June 13, 2014 Contractor Fraud
Massachusetts Attorney General Alleges False Claims Against Contractor Universal Drywall
The Massachusetts Attorney General’s office recently commenced a lawsuit under the Commonwealth’s False Claims Act against general contractor Universal Drywall, LLC. The lawsuit alleges that the defendant engaged in unfair tactics in bidding on government jobs, resulting in fraudulent claims for reimbursement. The case represents a unique perspective on the ways in which false claims can arise and illustrates the notion that fraud against the government can occur in virtually any capacity.
Details of Case Against Universal Drywall
New Hampshire-based Universal Drywall routinely bids on projects offered by the federal and state governments. Beginning in 2013, the Commonwealth became suspicious of Universal’s hiring process during the completion of a construction project in the Boston area. Specifically, Universal was allegedly misclassifying workers as independent contractors as opposed to employees in an attempt to circumvent various employment requirements, taxes, and fees. In turn, this “savings” allowed Universal to offer bids well below its competitors, giving it an unfair advantage over other construction companies.
The results of the 2013 investigation were not surprising to authorities. Universal was under similar investigations in two separate incidents involving the construction of two high schools.
Allegations against Universal center around the unfair advantages it received as a direct result of its misclassification of workers. According to the Commonwealth’s complaint, Universal’s workers were made to bear the undue burden of overhead costs (e.g., payment of payroll taxes) as opposed to the company itself. This business structure runs afoul of the state’s independent contractor law, which was enacted to enhance fair market competition and reduce the negative impact placed on the Commonwealth’s business environment by misclassification of workers.
Attorney General’s Stance Against Fraudulent Conduct
Massachusetts Attorney General Martha Coakley remarked on the pending lawsuit by stating that:
“Employers are required to pay employees a lawful wage for each hour of work on construction projects, maintain accurate payroll records, and produce those records upon demand….We enforce these laws not only to protect workers, but to level the playing field for all businesses that play by the rules.”
False Claims Act Implications
In this case, the Commonwealth’s False Claims Act was used to address unfair and fraudulent employment and wage practices. Universal’s direct violation of the Independent Contractor law triggered the alleged False Claims Act liability upon the subsequent submission of invoices for payment upon completion of the job. Since the company won the bid in violation of Commonwealth law in the first place, its request for reimbursement likely amounts to a false claim against the government.
Under Massachusetts’ version of the False Claims Act, defendants face a penalty of $5,500 to $11,000 per violation, as well as three times the amount of actual damages. Successful whistleblowers can receive up to 25 percent of the total settlement or judgment amount.
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