Profit & Loss - April 2010

Stimulus Dollars

A Contractor's Friend or Foe?

by Dale Rycraft and John Kofron

    Contractors should beware of strings attached to stimulus funds from the American Reinvestment and Recovery Act (ARRA).  Construction projects funded in whole or in part by stimulus dollars must comply with requirements established by ARRA.

Buy American

    ARRA limits the use of stimulus funds to projects for the construction, alteration, maintenance or repair of public buildings or works that only use, with limited exceptions, iron, steel and manufactured goods produced in the United States. To ensure bidders comply with this requirement, bid packages for projects using stimulus funds may include a “Buy American Certification” and a “Buy American Designation of Equipment and Material Manufacturers List.” Some state and local governments and their agencies are so concerned about compliance with this requirement that they have even included on the face of their Buy American bid documents a statement that if the bidder does not fill in all of the spaces therein “the bid will be deemed non-responsive and rejected.”

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 federal stimulus funds. The most significant provision of the Act is the requirement that all contractors pay their employees at least the prevailing wage.  However, the prevailing wage is not the only Davis Bacon requirement.  It also requires prime contractors to pay certain fringe benefits, pay on-site workers at least weekly, and post the wage scale on the site. Additionally, the payroll must contain a “Statement of Compliance” signed by the contractor or agent who pays or supervises the payment of the employees under the contract.

    If a subcontractor fails to comply with the Act, the government may 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 any additional costs incurred as a result of changing contractors. As an additional sanction, contractors or subcontractors found to have disregarded their obligations to their employees, or to have committed aggravated or willful violations may be barred from future government contracts for up to three years.

False Claims Act

    The federal False Claims Act also applies to stimulus funds received by contractors.  Since its enactment during the Civil War, the False Claims Act has grown in importance and use. In fact, thanks to a recent amendment, the False Claims Act now applies to a broader spectrum of contractors than ever before, including all contractors and subcontractors that receive federal stimulus funds.

    Submitting inflated invoices is just one way contractors can get into trouble under this amended law.  The law also penalizes contractors who submit false or inaccurate claims to be paid for by the federal government, make a false statement in connection with a false claim or engage in an agreement with others to participate in a violation of the law.  The penalties for breaking the False Claims Act are severe, including triple damages and fines of between $5,000 and $10,000 for each violation. Additionally, the amended law encourages reporting of false claims by granting whistleblowers the right to receive a significant portion of the funds recovered.

Be Vigilant or Face the Consequences

    Given the severity of the consequences, contractors should be vigilant in protecting themselves.  When preparing bids for stimulus fund projects, contractors should only use pricing for goods produced in the United States.

    Additionally, contractors need to find out the prevailing wages and fringe benefits applicable to a project.  The U.S. Department of Labor determines the prevailing wage for a given geographic area.

    Make sure all prime contracts and subcontracts comply with the Davis-Bacon Act. Perform spot checks on site to ensure wages are posted as required and subcontractors are paying employees the prevailing wages and required benefits, or ask subcontractors to provide evidence of their compliance.

    Familiarize yourself with the False Claim Act and take action to ensure compliance, including avoiding the submission of any inaccurate claim.

    Finally, learn about the many other laws applicable to government contractors, and institute procedures to comply with them.  Taking these steps will help protect you and your subcontractors from inadvertent violations of these laws.

Dale Rycraft and John Kofron
Dale Rycraft and John Kofron are attorneys with Fennemore Craig