Construction Fraud

Construction fraud involves contractors who perform work for state or federal projects. Federal projects often include the construction of federal buildings like post offices, courthouses, airports, military bases, interstate highways, subway systems, and other public infrastructure. Since nearly all state construction projects are funded at least in part by federal highway funds, state FCA claims almost always include a federal FCA claim. Some of the most common types of construction fraud include:

• Bid Rigging – where one contractor submits a non-competitive bid to ensure another contractor gets a contract. This hampers competition and does not result in the best value for taxpayer money.
• Overbilling – where a contractor bills the government for a sum that is larger than legally allowed. Purposefully overbilling the government is a violation of the FCA and a criminal offense. Most overbilling involves either overcharging for materials or inflating hours spent working on a project.
• Using defective, substandard, or out-of-specification building materials.
• Failing to follow contract provisions.
• Using unqualified personnel.
• Misrepresentation of Disadvantaged Small Business Status – The Small Business Administration requires that some contracts should be awarded to disadvantaged small businesses, that is, those whose owners are women, minorities and/or other disadvantaged groups. Any contractor who falsely represents his/her company as a disadvantaged small business has violated the FCA.

Another important component of construction fraud relates to the Davis-Bacon Act. This Depression-era legislation is especially relevant because of increased federal funding for construction projects as part of the American Recovery and Reinvestment Act. It applies to all federally-funded projects for the construction, alteration, or repair, painting, or decorating of a public building or public work over $2000. All laborers and mechanics employed on such jobs that are not otherwise covered by an applicable executive, administration, or professional exemption are covered by the act. Any government contracting officer must attach to any covered contract a wage determination (WD) that is compiled and distributed by the Department of Labor. This determination must contain labor and geographical categories with corresponding minimum wage rates. The contractor must pay each employee and subcontractor in accordance with the wage determination and certify by implementing a payroll system. Courts have held that reckless disregard of contract provisions for payroll certification is sufficient for FCA liability because FCA liability does not require a specific intent to defraud. If a contractor falsely certifies wages, it could be ordered to pay three times the government’s actual damages of the total amount paid pursuant to the contract.

Example

In 2008, a contractor and one of its managers working on Boston’s Central Artery/Tunnel Project (“the Big Dig”) pleaded guilty to fraud on accusations of overbilling the project by $300,000. McCourt Construction Co. and Ryan McCourt admitted to defrauding the massive, $14.79 billion construction project by falsely categorizing apprentice ironworkers as higher-paid journeymen, which inflated bills submitted to the state for their work. This scheme involved more than 1,500 instances of overbilling and took place over three years starting in 2002. McCourt Construction agreed to pay a $500,000 fine.