At a press conference on April 7, 2011, the Ohio Attorney General and two Ohio state senators introduced SB 143, Ohio’s False Claims Act. Ohio currently does not have a false claims act and, as a result, this bill presents the possibility of a large change in Ohio public. A brief examination of the key provisions, therefore, is useful to see what may be on the horizon for entities that receive state funds either through contracts or grants.
The bill generally mirrors the terms of the federal False Claims Act (FCA). The federal FCA was amended in 2009 by the Fraud Enforcement and Recovery Act of 2009 (FERA). FERA greatly expanded the scope and reach of the federal FCA. SB 143 incorporates these changes. Thus, the potential reach of the bill as currently drafted is broad.
What Constitutes a “Claim”?
The restrictions of SB 143 are based upon a “claim” being made by a contractor. The definition of what constitutes a “claim” for the purposes of Ohio’s FCA has two parts. First, a “claim” is “any request or demand for money or property, whether or not the state has title to the money or property.” [emphasis added]. Second, this request must be presented to one of two classes of individuals. The “presentment” requirement is satisfied where a request for money or property:
- Is presented to an officer, employee, or agent of the state; or
Is presented to a contractor, grantee, or other recipient of the money or property, the money or property is to be spent or used on the state’s behalf or to advance a state program or interest, and the state;
- provides or has provided any portion of the money or property requested or demanded; or
- will reimburse the contractor, grantee, or other recipient for any portion of the money or property that is requested or demanded.
Taken together, these sections not only include payment requests by contractors holding agreements directly with the state, but their subcontractors as well. Thus, a subcontractor’s pay application may serve as a “claim” for the purposes of SB 143 thereby exposing the subcontractor to potential FCA liability. The bill may further allow liability to flow beyond first tier subcontractors to lower tiers, including suppliers since the state’s ownership of the funds (i.e. title) is not relevant as long as the money was spent on the state’s behalf or to “advance a state program or interest.”
This broad base of potentially liable entities is taken directly from the revised federal FCA. If SB 143’s language remains unchanged, therefore, contractors or subcontractors may be able to gauge potential exposure based upon federal interpretation of this language.
What Sort of “Claims” Create Potential Liability?
The bill outlines eight different actions that may subject a contractor (or lower tier contractor) to liability. While understanding all eight is key to knowing the full scope of the bill, three are likely to be the most commonly utilized provisions:
- Presentment of False Claim: A contractor may be liable if it “knowingly presents or causes to be presented” a false or fraudulent claim for payment or approval. There may be liability for a claim provided either to the state or to a “contractor, grantee or other recipient of state funds.” Thus, this provision directly addresses the potential liability not only of contractors, but of subcontractors and other lower tier contractors.
- Use of False Record: A contractor may also be liable if it “knowingly makes, uses or causes to be made or used a false record or statement material to a false or fraudulent claim.” Liability under this section will likely be concurrent with liability under the provision above. This duplication is important as each violation is subject to a fine of between $5,500 and $11,000. Thus, a contractor who is found to have both made a false claim and used a false document related to that claim will be subject to a minimum fine of $11,000.
- Reverse False Claims: Liability attaches not only for requests for money from the state, but a knowing failure to return overpayments to the state. These are known as “reverse false claims.” The bill’s language specifically notes that a contractor is liable if it “knowingly conceals, or knowingly and improperly avoids or decreases, an obligation to pay or transmit money or property to the state.” Thus, if a contractor (or perhaps even subcontractor) is aware that it received too much from the government and conceals this knowledge, it can be liable for a false claim.
There are two important definitions to note under this section. First, the definition of “knowingly” is broader than simply a contractor’s actual knowledge that certain information is false. Where a contractor acts with either deliberate ignorance of or reckless disregard of the truth or falsity of the information, it can be found to act “knowingly.” For example, if a contractor has reason to know of a possible overpayment but elects not to investigate, this may be found to be “deliberate ignorance. Second, the term “obligation” is defined to include a duty “arising from” the retention of an overpayment. In other words, contractors must determine if there has been any overpayment. Failure to do so may result in a violation of this bill.
It bears noting that the government does not have to prove the contractor had any fraudulent intent to find the contractor liable for a civil penalty.
What Are the Possible Consequences of A False Claim?
The bill proposes a multitude of civil penalties for violations of its provisions. The civil penalties include liability of the contractor to the state for all of the following: (a) three times the damages that the state sustains because of the violations, (b) a civil penalty of $5,500 to $11,000 per violation and (c) the costs of the civil action brought to recover the damages. A contractor can reduce its potential exposure if it provides the attorney general all information known within 30 days of obtaining the information, fully cooperates with the state’s investigation and no action (civil, criminal or administrative) was pending at the time of the disclosure. If a contractor satisfies these requirements, it will not be liable for any civil penalties and will liable for not less than two times the state’s damages, as opposed to three times.
As with the federal FCA, the government is not the only party that may enforce the provisions of this bill. Individuals may bring qui tam, or whistleblower, suits. The bill allows for these individuals to share in a portion of the amount recovered in certain circumstances. Further, once such a suit is filed, the government may elect to take over the prosecution of the claim. Finally, the bill provides protection to whistleblowers who may be employees of the targeted contractor.
SB 143 is still in the early stages of the legislative process. Given the support of Ohio’s Attorney General and the general desire of governments to rein in spending and close budget gaps, it would not be surprising if this bill moves easily through the process. This bill would be a large change in the public contracting landscape of Ohio. Contractors, subcontractors and suppliers to public projects (including local projects funded, in part, by state funds) must be aware of this bill and its likely impact.