In Construction, There’s A Tattletale And There’s What is Right

Sometimes, we avoid doing bad things because of the risk of getting caught. Other times, we avoid doing bad things because we simply choose to do right things. Whatever the camp you fall into, a recent government contracts case tells a story that should be avoided when submitting payment applications to the government.

In U.S. ex rel. Jesse Sloan v. Waukegan Steel, LLC, an employee brought a False Claims Act (FCA) against his employer for false billing and certification on a goverment project. The Attorney General has primary authority for enforcing FCA, but the law includes what is called a qui tam provision, which permits a private party to bring a civil action alleging fraud against the Government on its own behalf as well as on behalf of the United States. 31 U.S.C. § 3730(b). If the private party prevails, he receives a percentage of the recovery. 31 U.S.C. § 3730(d).

Waukegan was responsible for fabricating and installing the structural steel of project. The design specifications require that the contractors adhere to various professional codes, including those of the American Institute of Steel Construction (AISC), the American Society for Testing and Materials (ASTM), and the American Welding Society (AWS). The subcontractor was required to submit “fabrication quality control and weld inspection certificates” to the government before payment was issued. According to the employee, Waukegan did not have any of these certificates.

In Sloan, the president of the company allegedly asked the employee to fabricate the inspection certificates. When he refused, the president allegedly approached another employee who was not a qualified welding inspector. That employee fabricated the requested welding inspection certificates.

While the court’s decision focused on the type of allegations necessary to prove fraud on the FCA, the opinion is instructive to avoid FCA claims. To prove an FCA claim, a plaintiff must prove that (1) the defendant made a statement in order to receive money from the government, (2) the statement was false, (3) the defendant knew it was false, and (4) the statement was material to the decision to pay or approve the false claim.

Notably, the Court in Sloan rejected every defense raised by Waukegan and allowed the case to go forward. For example, the subcontractor argued that the funds were paid to the subcontractor by the prime contractor—as opposed to the Federal government—and thus there was no attempt to defraud the government. The Court disagreed: “Importantly, Congress subsequently amended the False Claims Act to clarify that the defendant need not intend for the government itself to pay the subcontractor’s claim; it would be contrary to Congress’s original intent in passing the law if even when a subcontractor in a large Government contract knowingly submits a false claim to general contractor and gets paid with Government funds, there can be no liability unless the subcontractor intended to defraud the Federal Government, not just their general contractor.”

In the end, you can choose to follow the law because you are fearful that one of your employees may become a tattletale, like the decision in Sloan, or because it is the right thing to do. Whichever the case, false and misleading statements submitted to the government will most likely be discovered and create problems for you.

Original Article