Protection From False Claims Act in Construction
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The FCA applies to any project which uses federal funding. The FCA is found at 31 U.S.C. § 3729 and provides for seven different types of prohibited activities, but the one most applicable to the construction industry is found at 31 U.S.C. § 3729(a)(2) which states any person who: “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim” is liable to the United States Government for a civil penalty of not less than $ 5,000 and not more than $ 10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990, plus 3 times the amount of damages which the Government sustains because of the act of that person. The current language of the statute by adding the word “material” has made the determination of a false claim violation very fact intensive and has provided the finder of fact with substantial discretion. With the change in language the defendant need not intend to violate the False Claims Act, the only requirement is that the violation be “material.”
Common false claims include front-end loaded progress payments, inaccurate progress payment requests, inflated equipment rates and overstated labor hours, failure to comply with safety requirements, and substituting substandard materials and workmanship. Along with financial consequences for violating the False Claims Act there can be administrative consequences as well. The two most common administrative consequences are suspension and disbarment. Suspension prevents contracting with the government for a set period of time and disbarment can permanently prevent further contracting with the government. However, violators are generally allowed to contract again after 3 years.
Current and former employees are able to bring suit because the False Claims Act includes a qui tam provision which allows a private person, known as a “relator,” to bring a lawsuit on behalf of the United States, where the private person has information that the named defendant has knowingly submitted or caused the submission of false or fraudulent claims to the United States. It is important to note that the relator need not have been personally harmed by the defendant’s conduct in order to bring suit. This provision allows current and former disgruntled employees the ability to sue the company. Even employees who participated in a fraudulent act can still recover under the False Claims Act since recovery is not affected by liability. In a typical successful action the private individual will collect between 15% and 30 % of the verdict plus attorney’s fees depending on if the Department of Justice intervenes.
The best way to protect from False Claim Act lawsuits is to implement and maintain a written code of ethics and compliance policy. The policy should include the steps to be taken before a certification is signed, such as, requirements for each supervisor and manager to verify they have read the certifications for each project, including the ORCA certifications. In order to make sure that each certification is understood it can help to assign individual responsibility for certification and to include a requirement to regularly review ORCA certification and ensure changes are communicated to each supervisor or manager. It is also important to periodically review contract specifications and spot check the materials used and work completed as well as periodically perform a fraud risk assessment. While these are not complete defenses to false claim suits they can lead to a reduction in damages. When a company is faced with a FCA claim it must show the government that it has done everything reasonable to prevent overcharging the government.