On November 1, 2023, the Massachusetts Office of Attorney General (“AG”) issued a press release announcing the issuance of a judgment against a local contractor arising out of its subcontractor’s failure to pay prevailing wages on two public construction projects. According to the AG, this is “the first case to affirm that liability under the Massachusetts False Claims Act extends up the payment chain to contractors who, by action or inaction, knowingly facilitate misconduct by their subcontractors.”

The AG commenced its action against the contractor two years ago, alleging that “despite paying employees less than half of what was owed to them on two public construction projects,” the contractor and its subcontractor “submitted 32 fraudulent payroll forms to certify compliance with the Massachusetts Prevailing Wage Law.”  The AG asserted that, as a result, the contractor violated the Massachusetts False Claims Act when it submitted the subcontractors’ fraudulent weekly payroll records in exchange for payment. Although the contractor denied knowledge of the fraud, the contractor admittedly failed to take any steps to verify the accuracy of the payroll information that it submitted to obtain payment.

According to the Court, the contractor “violated the law by using the records to get paid in reckless disregard of their falsity.” The contractor “passively disregarded the truth,” “failed to make a minimum examination” and “ignored obvious warning signs.” The Court’s judgment against the contractor included multiple damages and requires the contractor to “pay $926,898.06 to the Commonwealth of violating the Massachusetts False Claims Act in connection with prevailing wage theft.” The subcontractor had previously admitted liability and reached a separate settlement with the AG’s Fair Labor Division. In its press release, the AG commented that “[c]ompanies that receive public funds for projects must ensure that all workers receive the pay and benefits they are entitled to.”

It is imperative that contractors include procedures in their compliance programs designed to monitor the accuracy of subcontractor certified payroll records.