About 20 years ago, the U.S. Justice Department began an aggressive campaign to curb fraud in connection with contractor claims submitted on federal contracts and on state contracts involving federal funding. Over the years, states having fraudulent-claims statutes began to follow suit. Many states that did not previously have fraudulent-claims statutes now have legislation modeled after the Federal False Claims Act. A recent criminal case arising from the “Big Dig” in Boston serves as a reminder that criminal exposure to fraud in government contracting extends beyond contractor claims and covers documentation produced by the contractor during the project.

Adulterated version

In 2006, the government charged several employees of a ready-mix-concrete company that supplied over 500,000 loads of concrete to the Big Dig project with, among other things, violation of Title 18 of the U.S. Code, Section 1020. That provision criminalizes knowingly making false statements, representations or reports concerning the character, quality or cost of material provided to a federally funded highway project.

The concrete specifications for the project prohibited the introduction of water into the concrete mix after it was initially batched. Also, concrete had to be placed within 90 minutes of batching or it would be rejected. The government’s indictment charged that the employees recycled concrete that was over 90 minutes old, used concrete that had been adulterated by excess water added after initial batching and submitted falsified reports that concealed these activities. The government alleged that approximately 5,000 loads of concrete the company supplied were tainted.

The defendants sought dismissal of the charges on the grounds that the statute is unconstitutionally vague. Essentially, they argued that no reasonable person in their circumstances would have expected to be prosecuted for false statements relating to the nature of the concrete, especially since, in their opinion, the final product as a whole met specifications. More specifically, the defendants attempted to convince the court that even though individual loads of concrete may not have met specification, each pour as a whole did.

Not surprisingly, the court rejected this argument out of hand and emphasized that the specifications were clearly written in a manner that addressed each individual load of concrete. The court also rejected the defendants’ suggestion that the inclusion within the same pour of other loads complying fully with the specifications somehow cures the fraud committed.

The defendants also argued that the statute is vague because it fails to establish minimum guidelines against arbitrary enforcement and thus could lead to prosecution of contractors for nonmaterial statements. To illustrate, the defendants cited the fact that only 1% of the total concrete they supplied was non-conforming and thus the charges in this case were a prime example of the improper exercise of prosecutorial discretion. The court rejected this argument as well and pointed to the term “any . . . misstatement” contained in the statute as proof that Congress did not intend for contractors to be allowed a “little bit” of misrepresentation. Such an interpretation, the court noted, would likely lead to the arbitrary enforcement the defendants themselves feared.

This last point is significant to contractors because it highlights this particular court’s view that any statement of fact, no matter the weight or importance, constitutes a violation of the statute. Of course, the statement must be known to be false when made. Throughout the process of constructing a project, contractors execute hundreds of documents that contain certifications and representations concerning the cost, quality or quantity of work. Contractors must ensure that their employees take these certifications seriously and understand that, like the concrete supplier’s employees in this case, they are subject to personal criminal liability when they make false statements or otherwise knowingly conceal facts.