Fred Hedberg and William Stoll | Construction Law Zone
After several decades, Governor Ned Lamont signed a bill into law, effective July 1, 2023, An Act Concerning Liability for False and Fraudulent Claims, Public Act No. 23-129, eliminating language that previously limited enforcement of Connecticut’s False Claims Act to claims relating to a state-administered health or human services program. The revisions dramatically expanded potential liability under the False Claims Act, allowing both private citizens and the Attorney General to bring actions under the Act in any context, including the construction industry. Consequently, contractors, subcontractors, suppliers and design professionals on public construction projects in Connecticut must be familiar with this newly enacted law and take steps to reduce the risks of doing business on such projects.
Construction and construction-related entities now need to make additional efforts to ensure any submissions to state or local governmental entities are accurate. In general, the Act broadly prohibits individuals and entities from knowingly presenting or utilizing false information to make a claim for payment or receive funds from the State of Connecticut, except for any claim, record, or statement made or presented relative to the payment of any tax to the state. The statute does not limit enforcement of the Act to any particular part of a project, nor does it limit its application to specific parties. Rather, the Act applies to any application for or receipt of state funds, meaning that the Act’s enforcement on public construction projects applies equally to contractors, subcontractors, suppliers and design professionals; it may even apply to claims consultants and others submitting claims to the state on behalf of a contractor.
This is particularly noteworthy given the potentially harsh penalties available set forth in the Act: (i) a civil penalty between $5,500 and $11,000, adjusted for inflation; (ii) damages equal to triple the amount of damages the state incurred as a result of the false claims; and (iii) investigation and prosecution costs incurred by the state.
Because potential penalties under the Act are cumulative, any violation under the Act could become exceedingly costly. Hypothetically, a violation of $100,000 could result in a penalty equaling $311,000 plus the costs of investigation and prosecution. Further, the law allows for – and potentially incentivizes – private individuals to bring False Claims Act suits, as any whistleblower might collect between 15% and 30% of the civil penalty that is assessed.
Because Connecticut’s expansion of its False Claims Act is relatively recent, it is instructive to review the application of analogous state laws. Notably, both Massachusetts and Rhode Island have False Claims Acts applicable to public construction projects that largely mirror Connecticut’s recently amended Act. Accordingly, an examination of recent actions and their outcomes in Massachusetts and Rhode Island is worthwhile in predicting the risks that participants might now face on Connecticut public construction projects.
Massachusetts frequently uses the Act to pursue violations occurring in the construction context. Most recently, on November 1, 2023, the Massachusetts Attorney General’s Office announced it received a $1 million judgment against a general contractor who failed to pay prevailing wages on two public construction projects.Display footnote number:1 Most notably, the violations related to 32 fraudulent payroll records that were prepared by a subcontractor and then submitted by the general contractor. Id. Though the general contractor denied knowledge that the payroll records were fraudulent, it admitted it had not undertaken steps to verify the payroll information. Id. This underscores the importance of general contractors and construction managers ensuring that their subcontractors comply with payroll requirements as they can be held accountable for errors. Similarly, in late March of 2023, the Attorney General filed suit against a construction company in Watertown, Massachusetts, for prevailing wage violations, specifically alleging the company submitted fraudulent payroll forms on public projects and underpaid workers by approximately $170,000.Display footnote number:2
Massachusetts’s enforcement of the False Claims Act is not limited to violations related to payroll, but also relate to violations regarding procurement. In December 2022, the Attorney General reported that a joint venture company in charge of constructing a baseball stadium in Worcester settled False Claims Act violations for $1.9 million relating to false statements submitted in the bidding process.Display footnote number:3
A June 2023 case illustrates that Rhode Island applies its Act in a similar fashion as Massachusetts. The former superintendent of Rhode Island’s federally funded 6/10 Interchange Construction Project entered into a settlement with state officials after his company was alleged to have knowingly submitted claims for payment for work on the project in connection with the movement of dirt that did not comply with contract requirements, in violation of the federal and Rhode Island False Claims Acts.Display footnote number:4
In practice, contractors, subcontractors and design professionals, and their consultants, must be aware of the increased risks now associated with public construction projects. If the application of other states’ False Claims Acts provides any indication, contractors, subcontractors and design professionals in Connecticut must now be aware of both their own project submissions as well as liability that may be imputed to them by the fraudulent actions of their subcontractors, consultants and others for whom they are responsible.
“Competent contractors and design professionals will not knowingly submit false billing statements or requisitions and will ensure that all prevailing wage requirements are met, including those applicable to themselves as well as their subcontractors and consultants.”
There are several best practices that contractors and design professionals may want to employ to reduce the potential of False Claims Act violations. As a threshold matter, prior to bidding or entering into any contract for a public construction project, they should be familiar with the agency’s billing practices, prevailing wage and set-aside requirements, and MBE, DBE, WBE and SME requirements. Additionally, any documents submitted to a public agency on a public construction project should be vetted and reviewed to ensure accuracy prior to their submission for all phases of the project from bidding to completion. At the outset of a project, contractors and design professionals may also want to consider hiring an expert to assist in compliance reviews.
Competent contractors and design professionals will not knowingly submit false billing statements or requisitions and will ensure that all prevailing wage requirements are met, including those applicable to themselves as well as their subcontractors and consultants. In furtherance of this goal, contractors and design professionals might wish to consider retaining all relevant timecards, expense statements, and other payroll records they generate and those of their subcontractors and consultants for a minimum of six years after the completion of the project. This is advisable for two reasons: (1) while on the project, such records will ensure accuracy on invoices submitted to the appropriate agency; and (2) retaining such records for the duration of the False Claims Act statute of limitations (six years following the date of violation) could provide potential exculpatory evidence. It is similarly advisable to cross reference payments received from the state against the submitted invoices; in the event of an overpayment, an entity should immediately notify the agency of such overpayment. In the event a contractor or design professional discovers an inadvertent violation of the Act, such entity will promptly notify the relevant agency and disclose the applicable information, as cooperation with the agency to rectify the violation could limit liability under the Act.
Contractors and design professionals need to be extra vigilant in ensuring not only that they, but all parties for whom they are responsible, fully comply with all applicable laws and regulations governing claims for payment on all phases of a construction project involving state funding in Connecticut. Now, more than ever, it is imperative that they do their due diligence in submitting such claims. If recent cases in Massachusetts and Rhode Island are any guide, the stakes are high. While the False Claims Act poses increased risks to contractors and design professionals, such risks can be greatly reduced, if not eliminated, by taking proactive measures and doing their due diligence in submitting claims on projects receiving state funding in Connecticut.
References
1 See Press Release, Framingham Construction Company To Pay Nearly $1 Million For Subcontractor’s Failure To Pay Prevailing Wages To Employees, Massachusetts Office of the Attorney General (Nov. 1, 2023).
2 See Press Release, AG Campbell Sues Watertown Construction Firm in Connection With Failure To Pay Prevailing Wages, Massachusetts Office of the Attorney General (Mar. 21, 2023).
3 See Press Release, Polar Park Construction Manager Agrees To Pay $1.9 Million Over False Claims Allegations, Massachusetts Office of the Attorney General (Dec. 12, 2022).
4 See Press Release, Former 6/10 Construction Project Supervisor Sentenced for Making False Statements, United States Attorney’s Office, District of Rhode Island (June 20, 2023).