Contractors should beware of strings attached to stimulus funds from the American Reinvestment & Recovery Act. Both contractors and subcontractors receiving stimulus dollars must comply with Davis-Bacon Act requirements for paying wages and fringe benefits not less than the minimums established by the U.S. Dept. of Labor.

Under Davis Bacon, contractors are strictly liable for subcontractor reporting. So, if the subcontractor is reporting it paid $10 per hour and really paid only $5 per hour, the DOL will require the government agency that hired the contractor to collect the difference. Additionally, contractors and subcontractors receiving stimulus dollars are subject to the federal False Claims Act, which includes criminal penalties for false statements connected with grant applications and use of funds, and encourages whistleblower suits.

Davis Bacon Act

Davis-Bacon applies to all contracts over $2,000 to which the federal government is a party. ARRA has expanded Davis-Bacon to apply to contracts with state, local and private parties who receive stimulus funds from the Feds. The most significant provision of the act requires all contractors to pay their employees at least the prevailing wage. This means the same wages paid by union and non-union shops in the geographic area.

RICHARD VERMEIRE
RICHARD VERMEIRE

Prime contractors should be aware, however, that the prevailing wage is not the only Davis Bacon requirement. It also requires prime contractors to pay certain fringe benefits, pay onsite workers at least weekly, and post the wage scale on the site. The Davis Bacon Act also requires prevailing wage compliance by all subcontractors—that the subcontractors’ laborers be paid at least once per week and that the wage scale for all subcontractors’ laborers be prominently posted. The prime contractor and subcontractor must submit weekly payroll for all laborers or mechanics, and the payroll must contain a Statement of Compliance signed by the contractor or agent who supervises payment of the employees under the contract.

If a subcontractor fails to comply with the act, the government may, by written notice to the prime contractor, cancel the prime contract and have the work completed by another contractor. The government then may hold the prime contractor responsible for the cost of completing the project, including additional costs incurred as a result of changing contractors. As an additional sanction, contractors or subcontractors found to have disregarded their obligations to employees, or to have committed aggravated or willful violations, might be barred from future government contracts for up to three years.

False Claims Act

All contractors and subcontractors that benefit downstream from federal funds can be found responsible for violating the federal False Claims Act.

John Kofron
JOHN KOFRON

Submitting an inflated invoice is just one way contractors can get in trouble under this law. The law also penalizes contractors who: submit false or inaccurate claims to be paid by the federal government; make a false statement in connection with a false claim; agree with others to violate the law. The penalties for breaking the False Claims Act are severe, including triple damages and $5,000-$10,000 fines for each violation.

Given these stiff penalties, contractors should be vigilant in protecting themselves. First, find out the prevailing wages and fringe benefits applicable to the stimulus project. The DOL determines the prevailing wage for a given geographic area. It posts this information at gpo.gov/davisbacon/allstates.html. The site provides a list of prevailing wages that will be changed the following week.

Second, make sure your contracts (both prime and subcontracts) comply with Davis-Bacon. Third, do spot checks onsite to ensure the wages are posted as required and your subcontractors are paying their employees the prevailing wages and benefits required or ask your subcontractors to provide evidence of their compliance.

Fourth, read up on the False Claims Act and take action to comply with it, including avoiding the submission of any inaccurate claim. Fifth, learn about the many other laws that apply to government contractors and institute procedures to comply with them.

Richard Vermeire, focuses on complex business litigation. He served as an Assistant U.S. Attorney in Washington, D.C. and Colorado between 1971 and 1980. E-mail: rvermeire@fclaw.com.

John Kofron, is chair of Fennemore Craig’s Construction Practice Group. He deals with liens and work outs, construction defects and construction dispute resolution. E-mail: jkofron@fclaw.com.