A recent False Claims Act decision by the Sixth Circuit Court of Appeals appears to have drastically reduced the damages recoverable by the federal government for an alleged violation of the Davis Bacon Act. In the well known Circle C Construction case, the court ruled that False Claims Act damages should be based on the amount of unpaid Davis Bacon wages, not the total value of the services provided to the government. With this decision, the Circle C case may be at an end.
The district court had previously found Circle C liable under the False Claims Act because Circle C's electrical subcontractor had underpaid its electricians by a total of $9,916. The underpayments led to false certifications by Circle C that it had complied with the Davis Bacon Act. The government claimed damages of almost $260,000 representing the total value of the electrical work on the project. Pursuant to the treble damages provision of the False Claims Act, the district court awarded the government a total of $763,000 in damages.
The Sixth Circuit ruled that the government's claim for damages was "fairyland" and found that the district court had abused its discretion in awarding $763,000 to the government. The Court rejected the idea that the measure of damages is the value of the work performed because the work was somehow tainted by the underpayment. Instead, the Court found that damages under the False Claim Act must be grounded in reality and that the Davis Bacon Act provides a mechanism for assessing damages for underpayment. Simply, the damages suffered by the government were the amount of wages not paid - nothing more and nothing less. Thus the Court ruled that the actual damages suffered by the government were $9,916. After applying the trebling provisions of the False Claims Act and subtracting the amount previously paid to the government by the subcontractor, the court ruled that Circle C was liable for a total of $14,748.
For contractors, this decision is a sign that some degree of reality is re-entering the discussion of what harm the government suffers when a contractor violates the False Claims Act at least insofar as the FCA violation arises from a Davis Bacon Act underpayment. The Circle C decision signals that at least some courts will be restrained from harshly penalizing contractors for violations that can be easily remedied. But contractors should keep in mind that the False Claims Act also includes civil penalty provisions that allow for penalties of $5,500 to $11,000 to be assessed for each individual false claim.