Attorney General William Tong’s legislative proposal in favor of expanding Connecticut’s state False Claims Act appears persuasive at first glance. Who wouldn’t be in favor of protecting taxpayer funds against fraud and abuse? But looks can be deceiving, and the expansion of the False Claims Act out of the health care industry is not as simple as that question makes it sound.
Although the Attorney General’s proposal is well-intentioned, expanding Connecticut’s civil False Claims Act would have significantly disparate impacts on the wide range of industries in Connecticut. While the expansion could neatly be applied to some industries, the expansion actually would have a negative impact on other industries. For that latter group of industries, such an expansion would come at great expense and harm to anyone in those industries who undertakes public contracts.
Connecticut’s False Claims Act presently is limited to health care spending. And with good reason, as health care fraud makes up a large majority of the cases and recoveries under the federal False Claims Act year over year. Thus, it was with good reason that many states, like Connecticut, found it appropriate to enact a state false claims act to extend it to the health care industry. Nearly half the states have chosen not to enact any state false claims act at all.
False claims in the health care industry are often fairly straightforward. For instance, if a medical provider knowingly submits fraudulent bills for reimbursement, such as billing for services never performed or artificially inflating the costs of said services. In such instances, it is pretty simple to ascertain that a false claim was made.
But in other industries, the determination of what may or may not have been false is much harder to determine. The loose legal standards of the FCA are remarkably problematical when applied to construction disputes. The wording of the currently proposed language for the new FCA does not help. While labeled “The False Claims Act,” the act fails to even define the word “false.” Could a simple math error be considered a “false claim,” and thereby expose a contractor to the draconian penalties of the act? The act incorporates both the terms “false” and “fraudulent,” yet makes no distinction between the two.
There is no “good faith” safe harbor set out in the Act; instead it imposes strict liability, an onerous burden to the citizens and companies of the State. Under the wording of the act as proposed, any contractor that submits a good faith change order or pursues arbitration in order to collect fees that it believes are owed in good faith would be subject to the penalties of the act if it did not prevail in full.
There often is no clear meaning of “true” or “false” claims on a construction project. Quite frequently, there are no absolutes, and the “truth” often lies in the middle of the parties’ positions. Determining liability and calculating damages is never certain in construction disputes and involves wide ranging expert opinions from accountants to engineers. Interpretation of contract provisions, specifications, drawings or other technical requirements or the value of certain services or materials are matters of opinion on which reasonable minds may disagree. These good faith disagreements fall far short of making a “false” statement.
Attorney General Tong claims that honest contractors “have absolutely nothing to fear” – but the simple fact is that false claims act cases, even totally meritless ones, impose enormous expenses upon their targets. When you are threatened with liability that includes treble damages, plus penalties, as well as various collateral risks, including being precluded from further contracting, even the possibility of such an action could ruin or bankrupt your business.
False claims acts give enormous leverage to both the state and whistleblowers to extract settlements in the guise of protecting state funds. No matter how superficial or inaccurate an allegation of a false claim may be, the costs to defend oneself and clear your name are very real. In fact, a company’s bottom line can turn completely upside down from the enormous costs of responding to discovery demands from the state in an investigation alone.
The risk of such an adverse outcome may discourage many from even making a good faith request for money that that is rightfully due, but may be subject to some good faith dispute. And of course, state officials can leverage the threat of a false claims action to unfairly pressure companies from even pursuing money that is owed to them. This assuredly does not provide a level playing field for companies doing business with the State, and will only further discourage hard-working companies from doing business with the state.
Since civil false claims actions do not require proof of criminal intent, they often blur the line between what is in actuality a difference of opinion or a breach of a contract as opposed to a deliberate violation intended to deceive the government. If a contractor has truly engaged in fraud, the state should bring a criminal complaint, and it has every resource to do so under the present law. If not, the state can address any issues about its expectations on a particular contract administratively, just as it does now. In other words, the state already has the powers necessary to protect itself (and all of its taxpayers) from issues which arise in public contracting.
Looming larger than the risks to the contracting industry itself, expanding the state’s false claims act will harm the state as a whole. Competition will suffer as contractors unwilling or unable to shoulder the risk of being saddled with civil fraud allegations stop bidding on public work projects. This will lead to higher costs for those projects and lower quality.
Connecticut’s civil false claims act has its place in the healthcare industry, but it does not work well in other industry sectors, and particularly not in the construction industry.
Donald Shubert is President of the Connecticut Construction Industries Association on behalf of American Council of Engineering Companies of Connecticut, Connecticut Construction Industries Association, Construction Law Section, Connecticut Bar Association and Connecticut Subcontractors Association.