Client Alerts
October 15, 2012

Contractor found liable under the Federal False Claims Act

Stites & Harbison, PLLC, Client Alert, October 15, 2012

by Stites & Harbison, PLLC

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a decision that a federal contractor violated the Federal Civil False Claims Act when its subcontractor failed to pay prevailing wages to its employees. In United States v. Circle C Construction, L.L.C., 2012 U.S. App. LEXIS 20433 (6th Cir. 2012), the United States brought a False Claim Act suit against Circle C Construction Company, a general contractor for the U.S. Army for construction of buildings at Fort Campbell.

Circle C's contract with the Army required payment of Davis Bacon Act prevailing wages and required that Circle C and its subcontractors submit payroll records certifying that prevailing wages were paid. The prevailing wage rate for electricians was $19.19 per hour and fringe benefits of $3.94 per hour. Circle C subcontracted with Phase Tech to perform electrical work on the project. A Department of Labor investigation revealed that Phase Tech failed to pay prevailing wages. Nevertheless, Circle C's payroll certifications to the Army stated that the certifications were complete when in fact no Phase Tech employees who worked on the project were listed and the certifications wrongly represented that the prevailing wages were paid to all subcontract employees.

Based on these false certifications, the government sued Circle C for violating the Civil False Claims Act. The U.S. District Court in Tennessee found that the certifications violated the Act. The District Court found Circle C liable in the amount of $553,807 and, because the False Claims Act allows treble damages, that amount was increased to $1,661,423. The Sixth Circuit upheld the finding that Circle C was liable under the False Claims Act but held that the government's calculation of damages was incorrect and remanded the case for the District Court to determine a new, lower, damage amount.

Circle C’s fate is a powerful reminder to federal government contractors that they can incur significant damages if they fail to pay or account for prevailing wages and then submit erroneous certifications to the government regarding the payment of prevailing wages.

Related Capabilities
Health Care - Construction Business Litigation