Builders and Contractors Exchange
Weekly Bulletin: 9 nov 2007
The Department Of Justice Turns Its Attention To The Construction Industry In Its Continuing Efforts To Curb Public Contracts Fraud
By: Ethan G. Ostroff
Over the last 20 years, the Department of Justice (“DOJ”) has vigorously prosecuted the health care industry by packaging together charges under the Copeland “Anti-Kickback” Act (“AKA”) of 1986 with the False Claims Act (“FCA”). Recently, however, lawyers for the DOJ convinced the Court of Federal Claims to accept a new twist on this accepted practice: since a kickback as defined under the AKA is an act of fraud, conduct that constitutes an illegal kickback under the AKA also evidences a violation of the FCA.
A "kickback" is defined by the AKA to mean any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to a contractor, contractor's employee, subcontractor or subcontractor's employee for the purpose of improperly obtaining or rewarding favorable treatment in connection with a contract.
The AKA applies to all contractors and subcontractors performing on any federally funded or assisted contract for the construction, prosecution, completion, or repair of any public building or public work, except contracts for which the only federal assistance is a loan guarantee. Generally, the AKA requires that an organization that enters into contracts with the federal government have in place procedures to guard against the possibility of kickbacks in connection with those public contracts. The provisions also apply to any contract assisted in whole or in part by loans or grants from the federal government, except those contracts where the only federal assistance is a loan guarantee.
With the application of this litigation strategy to the construction industry, the Department of Justice is signaling that the hefty damages associated with a violation of the AKA are no longer sufficient punishment to deter fraudulent activity in the vast public contracts market. This marks a significant development in public contracts and construction litigation, and one that means even greater financial exposure for general and sub contractors.
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.