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The Problem of Bad Actors in Construction

In any given week, you could run a few searches and find recent news articles about fraudulent or criminal contractor conduct in the world of construction. For example, in April of 2019, a branch manager for an insulation contractor pleaded guilty to bid-rigging scheme which apparently resulted in “corruptly inflated bids on $45 million worth of insulation jobs through New England.” In another example, a Massachusetts contractor was recently indicted for “allegedly underreporting payroll” to avoid paying work’s compensation premiums. Earlier this year, the New Hampshire Department of Labor fined a Massachusetts construction company for allegedly misclassifying workers in connection with a project in New Hampshire. And to close out 2018, the Massachusetts Office of the Attorney General issued a press release announcing a $450,000 settlement of allegations that a contractor falsely certified that it had timely paid its subcontractors on a public project in Massachusetts.

It can be easy to shrug off these types of reports. After all, the alleged violations often seem so obvious. But continuous news stories of improper contractor conduct can be harmful to the very many contractors who go to great lengths to ensure compliance with the complex web of legal requirements applicable to public projects. Endless news reports of fraudulent and criminal conduct demonstrate that bad actors continue to exist in the world of construction. This brings increased scrutiny to all contractors.

As a result, Massachusetts contractors operate in a climate of rigorous legal and regulatory enforcement. Even unintentional hiccups can have substantial and unwanted consequences. You may recall that just two years ago, the Massachusetts Office of the Attorney General announced significant False Claims Act penalties against a contractor arising out of a water and sewer project dating back to 2004. The project specifications required a polyethylene wrap for all ductile iron pipe. Although the contractor “failed to wrap any of the ductile iron pipe…in exterior polyethylene wrap,” the contractor submitted applications for payment certifying compliance with the specifications. The contractor allegedly failed to familiarize itself with this particular requirement, and took the position that its failure to wrap the pipe was inadvertent. Nevertheless, the contractor agreed to pay penalties and refrain from bidding public projects for a year.

This particular example has caused great alarm to contractors. Rightfully so. In contrast to reports of bid rigging and outright fraud, contractors see the iron ductile pipe example as the sort of thing that could happen to anybody. The fact that the project in that case dated back to 2004 is even more disconcerting.

In light of the many reported instances of intentionally improper conduct, enforcement agencies continue to scrutinize contractors. All contractors are fair game. As a result, “compliance” has become more than a buzzword; it is a necessary part of operating a contracting business in an aggressive enforcement state like Massachusetts. There may be no failsafe way to avoid a government investigation altogether. However, there are various ways in which contractors can prepare and protect themselves if and when the government comes knocking on their doors.

See article here.