Identification, Prevention, and Remedies for False Claims in Highway Improvement Contracting (2011)

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Legal Research Digest 55 national Cooperative highway researCh program May 2011 TRANSPORTATION RESEARCH BOARD OF THE NATIONAL ACADEMIES identifiCation, prevention, and remedies for false Claims in highway improvement ContraCting This report was prepared under NCHRP Project 20-6, “Legal Problems Arising Out of Highway Programs,” for which the Transportation Research Board is the agency coordinating the research. The report was prepared by Eric Kerness and Peter Shawhan, Kerness Consulting, Schenectady, New York. James B. McDaniel, TRB Counsel for Legal Research Projects, was the principal investigator and content editor. the problem and its solution State highway departments and transportation agen- cies have a continuing need to keep abreast of operat- ing practices and legal elements of specific problems in highway law. This report continues NCHRP’s practice of keeping departments up-to-date on laws that will af- fect their operations. applications Transportation agencies have a history of being con- fronted with inflated and fraudulent claims in highway improvement contracting, the extent of which has not been precisely determined. Nonetheless multi-million dollar judgments and settlements in false claim cases have focused national attention on this issue. A fundamental issue for detecting and remedying fraud on a federally funded contract has been whether a false claim submitted to a state department of trans- portation on a Department of Transportation, Federal Highway Administration-funded contract satisfies a legal requirement that the false claim be presented to the federal government. A recent decision of the United States Supreme Court establishes the test that must be met. The false claim need not be submitted directly to the Government, but it must be material in influencing the Government’s decision to pay with federal funds. Some states and the District of Columbia have false claim statutes, which allow civil recovery at the state or municipal level and thereby avoid the presentment is- sue. Other states without false claim statutes are actively considering promulgating relevant legislation, regula- tions, and administrative procedures to protect the pub- lic interest. However, even among individuals and gov- ernmental agencies that are quite active in the civil false claims arena, there is a lack of knowledge concerning the applicability and reach of the Federal False Claims Act and alternative state and local administrative, regu- latory, and civil action statutory identification, preven- tion, and remedies for false and inflated claims in high- way improvement contracting. The purpose of this study and digest is to define false claims as it is set forth in case law, civil statutes, and other resources; distinguish fraud; research case law on false contract claims in connection with highways; review conflicting federal False Claims Act, state civil false claims statutes, qui tam provisions, taxpayers ac- tions, or the equivalent; and review administrative pro- cesses—looking for current practices and procedures in place for contract disputes resolution. This digest should be useful to all transportation ad- ministrators, including attorneys, contracting officials, project managers, engineers, financial officers, planners, and state and local development officials.