The Sixth Circuit Court of Appeals in U.S. ex. rel. Wall v. Circle C Construction, L.L.C., recently found a general contractor liable under the False Claims Act ("FCA") for submitting certified payrolls which falsely declared that a subcontractor had paid its employees the wage rate required by the Davis-Bacon Act. The court imposed liability on Circle C Construction, L.L.C., the general contractor, even though Circle C had no first-hand knowledge regarding whether its subcontractor actually paid the required Davis-Bacon wages. This case makes clear that a contractor can be held liable under the False Claims Act if it wrongly certifies that a lower-tier contractor paid required Davis-Bacon Act wages when the subcontractor failed to do so, especially where the contractor takes no action to verify the accuracy of the certification.

The Circle C case involved a construction contract with the Army to perform work at Fort Campbell. As required by federal regulations, the contract required Circle C to submit complete and accurate certified payroll and to ensure that subcontractors paid employees according to the Davis-Bacon wage determinations in the contract. Although Phase Tech was Circle C’s electrical subcontractor on the project, it performed this work without executing a subcontract. Circle C provided Phase Tech with the wage determination excerpts from its prime contract, but did not (1) discuss the Davis-Bacon requirements with Phase Tech; (2) provide a blank certified payroll form to Phase Tech; or (3) verify whether Phase Tech submitted certified payroll during project performance. According to the court, Circle C "lacked a protocol or procedure to monitor Phase Tech’s employees’ work on the Fort Campbell project and did not take measures to ensure payment of proper wages under the Davis-Bacon Act."

During the project (from 2004 to 2005), Circle C submitted certified payroll for every subcontractor except Phase Tech. In 2008, after the False Claims Act case was commenced, Circle C asked Phase Tech to submit new certified payrolls for 2004 and 2005. Circle C ultimately submitted the certified payrolls to the government without verifying the accuracy of the documents.

Each of the certified payrolls contained a certification that the court decided was false under the FCA. Based on this certification by Circle C, the government identified 62 false payroll certifications among the certified payrolls submitted by Circle C. The government alleged the certified payroll was false in two respects: (1) the payroll was not "complete" as certified because Circle C failed to submit payroll for Phase Tech employees; and (2) the 2008 payroll wrongly represented that Phase Tech employees were paid the required Davis-Bacon wage rate.

The Sixth Circuit agreed with the government that these payroll certifications constituted false certifications under the FCA and that Circle C was liable for damages. In making its ruling, the Sixth Circuit recognized an important legal distinction regarding contractor liability for false Davis-Bacon Act certifications; namely, the court held that a contractor can only be held liable under the FCA based on false Davis-Bacon certifications when the allegedly false statement is made about the amount of wages paid. Cases cannot be brought under the FCA where the false statement concerns the classification of employees under the Davis-Bacon Act, a determination that requires analysis of complicated federal regulations regarding how certain laborers are classified for the purpose of determining the applicable wage rate. This particular legal ruling is consistent with prior court cases on that issue.

The facts of the Circle C case show that Circle C could have avoided FCA liability by taking two precautions with respect to submitting certified payrolls to the government. First, the 2008 certified payroll submitted by Circle C clearly showed that the wages being paid by Phase Tech were below the amount required by the Davis-Bacon Act. A quick comparison of Phase Tech’s payroll with the wage requirements of the statute would have made this fact apparent. Second, Circle C was held liable for falsely certifying that the certified payroll it submitted was "complete." Circle C could have avoided liability by ensuring that complete certified payrolls were submitted for all subcontractors.

BABC’s lawyers are aware that the U.S. government is focusing on Davis-Bacon compliance throughout the country. While the general contractor is not required to audit each weekly payroll by each subcontractor, it is prudent to adopt a protocol for checking for missing certifications, for spot-checking certifications for obvious errors (classifications of mechanics as laborers, for example), and, where a problem appears, arranging for interviews of randomly selected employees of one or more subcontractors. Subcontractors must also ensure compliance. While the general contractor may face generally only financial penalties, the subcontractor will often face the death-knell of debarment.