Hard Hat Case Notes

• Author: By Hugh D. Brown and Lauren P. McLaughlin
• Pages: 38-41

THE CONSTRUCTION LAWYER

38 Volume 42 Issue 3

Published in

The Construction Lawyer

, Volume 42, Number 3. © 2023 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not

be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

HARD HAT CASE NOTES

Federal Contractor Receives

Maximum Civil Penalties

and Forfeits Claims Due

to Fraudulent Claims

Submissions

In private construction projects,

the cost of overreaching on a

claim may be limited to loss

of credibility with the nder

of fact and a smaller-than-

expected recovery. In contracts

with the federal government,

that cost can be much steeper.

The recent opinion from Lodge

Construction, Inc. v. United

States opened by quoting Jus-

tice Holmes’s admonition that

“[m]en must turn square cor-

ners when they deal with the

Government.” The Court of Federal Claims proceeded

to deliver a stark message about the costs of overly

aggressive claim valuation when dealing with the fed-

eral government.

In August 2010, the Army Corps of Engineers (the

Corps) awarded Lodge Construction, Inc. (Contractor)

a competitively bid xed price contract to rehabilitate

a levee in Palm Beach County, Florida (the Project).

Among other things, the Project required the Contrac-

tor to construct a temporary cofferdam for performance

of subsurface work. The Contractor was required to

submit its cofferdam design based on the Corps’ geo-

technical analysis. The Corps accepted the Contractor’s

nal cofferdam design proposal in July 2011 and the

Contractor began construction work soon thereafter. In

March 2012, water breached sections of the cofferdam’s

sheet pile walls, ooding the Project site. After the failure,

the Corps retroactively disapproved of the Contractor’s

cofferdam design. The Corps sent the Contractor a cure

notice demanding that the Contractor submit a revised

cofferdam design by May 29, 2012, or be terminated

for default.

The Contractor responded by submitting multiple

claims to the Contracting Ofcer. First, on June 21, 2012,

the Contractor submitted its “Design Claim,” related

to the Corps’ retroactive disapproval of the Contrac-

tor’s cofferdam design. Second, on June 26, 2012, the

Contractor submitted its “Dewatering Claim” seeking

additional time and money, alleging differing site con-

ditions and constructive changes to the specications.

When submitting each claim, the Contractor’s founder,

president, and sole shareholder certied:

that the claim is made in good faith; that the

supporting data are accurate and complete to

the best of my knowledge and belief; that the

amount requested accurately reects the contract

adjustment for which [Contractor] believes the

Government is liable; and that I am duly autho-

rized to certify the claim on behalf of [Contractor].

The Corps terminated Contractor for default on July

23, 2012, and subsequently denied the Claims.

The Contractor subsequently commenced litigation

against the Government. The Government asserted

the Special Plea in Fraud defense and counterclaims

under the False Claims Act (FCA). Following trial, the

court sided with the Government and ordered the Con-

tractor to pay the maximum civil penalties under the

FCA; moreover, the Court held that the Contractor

had forfeited the Claims because its submissions were

accompanied by false statements and records. The court’s

41-page Post-Trial Opinion and Order is an unambigu

-

ous warning to federal contractors of their obligations

in certifying a claim for payment to the Government and

the consequences when contractors fail to meet those

obligations.

The court began its opinion with a review of the FCA,

which applies when a contractor “knowingly presents

to the government a false or fraudulent claim for pay-

ment.” A “false claim” under the FCA may apply to

formal claims submitted to the Government or “false

records or statements material to a false or fraudulent

claim.” In order to establish liability, the Government

must show that a contractor knowingly submitted a false

claim or that it submitted the claim with “deliberate

ignorance[] or reckless disregard for the truth of a false

or fraudulent claim.” In this context, “reckless disregard”

is “not a lesser form of intent, but an extreme version of

ordinary negligence.” As the court explained, the FCA

encompasses claims by those who set out to defraud

the Government as well as “those who ignore obvious

deciencies in a claim.” For each FCA violation the Gov-

ernment establishes by a preponderance of the evidence,

a contractor is liable for three times the amount of the

Government’s damages and a mandatory civil penalty.

The civil penalty is a minimum of “$5,000 and not more

than $10,000, as adjusted by the Federal Civil Penalties

Ination Adjustment Act of 1990.” To prevail under the

Special Plea in Fraud Statute, the Government “must

establish, by clear and convincing evidence, that the con-

tractor submitted claims with knowledge of their falsity

and with an intent to defraud the United States govern-

ment.” The penalty under the statute is the mandatory

Hugh D. Brown

Lauren P. McLaughlin

By Hugh D. Brown and Lauren P. McLaughlin

38 38 7/18/2023 1:52:09 PM7/18/2023 1:52:09 PM