Government Contracts Monitor
Those Certified Payroll Reports From Subcontractors Really Are Important
October 18, 2012
A general contractor constructing buildings at Fort Campbell, KY learned the hard way in United States of America ex rel. Wall v. Circle C Construction, LLC, No. 10-5645 (6th Cir. Oct. 1, 2012) that certified payrolls are important for itself and all of its subcontractors. Failure to comply with the Davis Bacon Act resulted in a seven figure False Claims Act judgment against the prime contractor.
Circle C Construction, LLC certified that it had over twenty years of experience with federal construction contracts and Davis Bacon Act compliance. Despite this, it had an oral contract with its electrical subcontractor, Phase Tech, LLC, and for many years did not require Phase Tech to submit its own certified payrolls or take any steps to make sure that Phase Tech was paying its employees according to the applicable wage determination. To make matters worse, Phase Tech paid its employees significantly less than the required prevailing wage on Fort Campbell work. Circle C had no oversight over Phase Tech and took few steps to ensure Phase Tech's compliance with the Davis Bacon Act.
One of Phase Tech's employees sued both Circle C and Phase Tech under the False Claims Act because the contractors' certified payrolls failed to disclose that any Phase Tech employees worked on the Circle C contract at Fort Campbell. The same certified payrolls falsely asserted that the prevailing Davis Bacon Act wages had been paid to all of its employees as well as all of Phase Tech's employees. The United States Government intervened and took over the prosecution of the False Claims Act case. Circle C lost at the District Court and the Government was awarded treble damages in the amount of $1,661,423.13. Circle C appealed.
The U.S. Court of Appeals for the Sixth Circuit upheld the judgment but remanded the case for further proceedings on the amount of damages. The appeals court upheld the False Claims Act judgment against Circle C finding that the certified payrolls submitted by Circle C "were expressly false because (1) they stated that they were complete, when in fact no Phase Tech employees who worked on the project were listed, and (2) the certifications wrongly represented that the prevailing wages were paid to its subcontracted employees."
The only silver lining for Circle C was that the Sixth Circuit struck down the $1,661,423.13 treble damages award and sent the case back to the district court for a recalculation of damages. The contracting officer had made a series of unsubstantiated assumptions that Circle C had paid Phase Tech a total of $553,807.71 for electrical work at Fort Campbell. Circle C's records, however, showed that it actually paid Phase Tech only $124,901.81. Based on these discrepancies, damages needed to be recalculated.
The takeaways from this case are: (1) always have a signed contract with all subcontractors that includes both the Davis Bacon Act flowdown clauses and the applicable prevailing wages; (2) insist on getting and reviewing certified payrolls from all subcontractors; (3) take active steps to ensure that all subcontractors comply with Davis Bacon Act requirements; and (4) strict Davis Bacon Act compliance should help prevent greedy employees from filing False Claims Act claims looking for a jackpot payday. Failure to insist on Davis Bacon Act compliance for your company and all subcontractors will expose your company to potentially significant False Claims Act liability, as well as possible suspension and debarment.
Michael J. Schrier is the attorney responsible for the content of this article.