensure certified payrolls are correct lead to a contractor owing three times the amount paid by the government under a construction contract.  The False Claims Act imposes liability on persons and companies that defraud the government.  Under the FCA, a “whistleblower,” frequently a current or former employee, may file a lawsuit on behalf of the government when someone fraudulently receives money from the government.  Although many claims under the FCA arise from healthcare and military spending programs, claims may also arise in the construction industry, as a contractor on a Tennessee army base learned the hard way.

The contractor had a contract with the army to construct various buildings on one of the army’s facilities.  The contract between the army and the contractor contained a provision requiring the contractor to submit certified payrolls, to show that all workers were paid the prevailing wage for each employees’ particular trade.  To complete the contract, the contractor retained an electrical subcontractor.  However, the contractor failed to include the subcontractors’ electrical employees in its certified payrolls during the first two years of the project and did not verify its subcontractor’s certifications for the remainder of the project.  Unfortunately, the subcontractor did not pay its electrical employees the applicable prevailing wage.  An employee brought an action on behalf of the United States alleging the contractor falsely certified payrolls on the project.  Ultimately, the court found the contractor wrongly certified that prevailing wages were paid on the project in violation of the FCA in the total amount of $254,298.18.

Importantly, the FCA contains a provision that trebles damages, regardless of whether the amount paid by the government is purely cost to the contractor or includes the contractor’s overhead and profit.  A contractor is not provided any credit for the value of work put into place or any amount paid by the government for the applicable portion of work.  Accordingly, the court found the contractor liable for $762,894.54.

As the contractor learned, it is imperative to maintain diligent records and ensure that all employees, including those of subcontractors, are paid appropriately on federal projects.  A contractor’s failure to do so will see liability start, not stop, with a whistle(blower).

United States of America ex re. Brian Wall v. Circle C Construction, LLC, No. 3:07-cv-91 (M.D. Tenn. Aug. 22, 2014)

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