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ACKNOWLEDGMENT This work was sponsored by the American Association of State Highway and Transportation Officials (AASHTO), in cooperation with the Federal Highway Administration, and was conducted in the National Cooperative Highway Research Program (NCHRP), which is administered by the Transportation Research Board (TRB) of the National Academies. COPYRIGHT PERMISSION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FMCSA, FTA, Transit Development Corporation, or AOC endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. DISCLAIMER The opinion and conclusions expressed or implied in the report are those of the research agency. They are not necessarily those of the TRB, the National Research Council, AASHTO, or the U.S. Government. This report has not been edited by TRB.
FOREWORD This study was initiated to gain a better understanding of state departments of transportation practices involving the areas of highway construction contracting: false claims, disadvantaged business enterprise fraud, and contractor suspension and debarment. The idea was to collect data that would permit a broad assessment of the magnitude of false claims, and disadvantaged business fraud and the steps that states are taking to detect and protect against such practices; and also, to determine whether states are using the contractor suspension and debarment procedures effectively as a tool for protection from unscrupulous contractors. Initially, the committee determined that the extent of false claims against state agencies in general and state departments of transportation in particular has not been precisely determined. However, recent multi-million judgments in false claim cases have focused more attention on this issue; the General Accounting Office (GAO) has confirmed that the extent of fraud in DBE programs is unknown, but it is widely accepted that DBE fraud falls into two categories: (1) ineligible businesses are certified and obtain contracts based on inaccurate or misleading information and (2) eligible business engage in questionable activity, and todayâs public owners face difficult decisions in deciding whether to work with contractors who do not meet clearly defined standards of responsibility. The effective use of suspension and debarment tools would greatly enhance their ability to do so. Therefore, one purpose of this study topic was to determine whether enough information could be collected to be helpful in these areas. Given the data collection and retention practices in the 50 states, there was an awareness that data sufficient to show trends or from which interpolations could be made may not exist. These survey instruments were sent to the 50 states seeking specific information on these topics: specific data on the extent of false construction contract claims; incidents of fraud in the DBE programs; and the number of contractor suspensions and debarments. The data collection process is further explained throughout the report. We appreciate that some states responded to the questionnaires by providing such information that their respective states collect and retain. Nevertheless, the responses did not yield sufficient data from which trends could be noted, construction fraud estimated, incidents of DBE fraud determined, or the number of contractors suspended or debarred. Because of the lack of data and the heavy reliance on non-primary sources, the NCHRP 20-6 Committee, Legal Aspects of Highway Programs, decided not to publish the study as a Legal Research Digest. Instead, the Transportation Research Board staff decided to make this report available as a Web- Only Document,. This will enable the reader to determine the usefulness of the information knowing that the data is non-scientific and only applicable to the respondents. James B. McDaniel Counsel for Legal Research Projects
TABLE OF CONTENTS I. Introduction....................................................................................................................... 1 II. Construction Contract Fraud .......................................................................................... 4 A. Federal Civil False Claims Act ............................................................................ 4 1. Establishing Liability ...................................................................................... 4 2. Types of Fraud Prosecuted Under the FCA.................................................... 7 3. Defenses to the FCA ....................................................................................... 8 4. Penalty, Costs, and Alternative Remedies ...................................................... 9 B. Criminal False Claims Act (FCA) ..................................................................... 10 C. Civil and Criminal Racketeer Influenced and Corrupt Organizations (RICO) Actions.............................................................................................................................. 10 D. False Statements Under Title 18 USC §1001.................................................... 13 E. State False Claims Law ...................................................................................... 14 III. Disadvantaged Business Enterprise Fraud................................................................... 20 A. DBE Fraud Survey Results ................................................................................ 24 B. DBE Statistical Tables ........................................................................................ 24 IV. Federal and State Investigation, Suspension, and Debarment ................................... 31 A. Policy and Procedures ........................................................................................ 31 V. Conclusion ....................................................................................................................... 36 APPENDIX A False Claims Survey.................................................................................. A-1 APPENDIX B Examples of Applicable State False Claim Statutes .............................. A-5 APPENDIX C Disadvantaged Business Enterprise Fraud Survey................................ A-9 APPENDIX D 49 CFR PART 29- Certification Regarding Debarment, Suspension, and Other Responsibility MattersâPrimary Covered Transactions........ A-15 APPENDIX E Certification Regarding Debarment, Suspension, Ineligibility and Voluntary ExclusionâLower Tier Covered Transactions ................. A-17 APPENDIX F Contractor Suspension and Debarment Survey................................... A-19
