November 5, 2012
The U.S. Court of Appeals for the Sixth Circuit recently held that a violation of the Davis-Bacon regulations can also be a false claim under the Federal False Claims Act (“FCA”).
Davis-Bacon Act and the FCA
The Davis-Bacon Act requires contractors on federal construction projects exceeding $2,000 to pay not less than the prevailing wage and fringe benefits for the classification of laborers and mechanics for the area in which the project is performed. The Department of Labor is tasked with oversight of this law and regulations. Contractors must include Davis-Bacon provisions in all subcontracts, submit certified payrolls of their subcontractors, and ensure compliance by their subcontractors. Each week, covered contractors and subcontractors must submit certified payroll reports for all covered workers. Employees who believe that a contractor is violating the Davis-Bacon Act can report them to the Department of Labor, but cannot sue the contractor directly.
The FCA, on the other hand, is a federal statute that imposes liability when a person “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government.”1 There are four key elements to an FCA violation: (1) a false statement is made with actual knowledge, deliberate ignorance, or reckless disregard for its truth or falsity; (2) a claim is submitted to the Government; (3) the false statement was made for the purpose of getting a false or fraudulent claim paid or approved by the Government; and (4) the false statement was material to the Government’s payment of the claim. The FCA contains a qui tam provision that allows whistleblowers (i.e., relators) to file a complaint against a party directly. The United States may then review the case and determine whether or not it wants to take over the case. If the United States chooses not to intervene, the relator may proceed on his or her own.
Contractors who violate the Davis-Bacon Act can be required to make repayment, have their contracts terminated for default, or even be debarred. On the other hand, contractors who are prosecuted for violations of the FCA can face both monetary damages (up to three times the actual damages suffered by the Government as a result of the false claim plus a civil penalty of between $5,000 and $10,000 for each violation) and criminal penalties (including prison time).
United States ex rel. Wall v. Circle C Construction, L.L.C.2
This case was filed by whistleblower employees of a subcontractor who alleged that the contractor had violated the FCA by submitting false payroll certifications in violation of the Davis-Bacon Act. The contractor defended by saying that, under the doctrine of “primary jurisdiction,” the regulatory scheme of the Davis-Bacon Act precluded prosecution under the FCA. The primary jurisdiction doctrine states that where the enforcement of an Act is entrusted to a regulatory scheme “within the special competence of an administrative body,” courts should decline to hear certain issues until the proper agencies have handled the matter—here the Department of Labor. After weighing competing considerations, after considering the holdings of other courts on the same issue and after considering the specific facts, the Sixth Circuit found that the doctrine of primary jurisdiction did not apply and that the FCA suit was not precluded.
Key to this decision was the difference between an alleged misclassification of workers versus a misrepresentation of actual wages paid, which was the allegation here. When a contractor misclassifies an employee under the Davis-Bacon Act, the contractor has an interpretation that may merely be incorrect. When interpretation is involved, courts are more likely to find that the doctrine of primary jurisdiction applies. However, when, as here, a contractor represents that it has paid wages to certain employees in compliance with the Davis-Bacon Act, but it has not done so, this is not an interpretation of any law or regulation. It is a false statement.
In this instance, the contractor plainly made a certification of compliance with the Davis-Bacon Act. That certification was found to be false, and the court found that the contractor knew of or was reckless with regard to the falsity of the certification. Key to whether a false claim can be prosecuted under the FCA is the element of knowledge of the falsity. The facts of this case sufficiently established that the contractor had knowingly submitted false payroll certifications, which is not the same as submitting payroll certifications that contain errors.
Contractors should not only continue to ensure that they—and their subcontractors—are in compliance with the Davis-Bacon Act, but they should also take very seriously any question that the payments actually being made are not the same as the amounts included in the certified payrolls. Routine checks before certifying compliance with the Davis-Bacon Act will help avoid violating the False Claims Act. In the Sixth Circuit (which covers Ohio, Michigan, Tennessee, and Kentucky), if a contractor continues to certify faulty payroll records when on notice that there could be a violation of the Davis-Bacon Act, contractors could face not only an enforcement action from the Department of Labor but also liability under the FCA. FCA violations include both criminal and civil penalties.
1Although there are both civil and criminal statutes to implement the False Claims Act, this case sought to impose liability under the civil FCA, 31 U.S.C. § 3729.
2United States ex rel. Wall v. Circle C Construction, No. 10-5645, 2012 WL 4477367 (6th Cir. October 1, 2012).