Hard Hat Case Notes

AuthorBy Hugh D. Brown and Lauren P. McLaughlin
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.
Federal Contractor Receives
Maximum Civil Penalties
and Forfeits Claims Due
to Fraudulent Claims
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
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

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