More than $750,000—that’s what a federal government contractor was going to have to pay until a federal appeals court reduced the amount to $14,748.
How did this come about? The answer to that question provides an object lesson in how to properly manage government contracts, especially construction contracts.
The U.S. Army contracted with Circle C Construction, LLC, to build 42 warehouses at Fort Campbell in Kentucky. Circle C subcontracted with Phase Tec to do the electrical work for the warehouses. As required by the Davis-Bacon Act, Phase Tec was supposed to pay its electricians $19 an hour, but Phase Tec paid them only $16 an hour.
But Phase Tec’s compliance statements, required to be submitted as part of the contract, indicated that the electricians had been paid the proper amount. That implicated the False Claims Act (FCA). As provided by the FCA, someone who knows about the inaccuracy (this person is called the relator) can file suit on behalf of the government and collect part of the damages assessed for reporting the fraud. When the government found out that the electricians had been paid $16 instead of $19, it intervened in the suit against Circle C. If the electricians had been properly paid, Phase Tec would have paid them $9,916 more than they actually received.
In contrast, the federal government argued that the actual damages for the failure to comply with the Davis-Bacon Act were $259,298—the amount Phase Tec was paid for all of its electrical work on the warehouses. The government maintained that the failure to properly pay the electricians had tainted the entire project and therefore calculated the FCA-required treble damages at $777,894.
The U.S. District Court for the Middle District of Tennessee agreed and entered a judgment in that amount. Circle C appealed. The U.S. Sixth Circuit Court of Appeals affirmed the judgment, but reduced the treble damages to $29,748 ($9,916 × 3).
Government contractors need to double-check statements made in compliance documents to make sure they are accurate. False or inaccurate statements can result in expensive mistakes. In fact, in its decision, the appeals court did not rule out the possibility that an error can result in treble damages for the whole value of a contract, not just the amount underpaid to employees. The court just didn’t think the actual damages were appropriately assessed in this case because the electrical work was completed properly.
Background about the laws
The Davis-Bacon Act, 40 U.S.C. § 3142, provides that federal contractors (for construction contracts) must pay their workers no less than the locally prevailing wage rate. The “wage rate” must include the value of local fringe benefits as well. The U.S. Department of Labor determines the locally prevailing wage rates.
The False Claims Act, 31 U.S.C. § 3729, provides that federal contractors (and others) who defraud the government can be sued to recover three times the amount defrauded. This law is the federal government’s primary tool for combating fraud in government programs. In fact, during fiscal year 2014, the federal government recovered roughly $6 billion through FCA lawsuits.
Under the law, relators (more frequently called whistleblowers) can file suit on behalf of the government. If the suit is successful, the relator may receive from 15 to 25 percent of the recovered amount and higher if the government doesn’t intervene. Frequently, unhappy employees of federal contractors bring the lawsuits.
Sometimes, this type of lawsuit is referred to as a qui tam action. The expression “qui tam” is derived from the first sentence (written in Latin) of the writs that English courts issued in whistleblower cases: “Qui tam pro domino rege quam pro se ipso in hac parte sequitur” (he who sues in this matter sues for the king as well as for himself).
For more information, see U.S. v. Circle C Construction, LLC, 813 F.3d 616 (6th Cir. 2016).
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