The State is considering legislation known as An Act Concerning False Claims, Bill Number 938 (“FCA”). It was created within the whirlwind of contracting “reform” currently circulating in Hartford. The FCA is broadly written and applies to the construction industry. Considering the impact the FCA will have on State construction contracts there is widespread opposition within the construction industry. This opposition is well founded when you read the proposed FCA.

The FCA’s key elements create an irresistible incentive for unlimited government abuse in the context of construction claims. The proposed Connecticut FCA is modeled after the federal False Claims Act. It imposes civil liability on any person or entity that submits a false or fraudulent claim for payment to the government. Under the proposed state FCA the definitions underlying a false claim are extremely broad, a false claim action would be easy to prosecute and the penalties are enormous. The FCA also provides a ten-year statute of limitations to bring a claim leaving the accused vulnerable to misplaced documents and hard-to-find witnesses.

The FCA expands the age old definition of “knowing” and “knowingly” to include acting in “deliberate ignorance” or “reckless disregard of the truth or falsity” leaving the provision wide open to many new interpretations. A “claim” is essentially defined as any request for money where the money originated with the State. It does not have to be “material.” It could include minor deviations such as certifications provided by a Contractor that do not meet the letter of the contract. One small error could make a certification “false” under the FCA. Strangely enough the term “false” is not even defined in the FCA.

The FCA does not require a showing of intent to defraud. A contractor may be held liable under the FCA for acts of its employees and subcontractors even if the contractor knew nothing about the falsity of a claim. A simple request for payment submitted by a subcontractor or supplier could be a “claim” under the FCA. The FCA also lowers the standard of proof for fraud from the “clear and convincing evidence” standard to the “preponderance of the evidence” standard. When combined with the broad definitions underlying a false claim a violation is relatively easy to allege and prove.

The loose legal standards in the FCA do not work with the uncertain nature of construction disputes. Determining liability and calculating damages is never certain in construction disputes and often involve wide ranging opinions from accountants to engineers. The design and construction of public projects is a complex process involving interpretations of specifications, drawings or other technical requirements. There often is no clear meaning of “true” or “false” on a construction project. The FCA encourages the government to abuse its authority by treating strong differences in opinions as false claims.

Moreover, whether to pursue a FCA action is entirely within the discretion of the Office of the Attorney General which also negotiates and litigates construction claims. The FCA provides no deterrence against the strong incentive for the AG to assert a FCA action in retaliation for a contractor’s good faith dispute regarding change orders, payment, or other terms of the contract. The likelihood of a FCA counterclaim also increases if and when litigation with the contractor heats up. Since a violation of the FCA includes a civil penalty up to $10,000, plus three times the State’s damages, plus the cost of the action brought by the state, the mere threat of having to defend a FCA action could force a contractor to reduce or even withdraw valid claims or face bankruptcy defending the claim.

Not only does the FCA provide the AG’s office unfettered discretion to pursue a claim it authorizes individuals to initiate a claim and allows them to share with the government a percentage of any recovery. This opens the door for claims from disgruntled former employees, competing contractors, subcontractors seeking leverage against a general contractor, and labor unions against nonunion contractors. A contractor will have to defend itself against these types of claims regardless of their merit and there is no remedy to recover the costs for defense when successful.

For all the above reasons and more, enacting this FCA without protection from incentives for government abuse may jeopardize the integrity of contracting reforms in Connecticut.