Identification, Prevention, and Remedies for False Claims in Highway Improvement Contracting (2011)

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58 Pennsylvania 18 Pa. Cons. Stat. Ann. § 4104 Tampering with records or identification—knowingly falsifies, destroys, removes, or conceals any writing or record with in- tent to deceive or injure anyone or conceal any wrongdoing— 1st degree misdemeanor. Pennsylvania 18 Pa. Cons. Stat. Ann. § 4904 Unsworn falsification to authorities—with intent to mislead a public servant in performing his official function, makes any written false statement, knowingly submits any forged or altered writing, or knowingly submits any false sample or specimen—2nd degree misdemeanor. Pennsylvania 18 Pa. Cons. Stat. Ann. § 4104 Tampering with records or identification—knowingly falsifies, destroys, removes, or conceals any writing or record with in- tent to deceive or injure anyone or conceal any wrongdoing— 1st degree misdemeanor. South Dakota S.D. Codified Laws § 22-29- 9.1 Oath required on certain documents to obtain state benefits; statement in lieu of oath; perjury—person who submits an application for benefits or any other privilege, and signs a statement that he has examined it and it is true, knowing that to be false, is guilty of perjury. West Virginia W.Va. Code, § SA-3-33d Grounds for debarment—include conviction of an offense in- volving falsification or destruction of records or making false statements in connection with the performance of a contract; or violating the terms of a public contract by using substan- dard materials in public contracts or defects in construction of public projects amounting to intentionally deficient or grossly negligent performance. West Virginia W.Va. Code, § 17-10-11 Certificate of purity of materials—willfully furnishing a false certificate of purity of materials offered to a county for pur- chase. West Virginia W.Va. Code, § 30-13-21 Disciplinary action—State Board may suspend, revoke, or re- fuse to renew a licensed professional engineer's certificate of registration if he or she has knowingly made or signed false statements or certificates to induce payment. SECTION XV. RESEARCH PROCESS In addition to standard legal research techniques, the research process involved in the preparation of this di- gest included a detailed written survey of the state DOTs of all 50 states, plus certain selected state public benefit corporations and federal agencies, and analysis of the results; targeted telephone interviews with offi- cials of selected state DOTs, to follow up in more detail based on the results of the written survey; in-person or telephone interviews with a selected group of nation- ally-recognized experts in the field; and integration of the results of the written survey and interviews into the findings of this digest. These research activities are described below in greater detail. A. Written Survey of All State DOTs— Preliminary Results 1) Survey process—The authors of this digest pre- pared a draft written questionnaire, submitted it to the TRB's Principal Investigator and Committee for review and comment, revised it in accordance with the comments, and submitted it to TRB, together with a recommended list of recipients (see below). Given the fiscal and staffing constraints currently facing most state DOTs nationwide, the initial written question-

59 naire was intentionally kept relatively brief to make it easier to respond to and thus maximize the number of responses received. TRB then mailed the question- naire to the selected recipients. Some recipients re- sponded to the TRB, while others responded directly to the authors of this digest. The results were com- piled into a detailed and lengthy table. That table was then condensed into a summary, which is provided be- low. 2) Targeted distribution—To direct the written survey to knowledgeable individuals within state DOTs who would be likely to respond, the authors of this digest assembled a list of potential recipients from the membership list of the American Association of State Highway and Transportation Officials (AASHTO) Subcommittee on Construction. The major- ity of recipients were state DOT construction engineers. This list was supplemented with investigative person- nel or attorneys in certain states; representatives of a small number of state public benefit corporations in- volved in highway or bridge transportation; and re- gional FHWA Federal Lands Highways Division (FLHD) units. To encourage maximum possible re- sponse, the authors of this digest then arranged for FHWA officials to bring the survey to the attention of members of the AASHTO Subcommittee on Construc- tion by email and during its 2009 Annual Meeting in Chicago. 3) Questions asked—The questions asked are indi- cated in the summary described and provided below. The complete written questionnaire as distributed to the 50 state DOTs and other selected organizations is attached as Appendix A to this digest. 4) Results—Responses to the written survey were submitted by officials of 31 of the 50 state DOTs, or 62 percent of all state DOTs, and also by officials of 1 state public benefit corporation and 2 regional FHWA FLHD units. As indicated above, the authors of this Digest first compiled the responses into a detailed and lengthy table, and then summarized this in much briefer form. The summary table is presented imme- diately below, in the next several pages of this di- gest. This includes comments by the authors of the digest on the apparent significance of the responses to the various questions.

60 Q SUMMARY OF QUESTION SUMMARY OF RESPONSES 1 The submitting agency is a State agency 31 State authority 1 Federal agency 2 Other 0 Total 34 2 Has your agency experienced any actual or potential false claims or fraud in connection with highway, bridge, or other transportation capital con- struction projects or pro- grams? Yes—State agency 23 Yes—State authority 0 Yes—Federal agency 2 Yes—Total 25 No—State agency 8 No—State authority 1 No—Federal agency 0 No—Total 9 3 If your agency has experienced actual or potential false claims or fraud, has your agency sought recovery of civil dam- ages under the Federal False Claims Act, Title 31, United States Code Sections 3729 and following (31 U.S.C. § 3729 et seq.)? ___Yes ___No Yes—State agency 1 Yes—State authority 0 Yes—Federal agency 1 Yes—Total 2 No—State agency 28 No—State authority 1 No—Federal agency 1 No—Total 30 4 Has your agency sought recov- ery of civil damages pursuant to any state or local False Claims Act that has been en- acted in your state? ___Yes ___No Yes—State agency 3 Yes—State authority 0 Yes—Federal agency 0 Yes—Total 3 No—State agency 25 No—State authority 1 No—Federal agency 2 No—Total 28

61 5 (a) “Are you aware of any “whistleblower,” “Qui tam,” or “taxpayer” litigation involving any of the contractors or con- sultants that have worked or are working for your agency? ___Yes ___No (b) If your answer to question 5(a) is “yes,” please provide ap- proximate number of cases ______________ and the ap- proximate total dollar amount of damages sought, if known. $ _______________________ Yes—State agency 5 Yes—State authority 0 Yes—Federal agency 1 Yes—Total 6 No—State agency 26 No—State authority 1 No—Federal agency 1 No—Total 28 Comment: Only 5 of 31 state agencies responding, or 16.1 percent, were aware of any whistleblower, qui tam, or tax- payer litigation involving contractors working for their agency. Total no. of cases < 13 Arkansas: 1 case; $30,000 sought Illinois: 1 case, $112,500 sought Kentucky: less than 5 cases, "millions" sought Pennsylvania: 2 cases, "unknown" amounts sought Virginia: 3 cases, $270,380 sought FHWA Central FLHD, 1 case, $601,000 sought 5 c) Please indicate the approxi- mate dollar amount of your current annual construction program. Of agencies responding: Smallest program: $0.125 billion (Vermont Agency of Transportation) Largest program: $4.000 billion (California DOT)

62 5 d) If your agency has experi- enced actual or potential false claims or fraud, has your agency initiated any of the following measures? (Check all that are applicable.) 15 Federal criminal investigation (14 state DOTs, 1FLHD) 13 State or municipal suspension, debarment, or determina- tion of non-responsibility (all 13 are state DOTs) 12 Exchange of information with other agencies regarding allegations of fraud or false claims (all 12 are state DOTs) 12 Negotiated settlement of civil litigation (11 state DOTs, 1 FLHD) 10 Negotiated administrative resolution under contractual provisions (all 10 are state DOTs) 9 State or municipal criminal investigation (all 9 are state DOTs) 8 Federal suspension, debarment, or determination of non- responsibility (all 8 are state DOTs) 8 Termination or other contractual remedies (all 8 are state DOTs) 8 Civil litigation (7 state DOTs, 1 FLHD) 7 "Not applicable" or no response to question 4 Rejection of bid (all 4 are state DOTs) 4 None of the above (3 state DOTs, 1 FLHD) 2 Reduction of contractor qualification capacity 0 Don't know Plus one modified write-in response: "Rejection of added work price." 6 If your agency has experienced actual or potential false claims or fraud, please provide con- tact information for any offi- cial in your agency who was assigned to coordinate with officials from other agencies and would be able to provide any additional publicly avail- able information regarding such matters. Agencies providing contact information: 17 State 2 Federal 19 Total

63 7 (a) Has your agency imple- mented any specific false claims or other fraud prevention or detection programs or meas- ures? ___ Yes ___No (b) lf the answer to question 7(a) is "Yes," please provide contact information for any official in your agency who has been assigned responsibility for the development, implementa- tion, and/or administration of such measures. (a) Yes—State agency 18 Yes—State authority 0 Yes—Federal agency 0 Yes—Total 18 No—State agency 13 No—State authority 1 No—Federal agency 2 No—Total 16 Comment: So 18 out of 31 State agencies responding, or 58.1 percent, indicated that they have implemented false claims or fraud prevention measures, and 13 out of 31 state agen- cies, or 41.9 percent, indicated that they have not done so. (b) Agencies providing contact information: State 16 Federal 0 Total 16 8 Is your agency aware that Congress has recently enacted major changes to the Federal False Claims Act through the Fraud Enforcement and Recov- ery Act of 2009 (FERA), Public Law 111-21, 123 Stat. 1617, signed into law by President Obama on May 20, 2009? ___Yes ___No Yes—State agency 19 Yes—State authority 1 Yes—Federal agency 2 Yes—Total 22 No—State agency 12 No—State authority 0 No—Federal agency 0 No—Total 12 Comment: 19 out of 31 State agencies surveyed, or 61.2 per- cent, expressed awareness of the 2009 FERA amendments to the False Claims Act.

64 9 Have you or your agency been contacted since January 1, 2009, by the U.S. Department of Transportation's Office of the Inspector General (USDOT OIG), by the Antitrust Division of the U.S. Department of Jus- tice (USDOJ AT), or by any other federal agency, about con- ducting false claims or other fraud prevention or detection training, and/or implementing fraud prevention programs or measures, in connection with federal-aid highway, bridge, or other surface transportation capital construction projects or programs? ___Yes ___No Yes— State agency 17 Yes— State authority 0 Yes— Federal agency 1 Yes— Total 18 No— State agency 14 No— State authority 1 No— Federal agency 1 No— Total 16 Agencies providing specific contact information: State 16 Federal 1 Total 17 Comment: 17 of the 31 state agencies surveyed, or 54.8 per- cent, indicate that they have been contacted by measures, in connection with USDOT OIG, USDOJ AT, or other federal officials to arrange training on false claims prevention or other fraud or other surface prevention efforts since January 1, 2009, and 16 of those 31 state agencies, or 51.6 percent, have been able to provide detailed contact information iden- tifying the specific USDOT OIG or other federal officials who contacted them. While there continue to be opportunities for further out- reach in this area, it is clear that USDOT OIG and USDOJ have recently invested significant time and effort in provid- ing false claims prevention training and other fraud preven- tion training to federal and state transportation officials across the country, and that specifically identifiable federal officials have contacted more than half of the agencies re- sponding to this survey. This speaks well of federal efforts in this area, and appears to indicate that there has been a concerted effort by federal officials to protect federally- funded stimulus projects against false claims and fraud. B. Discussion of Survey Results One of the clearest and most striking findings emerging from the written survey was that, while the great majority of state DOTs responding had experienced false claims or fraud, very few had pursued false claims litigation. State DOT re- sponses indicated that while 23 of the 31 state DOTs responding, or 74.2 percent, had experi- enced actual or potential false claims, only one s tate DOT, Missouri DOT, or 3.3 percent, had filed a civil action to recover damages under the Fed- eral FCA; only 3 state DOTs (Massachusetts, Ore- gon, and Virginia), or 9.7 percent, had filed such an action under a state FCA; and only 5 state DOTs (Arkansas, Illinois, Kentucky, Penn- sylvania, and Virginia), or 16.1 percent, were aware of such actions being filed by private qui tam relators.288 Even combining the data from all three of those categories (and adjusting for over- laps), only 8 state DOTs out of 31 responding, or 25.8 percent, had filed a Federal FCA case, filed a state FCA case, or were aware of a qui tam action 288 Compare the responses to questions 2, 3, 4, and 5 of the Questionnaire, as presented in the Summary table on the preceding pages.

65 involving one of their highway or bridge pro- jects.289 By contrast, state DOT responses to the ques- tionnaire indicated that 14 state DOTs out of the 31 responding, or 45.2 percent, had initiated or were aware of federal criminal investigations of false claims or fraud on their projects; 13 state DOTs, or 41.9 percent, had undertaken state or local debarment, suspension, or determination of bidder non-responsibility; 12 state DOTs, or 38.7 percent, had exchanged information with other agencies regarding allegations of false claims or fraud; 12 state DOTs, or 38.7 percent, had nego- tiated settlements of civil litigation arising from false claims or fraud; 10 state DOTs, or 32.3 per- cent, had negotiated administrative resolutions to false claims matters under contractual provisions; and 9 state DOTs, or 29.0 percent, had referred false claims or fraud for state or municipal criminal investigations. Each of those categories of remedy showed greater utilization than all three categories of federal, state and qui tam FCA ac- tions combined.290 The pursuit of civil false claims remedies was, however, roughly equivalent to three other cate- gories of remedy. Of the 31 responding state DOTs, 8 DOTs, or 25.8 percent, had pursued federal de- barments, suspensions, or determinations of nonresponsibility; 8 state DOTs, or 25.8 percent, had terminated contractors or pursued other contractual remedies for false claims; and 7 state DOTs, or 22.6 percent, had commenced civil litiga- tion other than an FCA action. The preliminary results of the written survey thus raised some interesting questions about why State DOTs are not making greater use of the Federal FCA or state FCAs, and why state DOTs make much greater use of other remedies. The authors of this digest pursued these and other related issues through targeted telephone interviews with officials of selected state DOTs and through in-person interviews with selected national experts, as discussed below. C. Targeted Telephone Interviews with Officials of 18 Selected State DOTs 1) Targeting process—The authors of this digest reviewed the initial responses to the written sur- vey to identify State DOTs that indicated that they had implemented false claims or other fraud prevention or detection programs or measures appearing to merit further inquiry. This resulted in the selection of 15 state DOTs for telephone in- terviews to follow up in greater detail on selected issues: Connecticut, Idaho, Illinois, Kansas, Min- nesota, Mississippi, Missouri, Ohio, Oklahoma, 289 Id. 290 See responses to question 5(d) of the Question- naire, as presented in the Summary table. Oregon, Pennsylvania, Texas, Utah, Wisconsin, and Virginia. The authors were successful in con- ducting telephone interviews with officials of these 15 states. In addition to the telephone inter- views, personal meetings on false claims were conducted with officials of three additional state DOTs: California, New York, and Massachusetts. 2) Questions asked—To standardize these inter- views, the authors prepared a list of follow-up questions, which were too lengthy to present here. The individual follow-up telephone inter- views were lengthy. The topics covered during these interviews are described in Section XIV of this digest. 3) Results—The results of the targeted tele- phone interviews with officials of 18 selected state DOTs are presented in Section XVI of this Digest. D. In-Person and Telephone Interviews with Nationally-Recognized Experts In addition to the written survey of the 50 state DOTs and the targeted interviews with officials of 18 selected state DOTs, the authors of this digest interviewed a selected group of nation- ally-recognized experts in FCA litigation and related fields. The authors conducted direct in- person interviews with most of these experts, and a telephone interview with one expert. 1) Experts interviewed—The following experts were selected, for the indicated reasons: • Omer Poirier, Chief Counsel, and William Owens, a Special Assistant, with the USDOT OIG national headquarters in Washington, D.C. • Peter J. Plocki, Deputy Assistant General Counsel, and Thomas F. Mahoney, a Senior Attor- ney, with the Office of General Counsel of the USDOT Office of the Secretary of Transportation. • Thomas Lehrich, Assistant Chief Counsel of the Transportation Security Administration of the U.S. Department of Homeland Security in Wash- ington, D.C., and former Chief Counsel of the USDOT OIG. • Neil Getnick, President of the IAIPSIGs, the International Association of Independent Private Sector Inspectors General (IPSIGs), a partner in the law firm of Getnick & Getnick, and Chairman of Taxpayers Against Fraud, a nationally- recognized false claims civil litigator and expert on false claims litigation. • Thomas Day "Toby" Thacher of Thacher Asso- ciates, a firm in New York City providing IPSIG services, project monitoring, and corporate security services. Mr. Thacher, a former prosecutor of or- ganized crime activities in the construction indus- try, and former IG of the New York City School Construction Authority (SCA), is a national leader in pioneering the IPSIG concept. • Steven A. Pasichow, Assistant Director of In- vestigations for the OIG of the Port Authority of