General Contractor Liable for Violation of False Claims Act
In U.S. v Circle C Construction, LLC (Oct. 2012), the U.S. Court of Appeals for the Sixth Circuit affirmed the liability of a general contractor under the False Claims Act (“FCA”) for the contractor’s false statements and reckless handling of prevailing wage certifications involving subcontracted work.
The FCA impose liability 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.” Violators of the FCA are subject to a civil penalty of between $5,000 and $10,000 plus three times the government’s actual damages. Actual damages are the difference between what the government paid and what it should have paid for the goods.
In Circle C, the general contractor, Circle C Construction, contracted with the U.S. Army to construct buildings at Fort Campbell. Given its nearly 20-year history of federal work, Circle C was very familiar with prevailing wage requirements. Nevertheless, Circle C neglected to inform or require its electrical subcontractor, Phase Tech, of the need to provide certified payroll. When Phase Tech eventually supplied certified payroll, Circle C failed to verify Phase Tech’s certifications for completeness or accuracy before submitting them to Fort Campbell officials and requesting payment. Later, one of Phase Tech’s employees, Mr. Wall, filed an action on behalf of the U.S. against Circle C and Phase Tech claiming the contractors violated the FCA. The U.S. then intervened in the matter.
The Federal District Court ruled in favor of plaintiffs and awarded treble (triple) damages to Mr. Wall and the U.S totaling $1,661,423. The Court concluded that the totality of the circumstances showed that Circle C, an experienced federal contractor, made false statements, acted in reckless disregard of the trust or falsity of the information in the payroll certifications and that the false statements were “material” to the government’s decision to pay Circle C. The Sixth Circuit affirmed the ruling as to liability of Circle C, but remanded the case to the District Court to re-calculate the damages.
Lesson learned – a general contractor cannot blindly accept or rely upon it subcontractors’ certified payroll, particularly where the general contractor’s records indicate more (or less) workers are on the jobsite than shown in the subcontractors’ certified payroll and where the subcontractor has clearly misclassified workers.