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

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66 New York and New Jersey (PANYNJ), who among other things has worked on measures to prevent false claims and fraud in the cleanup and recon- struction of the site of the former World Trade Cen- ter. • Patrick Burns, the Director of Communica- tions, and Cleveland Lawrence Ill, the Director of Legal Education, of the Taxpayers Against Fraud Education Fund, a group based in Washington, D.C. which focuses on the use of the Federal FCA and state FCAs to address false claims and fraud by pharmaceutical companies and manufacturers against the Medicaid program, and on other com- parable uses of those statutes. • Chris Rosetti of the Fraud Investigation Unit of BST, an auditing and management consulting firm in Albany, New York. • Vincent L. DiCianni of Affiliated Monitors, a firm in Boston, Massachusetts, specializing in pro- viding IPSIG and project monitoring services. • Dan Near, Assistant Counsel of the California DOT (Caltrans), September 8, 2009. • Larry Raskin, California Office of AG, Septem- ber 8, 2009. • Robert Reagan, Los Angeles County Attorney, September 10, 2009. • Charles D. Rennick, Massachusetts DOT, No- vember 23, 2009. • Matt Connolly, Assistant Attorney General, Massachusetts Office of the AG, November 23, 2009. • Janice A. Mclachlan and Al Maiwald, attor- neys, New York State DOT Division of Legal Af- fairs, November 2009. 2) Description of interviews—All but one of these interviews were conducted in person by the authors of this digest. The sole exception was the interview with Mr. Getnick, which was conducted by tele- phone due to his exceptionally busy schedule. The interviews typically lasted between 45 minutes and 2 hours. While all of these interviews included dis- cussion of the Federal FCA Act and related issues, the other topics discussed varied depending upon the specific areas of expertise of those being inter- viewed. 3) Results—The authors of this digest considered the results of these interviews to be among the most valuable benefits of this project. These experts provided significant insights into the reasons why the FCA is utilized less than other remedies for false claims and fraud on highway and bridge pro- jects. They described administrative efforts under- taken by USDOT and DOJ to protect federal-aid transportation projects from false claims and fraud. They also recommended a variety of methods for detecting, preventing, and deterring false claims and other forms of waste, fraud, and abuse. The results of these interviews are presented in Section XVII of this digest, specifically in the discussions of lessons learned and recommended practices. SECTION XVI. SITE VISITS: DISCUSSION TOPICS ON PREVENTION AND REMEDIATION FOR IN-DEPTH PERSONAL INTERVIEWS WITH KNOWLEDGEABLE EXPERTS As indicated in Section XV(a), (b), and (c) of this digest, the research process for this study included a written survey of state DOTs in all 50 states that elicited 31 responses, and targeted tele- phone interviews with officials of 16 selected State DOTs, to follow up in more detail based on the results of the written survey. In particular, we used the initial responses to the written survey to identify state DOTs that indicated that they had implemented, or were in the process of implement- ing, administrative measures to detect, prevent, or deter false claims and fraud on capital construction projects, so that we could inquire further into the experiences of state DOTs in carrying out such measures.291 The focus and results of those in-depth 291 Personal meeting with representatives from: Cali- fornia Department of Transportation, Dan Near, Vernon Jones, Sept. 8, 2009, Assistant Counsel; Califor- nia Office of Attorney General, Larry Raskin, Sept. 8, 2009; Los Angeles County Attorney, Robert Reagan, Sept. 10, 2009; David Polinsky, Esq., Sept. 9, 2009; Toby Thacher, Thacher Associates LLC; Port Authority of NY & NJ OIG, Steven Pasichow; Matt Connelly, Massachu- setts Attorney General Office, Nov. 2009, NYSDOT Di- vision of Legal Affairs, Jan McLachlan, Associate At- torney and Al Maiwald, Nov. 4, 2009; Charles Rennick, Massachussetts DOT, Nov. 23, 2009; Vincent L. Di- Cianni, Affiliated Monitors, Boston, Mass., Feb. 25, 2010; and telephone discussions with: Connecticut DOT, Claims Coordinator, Feb. 18, 2010, and James Con- nery, Principal Engineer, Mar. 1, 2010; Kansas DOT, Susan Darling, Assistant Bureau Chief, Feb. 24, 2010; Idaho Agency of Transportation, John Gates, Claims Engineer, Feb. 2010; Illinois DOT, Mike Renner, Acting Engineer of Construction, Mar. 2, 2010; Minnesota DOT, Mike Leegard, Construction Support, Claims En- gineer, Mar. 12, 2010; Mississippi AG office, Roy Tipton, Chief Counsel, Special Assistant AG, Mar. 1, 2010; Missouri DOT, Misty Volkmi, Investigations Manager, Mar. 5, 2010; Ohio Department of Transportation, Pam Clawson, Claims Coordinator; Oregon DOT, Bob Pappe, Contract Administration Engineer, Mar. 2, 2010; Okla- homa DOT, Norman Hill, General Counsel, Mar. 11, 2010, Pennsylvania DOT, John Robinson, Assistant Chief Counsel, Feb. 19, 2010; Texas Department of Transportation, Ken Barnett, Director of Construction Section, and Roxanna Garcia Zinsmeyer, Contract Admin. & Claims Board, Mar. 5, 2010; Virginia DOT; Utah DOT, Kris Peterson, Director of Construc- tion/Materials, Mar. 10, 2010, and Bryon Coburn, State Construction Engineer, Mar. 3, 2010; Wisconsin DOT, Jim Thiel, Counsel, Mar. 1, 2010; Charles D. Rennick, Massachusetts DOT, Nov. 2009; and Matt Connolly,

67 telephone interviews with state DOTs are de- scribed below. Not all states were able to respond to all areas of our inquiry. Also, as indicated in Section XV(d) of this di- gest, the research process for this study included in-person interviews with nationally-recognized experts in Boston, California, the New York City metropolitan area, and Washington, D.C. In speak- ing with these experts, we focused primarily on two general areas: aspects of FCA litigation, including experts' views on the reasons for the relatively limited utilization of the FCA to pursue recover- ies arising from highway and bridge projects; and promising practices that appeared worth consid- eration by state DOTs for potential adoption as added measures to detect, prevent, or deter false claims and fraud on capital construction projects. The results of the in-depth interviews with the 16 selected state DOTs indicated that these DOTs have implemented, or are currently implementing, the following false claims measures. A. Specific New Measures or Programs to Prevent, Identify, or Detect Actual or Potential False Claims • California—Considering legislation to amend California FCA. • Connecticut—Audit of claim damages. • Kansas—Review claims in detail. • Idaho—Claim certification. • Minnesota—Expand use of auditor investiga- tions. • Mississippi—Attend fraud training. • Missouri—New contract language for bidding. • Maryland—New claim specification. • New York—Preparing new certification provi- sion. • Ohio—New certification forms for payment es- timates and final payment. • Oklahoma—Continued enforcement of existing practices. • Oregon—Change claim format, more specific records required. • Pennsylvania—New equal employment oppor- tunity (EEO) and DBE requirements. • Utah—Enhanced claim review. • Virginia—New contract provisions about false claims, set up anti-trust group, certification changed. • Wisconsin—Computer program for red flags. B. Methods of Identifying Actual and Possible False Claims The targeted state DOTs indicated that they identify actual and possible false claims by receiv- ing information and complaints from whistleblow- Assistant Attorney General, Massachusetts Office of the Attorney General, Nov. 23, 2009. ers, and complaints from disgruntled underpaid workers, unsuccessful bidders alleging bid-rigging, and unpaid or underpaid suppliers and subcontrac- tors; through information obtained from project resident engineers and inspectors conducting on- site inspections; from reports from hotlines, claims engineers, and other main office personnel review- ing claims and comparing claimed quantities and measurements with state records; by discovering information during state audit reviews; and by re- viewing information obtained through pre-trial discovery in claims litigation; and by accident (de- fects found after traffic accident). Specific state DOTs noted the following: C. False Claims Issues • California—Buy America, false certification, duplicate billings. • Connecticut—False requests for contract ad- justments. • Idaho—False test results. • Illinois—False force account submittals, false certifications on asphalt tickets. • Kansas—Overstated costs. • Minnesota—Inflated claims, altered documen- tation. • Mississippi—Hourly wage issues on force ac- counts versus certified payroll; false statements that subcontractor was paid; overcharging inflated equipment costs. • Missouri—False asphalt cores, overstated work. • Ohio—DBE front, EEO, and DBE cases; false payroll records. • Oklahoma—Material substitutions, DBEs, de- fective and substandard work. • Oregon—False requests for extra compensation due to owner caused delay; false, doctored, and in- flated invoices. • Pennsylvania—DBE fronts, false invoices. • Texas—Substitution of used material for new, labor problems, false invoices as to subcontractor payments; false payroll. • Utah—False certifications, supply of rejected material, faulty materials. • Wisconsin—DBE fraud, bid rigging, wage-rate cases, false seeding quantities, falsification of re- cords—truck weights. D. Notification of USDOT IG, DOJ, FBI, and/or State AG State DOTs indicated they utilize an informal process and do notify appropriate authorities either directly or through counsel's office. E. Use of Certification of Claim Clause • Claim certification forms have been adopted in use in California, Idaho, Illinois, Minnesota, Ohio, Oregon, Oklahoma, Virginia, New York, and Texas.

68 • Claim certification is not in use in Connecticut, Kansas, Mississippi, Wisconsin, and Pennsylvania. • Utah requires a general letter as to truth and accuracy of claim but no formal certification. F. Administrative Action No specific false claim procedure except for Cali- fornia, which requires that all claims be analyzed by attorneys for potential false claim exposure. G. Audits and Fraud Checklists—Things to Watch for and Red Flags Related to Particular Types of Suspected False Claims None specific to false claims and fraud except for Missouri, which used the USDOT OIG and DOJ Antitrust Division "Red Flag" lists, attached as Ap- pendices B and C to this digest. H. Procurement: Disclose Requirements for Bidder Disclosure of Ownership, Management, Affiliations, and Conflict of Interest • Connecticut, Illinois, Oregon, Pennsylvania, Virginia, Wisconsin, New York, and Texas require disclosure of affiliations, management, ownership, and conflict of interest. • Kansas, Mississippi, Ohio, Utah, and Okla- homa require disclosure of affiliation management and ownership. • Idaho does not require such disclosure. • Mississippi requires conflict disclosure on con- sultants only. I. Disclosure of False Claim Violations and Criminal Convictions or Indictments • Connecticut, Illinois, Ohio, Pennsylvania, Vir- ginia, Utah, and Wisconsin require disclosure of criminal convictions or indictments. • Texas and Utah require disclosure of indict- ments, convictions, or civil judgments of fraud. • Texas is the only targeted state that requires disclosure of false claim violations. • Kansas, Mississippi, Oregon, and Oklahoma do not require such disclosure. J. False Claims Effects on Bidder Responsibility Determinations and Bid Qualification Procedures No requirement to disclose false claim violations were found in any of the states contacted in this part of the research. In Caltrans, a low bidder on a major project had been found by a lower court to have violated the California FCA; the decision of the lower court was appealed, and, after meeting with the contractor, Caltrans subsequently awarded the contract. K. Construction Administration—Quality Control Procedures All states indicated they exercise due diligence in award of contracts, have independent testing pro- grams, and have quality control and quality assur- ance procedures. L. Sharing Information—Ongoing Interagency Coordination and Exchanges of Information New York State DOT has a formal process while other DOTs have informal arrangements with other public agencies and states. M. Training Activities and Educational Programs Many state DOTs have acknowledged receiving USDOT OIG ARRA fraud awareness training. A number have also conducted in-house contract ad- ministration training for their own personnel, in- cluding coverage of false claims and fraud. N. Use of Contractor Compliance Programs Illinois and Wisconsin have incorporated a com- pliance program into settlement agreements. Texas is developing a program for all contractors to have a code of business conduct and a compliance pro- gram. The Code of Business Conduct is not yet fi- nal, and is in discussion with the Associated Con- tractors of Texas. O. Use of Code of Business Ethics and Conduct Wisconsin has required a compliance program as part of a settlement. Pennsylvania has required a code of business conduct as part of the settlement of a DBE case. P. Quantification of Damages Wisconsin has analyzed the loss of useful life of bridge structure due to defective contractor per- formance and recovered the cost of repair and addi- tional inspection. In Texas, a contractor has paid to repair his defective work. Aside from these exam- ples, no extensive experience was found with dam- age recovery. Q. Use of Liquidated Damages No state DOT appears to have used liquidated damages to deter or prevent false claims. R. Use of Set-Off Provisions Wisconsin has used an equitable right to set-off in one false claim dispute. No state DOT, however, appears to have incorporated set-off provisions in its standard contract terms and conditions to au- thorize setting off the cost of false claim investiga- tions.