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False Claims Act Liability: Deviation from Project Specifications

The Massachusetts Attorney General’s Office (“AGO”) closed out February 2017 by announcing substantial False Claims Act penalties against two contractors.   In addition to damages and civil penalties, the AGO barred the contractors from bidding on public projects in Massachusetts for 5 years and barred the contractors from accepting any public contracts for 1 year.

March has started much like February ended.  On March 1, 2017, the AGO filed an “Assurance of Discontinuance” in Suffolk County Superior Court closing out a False Claims Act investigation of another Massachusetts contractor.  Much like a settlement agreement, the Assurance of Discontinuance set forth the penalties which the contractor agreed to accept for alleged False Claims Act violations.

The case arose out of a water and sewer project.  The specifications required that all ductile iron pipe be wrapped with polyethylene.  The contractor allegedly failed to familiarize itself with this requirement, and did not wrap the pipe with the specified material.  As a result, the AGO found False Claims Act violations because the contractor certified in its payment applications that it had performed the work in accordance with the specifications when in fact, it had not.

The contractor did not admit to liability, and took the position that its failure to wrap the pipe with polyethylene was inadvertent.  Nevertheless, the contractor agreed to: (1) pay $25,000 in penalties to the Commonwealth; (2) refrain from bidding on public projects for 1 year; and (3) make appropriate disclosures of the Assurance of Discontinuance.

These penalties are significant in their own right – especially the 1 year bidding bar and the disclosure requirement.  But what is especially alarming about this case is the fact that it arose out of a project that started almost 15 years ago, in 2004.  This is yet another example of the lengths to which the AGO will go to enforce the False Claims Act in Massachusetts as part of its “aggressive” policy to enforce the False Claims Act.  It also demonstrates that contractors can face False Claims Act liability even when they inadvertently deviate from project specifications.