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69 S. Reduction of Bonding Capacity Kansas and Texas have reduced contractors' bonding capacity. T. Debarment and Suspension for False Claims or Fraud State DOTs have made widespread use of state debarment and suspensions. See Section XV of this digest for the nationwide results in this area. U. Use of IPSIGs While state DOTs do not currently appear to be using IPSIGs, PANYNJ is currently using IPSIGs in the New York City metropolitan area for recon- struction of the World Trade Center Hub; see Sec- tion XVII of this digest. V. Corporate Ombudsman None are in use by any of the DOTs that have been contacted. W. Bid Review Committee None are in use by any of the DOTs that have been contacted. X. Use of Model Forms and References No model forms have been found. Caltrans util- izes an in-house form for legal counsel to analyze potential false claim exposure. Y. Role of State Transportation Agency in Enforcement of State Criminal Statutes All contacted state DOTs refer potential or ac- tual false claims or fraud matters to counsel and appropriate investigative agencies for further action. Z. Alternate Methods of False Claim Dispute Resolution While negotiation appears to be the most popular form of alternate dispute resolution, mediation has also been used in Oregon, Oklahoma, and Wiscon- sin, and California has used arbitration in resolv- ing false claims. 1. Complaints about Owners' Abuse of FCA No acknowledged owner abuses of the false claims process were discovered in any of the tar- geted interviews with state DOTs. 2. Dedicated Recovery of Funds As discussed in Section XIII of this digest, certain states have enacted state FCAs that include spe- cific provisions regarding the return of actual dam- ages to defrauded agencies or the deposit of recov- eries into special funds for supporting the costs of ongoing false claims investigations and prosecu- tions. Interestingly, however, none of the state DOTs we interviewed indicated awareness of any dedi- cated repository of funds recovered for false claims, except that certain DOTs expressed belief that their states would return any recovered funds back to their state transportation fund. 3. Use of Dedicated Telephone Hotline to Report False Claims Fraud or Abuse ⢠Connecticut, Pennsylvania, Utah, Virginia, and Wisconsin have hotlines. ⢠Kansas, Mississippi, Oregon, Oklahoma, and Minnesota do not use hotlines. ⢠Illinois relies on FHWA's hotline. ⢠Ohio uses a hotline on ARRA-funded projects. 4. Use of Auditors in False Claim Cases Connecticut, Idaho, Illinois, Minnesota, Missis- sippi, Oregon, Virginia, and Wisconsin have audi- tors on staff or use consultants to review construc- tion claims. Texas has a dedicated claims unit and does not use auditors to review claims, since re- views are performed by claims engineers. Ohio and Pennsylvania use claims consultants. Kansas, how- ever, does not use any auditors, claims engineers, or consultants in reviewing construction claims. SECTION XVII. REPORT ON SITE VISITS, PROMISING PRACTICES FOR PREVENTION AND REMEDIATION, AND LESSONS LEARNED A. Identification of False Claims The results of the survey of State DOTs, in-depth telephone interviews with selected state DOTs, and interviews with experts undertaken in the prepara- tion of this digest indicate that state DOTs become aware of false claims or other fraud on highway and bridge projects in a variety of ways. An agency's construction engineers and inspectors may identify construction problems in the field or while reviewing contractors' requests for change orders. An agency may receive a confidential allegation regarding a false claim through a call to an IGâs telephone hotline. An agency may receive com- plaints from disgruntled contractor employees, whistleblowers, or other contractors, subcontrac- tors, or suppliers. False claims may be discovered during an agency's in-depth review of a claim sub- mitted by a contractor. False claims or other fraud may be identified by an agency's contract payments staff, claims engineers, contract auditors, or D/M/WBE compliance staff through voucher re- views, contract audits, or other reviews of program expenditures. In some cases, false claims may be identified by a state DOT's in-house counsel, pri- vate counsel, or claims consultants, or by claims litigators in a state AGâs office while analyzing the complaint filed by a contractor in contract claims
70 litigation or through litigation discovery. It appears that the detection of false claims and fraud would benefit from clear administrative procedures, ongo- ing staff training, and timely and diligent review of submittals in each of those areas. B. State Approaches to Investigating Potential or Actual False Claims It appears that state DOTs address potential false claims most often in reviewing a contractor's submission of a claim during the administration of an active contract or at the contract close-out stage. Approaches to investigating false claims, once iden- tified, range from using audit and construction en- gineering staff, or in-house claim engineers, to us- ing claim consultants or experts to assist in the discovery process in connection with defending claims litigation. The results of our interviews indi- cate that it is rare, however, for state DOTs to have formal written standards or procedures to review and investigate for false claims during the process of reviewing a contractor's claim. C. Methods of False Claims Dispute Resolution The most popular form of dispute resolution ap- pears to be negotiation. In California, some cases have been referred to mediation. D. False Claims Abuses Public owners that we have spoken with have heard complaints of false claim abuses by owners but have never been furnished any specific in- stances. E. Summary of False Claims Cases Results of our research indicate that most false claim cases encountered by state highway agencies involve DBE fronts, false certification, wage rate and hour violations, inflated invoices, false certifi- cation of quantities, falsification of materials qual- ity test results, bid-rigging, Buy America violations, overstated costs, and false requests for extra com- pensation. F. Lessons Learned As indicated in Section XV(b) of this digest, one of the clearest and most striking findings emerg- ing from this project's survey of state DOTs was that, while many state DOTs report having ex- perienced problems with false claims or fraud on highway or bridge projects, and agencies have pursued a large number of other criminal and civil remedies, state DOTs have made only very limited use of either the Federal FCA or state FCAs to seek civil recovery of damages for false claims or fraud on highway or bridge construc- tion projects. There has also been a relatively lim- ited number of qui tam FCA lawsuits involving highway and bridge projects. Section XV(b) pre- sents detailed data on the answers to specific sur- vey questions, and the percentages of state DOTs experiencing problems, using other remedies, or pursuing FCA recoveries. Why has the utilization of Federal FCA, state FCA, and private qui tam actions been so mod- est in the highway and bridge construction in- dustry? We put that question to the nationally recognized experts whom we interviewed in ad- dition to state DOT officials. Section XV(d) of this digest lists the experts we interviewed regarding this and related issues. The answers offered some significant insights, not only into past utilization of FCA remedies, but also into potential limita- tions of future utilization of FCA remedies in the highway and bridge construction industry. These insights may be summarized as follows. 1. Prosecutorial unfamiliarity. Decisions about what statutes to use in handling false claims mat- ters are often made by Assistant U.S. Attorneys or others in the Criminal Division of the DOJ (or by their counterparts in the offices of state AGs), rather than by transportation officials. They are often more familiar and comfortable with mail fraud, wire fraud, RICO, or other criminal stat- utes, the bread and butter of federal prosecutors, than with the civil FCA, which is a less familiar statute from the perspective of federal and state prosecutors targeting criminal fraud, organized crime activity, and bid-rigging in the highway and bridge construction industry. Closely similar comments to this effect were offered by a num- ber of the experts we interviewed. These in- cluded Neil Getnick, an attorney who has litigated major FCA cases involving the pharmaceutical industry and is a leading official of both the In- ternational Association of IPSIGs and Taxpayers Against Fraud;292 Thomas D. "Toby" Thacher II of Thacher Associates, a former prosecutor with the New York State Organized Crime Task Force, a former IG of the New York City SCA, and a pio- neer in the use of IPSIGs;293 Omer Poirier, the General Counsel, and William Owens, a Special Assistant, of the USDOT OIG;294 attorneys Peter J. 292 Telephone interview with Neil Getnick, Presi- dent of the International Association of Independent Private Sector Inspectors General, Chairman of Tax- payers Against Fraud, and Partner in the law firm of Getnick & Getnick (Jan. 29, 2010) 293 Interview with Thomas D. "Toby" Thacher II, a Principal of Thacher Associates LLC, a private firm that has helped to pioneer the IPSIG concept, former head of the Construction Industry Group of the New York State Organized Crime Task Force, and former Inspector General of the New York City School Con- struction Authority, in New York, N.Y. (Nov. 7, 2009). 294 Interview with Omer Poirier, General Counsel of the Office of Inspector General (OIG) of the U.S. Department of Transportation (USDOT), and William
71 Plocki and Thomas F. Mahoney of USDOT's Office of the Secretary of Transportation, who are di- rectly and actively involved in working on civil FCA cases filed by the DOJ on behalf of USDOT;295 Steven Pasichow, a manager of investigations in the Office of IG of the PANYNJ, a major multi- state public authority, who has worked on a number of major cases involving fraud against gov- ernment programs and projects;296 and Patrick Burns, Director of Communications, and Cleveland Lawrence Ill, Director of Legal Education, of the Taxpayers Against Fraud Education Fund.297 2. Industry-specific risks to whistleblowers. Sev- eral of the experts we interviewed, including Neil Getnick, Toby Thacher, Patrick Burns, and Cleve- land Lawrence III,298 indicated that, as a practical consideration, it is harder to build an FCA case involving highway projects than other types of fraud. This is because whistleblowers in the high- way and bridge construction industry, particularly blue-collar construction workers, face much greater risks and hardships than whistleblowers in other industries such as white-collar office workers in the pharmaceutical industry, including physical threats from contractors with criminal connections in some parts of the country, risks of being perma- nently blackballed from any future employment in the construction industry, and the near certainty of being unemployed while facing years of litigation delays in obtaining any FCA recoveries. 3. Industry-specific complexity of proof and lim- ited damages. The FCA litigation process is less amenable to the types of claims and evidence aris- ing from highway and bridge projects than it is to the types of claims involved in Medicaid fraud Owens, Special Assistant in the USDOT OIG Investi- gations unit, in Washington, D.C. (Dec. 1, 2009). Mr. Poirier is one of the officials appearing in the USDOT OIG's training video on False Statements and Claims, see note 82 supra. 295 Interview with Peter J. Plocki, Deputy Assistant General Counsel, and Thomas F. Mahoney, a Senior Attorney, of the Office of General Counsel of the USDOT Office of the Secretary of Transportation, in Washington, D.C., Dec. 2, 2009. 296 Interview with Steven A. Pasichow, Assistant In- spector General and Assistant Director of Investigations of the Office of Inspector General of the Port Author- ity of New York and New Jersey (PANYNJ), former Assistant Commissioner with the New York City De- partment of Investigation and former Inspector Gen- eral for multiple major New York City agencies, in Hoboken, N.J. (Jan. 27, 2010). 297 Interview with Patrick Burns, the Director of Communications, and Cleveland Lawrence III, the Di- rector of Legal Education, of the Taxpayers Against Fraud Education Fund, an organization involved in False Claims Act matters, in Washington, D.C. (Dec. 3, 2009). 298 See notes 292, 293, and 297, supra. cases. Neil Getnick, an experienced false claims litigator, explained to us that attorneys who repre- sent qui tam relators in FCA litigation view this from a business perspective and look for cases pre- senting multiple, repetitive instances of readily definable and discernable fraudulent practices, each separate instance of which has a financial impact and generates calculable damages. Such cases, typical of Medicaid false claims cases involv- ing the pharmaceutical industry, are amenable to proving a large number of violations and a large volume of cumulative damages efficiently. By contrast, Mr. Getnick said, highway and bridge false claims and fraud cases typically involve spe- cific situations with complex facts, rather than large-volume repetitions of simple but recurrent frauds. Proving liability is much harder in high- way cases than in Medicaid cases: each separate fraud is different, must be independently proven, and involves only limited damages.299 4. Caution in joining qui tam actions. When qui tam actions arise, the DOJ usually takes a watch and wait approach before deciding whether to intervene. That decision is critical: Patrick Burns and Cleveland Lawrence III of Taxpayers Against Fraud indicate that, of those cases where DOJ decides not to intervene, only about 5 per- cent are successful, and the other 95 percent are unsuccessful. A government decision not to inter- vene may thus be fatal to a qui tam action, and this may possibly be a factor limiting the num- ber of qui tam FCA actions in highway cases.300 G. Qui Tam Litigation Little evidence of qui tam litigation was dis- covered on the state level. As indicated by the responses to question 5(b) of the survey reported in Section XV of this digest, only five state DOTs reported being aware of any qui tam actions in- volving their projects, and they reported a cumu- lative total for all 5 states of 13 or fewer qui tam cases among them. The reasons for this seem apparent in light of the comments offered by the experts we interviewed, as discussed above. H. Promising Practices Derived from Research and Interviews 1. Require Consultants and Contractors to Establish Code of Conduct and Business Ethics Compliance Programs, Including Internal Controls This promising practice was recommended by a number of the experts we interviewed, including Toby Thacher,301 Omer Poirier,302 Peter Plocki,303 299 See note 292, supra. 300 See note 297, supra. 301 See note 293, supra. 302 See note 294, supra.
72 Patrick Burns and Cleveland Lawrence III,304 and Steven Pasichow,305 as well as Chris Rosetti of BST, a management consulting and accounting firm.306 In distributing public funds, state DOTs should review contractors' records of integrity and business ethics in making responsibility de- terminations or bid qualification decisions. The new FAR regulations discussed in Section IV of this digest now require all federal contractors to adopt a Code of Business Ethics and Compliance including an internal control system, which should be given active consideration by transportation agencies. As government commits billions of dol- lars in public construction funding, focusing de- cision-making on business integrity can help prevent false claims, fraud, waste, and abuse, and protect the public trust. Requiring contrac- tors to implement such controls would bring them into conformance with the Federal FAR pro- curement regulations, and protect them as well as the public. Compliance programs conform to U.S Sentencing Commission guidance on effective compliance and ethics program for organizations, and should assist contractors subject to the Sarbanes-Oxley Act of 2002 in fulfilling their responsibilities under the Act.307 Compliance programs would provide for internal controls such as a hotline for anonymity and confi- dentiality, placement of responsibility for correc- tive actions at a high level within a contractor's management structure, continuous rather than isolated educational components, corporate com- pliance elements, periodic review of business practices, and procedures for enforcement through disciplinary actions. Requiring a code of business ethic and conduct and ethic compliance program is frequently in- corporated into settlements of false claim actions, and debarment and suspension settlements. Rather than reacting to potential contractor responsibility concerns once a bid from a problem firm is received, we recommend that considera- tion be given to adopting a proactive approach and requiring these elements to be included in the normal contract provisions used by state DOTs, especially for large transportation pro- jects. Transportation agencies should consider whether individual state legislation might be re- quired prior to adopting such requirements. Agencies with existing authority to establish their own specifications for construction contracts 303 See note 295, supra. 304 See note 297, supra. 305 See note 296, supra. 306 Interview with Chris Rosetti of BST, in Albany, N.Y. (Nov. 2, 2009). 307 73 Fed. Reg. 67067 (Nov. 12, 2008). should also consider modifying existing contract provisions to require contractors to adopt a code of business conduct and an internal control system as tools to remedy and prevent false claims, fraud, and abuse. The results of our in-depth telephone interviews with state DOTs indicate that no state has adopted such requirements to date, although Texas DOT is in the process of implementing similar requirements. 2. Require Disclosure of False Claims for Prequalification and Responsibility Review This promising practice was recommended by Steven Pasichow of the PANYNJ,308 and by Chris Rosetti of BST.309 To assist public transportation owners in making informed decisions on the qualifications and re- sponsibility of potential contractors, consideration should be given to requiring contractors to disclose violations of false claim statutes, in addition to criminal violations, affiliations, and potential con- flicts of interest that may already be disclosed. Dis- closures of fraud, conflicts of interest, bribery, unlawful gratuities, and civil violation of FCAs are also required by the new FAR regulations discussed in Section IV of this digest. Based upon in-depth interviews with officials of selected state DOTs, we have concluded that most state DOTs do require disclosure of criminal indictments and convictions, but do not require disclosure of FCA violations. State highway agencies administer disclo- sure requirements in varying ways. Some states rely on their prequalification process, while others rely on information obtained through case-by-case bid responsibility determinations. Some agencies rely on standard bid certifications to certify in the contractor's bid submission that he or she has not ââ¦within 3 years, been convicted of or had a civil judgment rendered against them for commission of fraud or a criminal offense in connection with ob- taining or performing a public (Federal, State or local transaction or contractâ¦or commission ofâ¦bribery, falsification or destruction of records, making false statementsâ¦."310 Our research has found no specific reference to state FCA statutes in state certification forms. Illustrative of this is: ⢠Illinois DOT certification requires numerous assurances that the bidder is not a convicted felon, has no conflict of interest pursuant to the Illinois Procurement Code, and has no conviction of bribery or bid rigging/bid rotating, but does not include any mention of civil false claims. ⢠PANYNJ certification requires certification that the bidder has not "had any sanctions imposed 308 See note 296, supra. 309 See note 306, supra. 310 Mississippi Department of Transportation Certi- fication.
73 as a result of a judicial or administrative proceed- ing related to fraud, extortion, bribery, bid rigging, embezzlement, misrepresentation or anti-trust re- gardless of the dollar amount of the sanctions,"311 but is silent as to false claim violations. Further research on a contractor's background should be conducted, to include reviews utilizing Google, Dun & Bradstreet, and Lexis/Nexis searches for any indications of problems raising responsibility issues. This type of research pro- motes integrity. It also lets contractors know that the construction agencies are examining their backgrounds, and could thus serve as a potential deterrent for false claims, waste, fraud, and abuse. In addition to requiring false claim disclosure, agencies should also consider requiring bidders and contractors to disclose conflicts of interest (if not already required) so as to avoid and minimize con- flict situations that might jeopardize the public trust. 3. Use IPSIGs or Monitors to Protect the Public Trust The New York City metropolitan area has seen the birth of a concept and practice known as IP- SIGs. According to the International Association of IPSIGs, an IPSIG is an independent, private-sector firm with legal, auditing, investigative, manage- ment, and loss-prevention skills, employed by an organization to ensure compliance with relevant law and regulations, and to deter, prevent, uncover, and report unethical and illegal conduct by, within, and against an organization.312 History of IPSIGs.âThe IPSIG's role is pat- terned after the Federal IGs created by the In- spector General Act of 1978, which assigned IGs to each of the federal agencies and tasked them with preventing waste, fraud, and abuse.313 In 1990, the New York State Organized Crime Task Force Final Report on Corruption and Racketeer- ing in the New York City Construction Industry raised the idea of adapting the IG concept to government contractors to prevent fraud on pub- lic construction projects.314 IPSIGs were later 311 Port Authority Contractor's Integrity Provisions- Bids, PA2764A/02-09. 312 See IAIPSIG Code of Ethics, available at http://www.iaipsig.org/ethics.html (last accessed June 16, 2010). 313 James B. Jacobs & Ronald Goldstock, Monitors & IPSIGS: Emergence of a New Criminal Justice Role, CRIMINAL LAW BULLETIN, vol. 43, no. 2, available online at http://www.iaipsig.org/Criminal Law Bulletin - James Jacobs Ronald Goldstock Article.pdf (last ac- cessed July 6, 201 0). 314 NEW YORK STATE ORGANIZED CRIME TASK FORCE, FINAL REPORT ON CORRUPTION AND RACKETEERING IN THE NEW YORK CITY CONSTRUCTION INDUSTRY (1990). adopted by the New York City SCA, established in the wake of that report, for billions of dollars of New York City school construction. "Contractors who faced debarment from govern- ment contracts on integrity grounds could nonethe- less be awarded contracts if they retained an IPSIG that would report to the SCAâ¦"315 Other public authorities and New York City agencies adopted the use of IPSIGs thereafter. Imposing an IPSIG as a Condition for Public Contracts: Use of Monitoring Agreements.âIn New York City, when contractors or vendors have been found "nonresponsible" for bidding public con- tracts, individual city agencies have given them an opportunity to demonstrate their restored in- tegrity by negotiating and entering into a compli- ance agreement providing for an IPSIG, which the subject company retains at its own expense.316 A standard IPSIG agreement of this type requires the contractor to provide the IPSIG with com- plete access to its books, records, personnel and operations. The IPSIG maintains a 24- hour hot- line used by employees or others to report wrong- doing affecting the contractor. All IPSIG findings are reported directly to the New York City De- partment of Investigation, which supervises the implementation of the monitoring agreement and works with the IPSIG to develop and implement a strict code of business ethics, as well as a cor- ruption prevention program. In addition, the con- tractor must agree to have its personnel undergo an ethics training program. Should the contractor default under the monitoring agreement, the city may declare the contractor in default of the agreement.317 Example 1: World Trade Center Debris Removal Contract The changing role of IPSIGs was reflected in the IPSIGs employed on each of the four no-bid $250 million PANYNJ contracts for removal of debris from the site of the former World Trade Center following the September 11, 2001, terrorist attack. Prior to the World Trade Center project, Note that Toby Thacher, one of the experts inter- viewed in the preparation of this digest, was then the prosecutor in charge of the OCTF's Construction In- dustry Group, was one of the principal authors of that ground-breaking report, and one of the first to propose what would become the IPSIG concept. 315 CRIMINAL LAW BULLETIN, supra note 305, at 223. Note that Toby Thacher served as the Inspector Gen- eral of the School Construction Authority for a number of years. 316 Stanley N. Lupkin & Edgar J. Lewandowski, In- dependent Private Inspector General: Privately Funded Overseers of the Public Integrity, 1 0 N.Y. LITIGATOR, 9 (Summer 2005), available online at http://www. iaipsig.org/nylit-newsl-spring05-lewandowki.pdf (last accessed July 6, 201 0). 317 Id. at 9â10.
74 IPSIGs were usually imposed as a condition of doing business where the company's "responsibil- ity" had already been called into question under a "lowest responsible bidder" letting statute.318 On the World Trade Center cleanup project, the role of the IPSIG was changed from rehabilitating a "non- responsible" contractor to preventing waste, fraud, and abuse. The IPSIGs monitored the op- erations of contractors; conducted audits and investigations to ensure compliance with the con- tract and applicable laws; performed on-site in- terviews with subcontractors and suppliers; im- plemented procedures to ensure that all vendors, suppliers, and subcontractors had the necessary integrity and qualifications; and conducted further on-site investigations as necessary.319 The results drew praise from participants and outside ob- servers. There were no scandals or charges of significant corruption. A Staff Report by the House Committee on Management, Integrity and Oversight of the Committee on Homeland Security concluded that: [T]heir deployment [IPSIGs]â¦was an overwhelming success. Private integrity monitors identified a number of contractors with ties to organized crime which were subsequently removed from the site, found trucks cooping [idling] while on the clock, flagged several attempted frauds that were re- ferred for prosecution, recovered $47 million in over- billing by contractors and subcontractors, and saved immeasurably more money by deterring fraud.320 Example 2: PANYNJ Project PANYNJ is now requiring the use of IPSIGs in connection with the World Trade Center Trans- portation Hub project to assist in providing the necessary oversight and monitoring. The purpose of the integrity monitor is to prevent waste, abuse, and corruption; detect it; and if detected, to coordinate with the Port Authority IG on the action to be taken. The Tasks of the IPSIG in- clude conducting reviews of all existing proce- dures and processes for fraud, corruption, cost, abuses, and safety and environmental risks; im- plementing corruption prevention programs; re- viewing the records of the construction manager and general contractor; monitoring and conducting forensic review of project costs; and providing nec- essary forensic auditing and investigative services 318 Id. at 9â14. 319 Id. at 12. 320 Subcommittee on Management, Integration and Oversight of the House Comm. on Homeland Security, Staff. Rep., An Examination of Federal 9/11 Assis- tance to New York: Lessons Learned in Preventing Waste, Fraud, Abuse and Lax Management, Committee Print 109-C, USGPO document no. 29-452 (Aug. 2006), available online at http://www.access.gpo.gov/ congress/house/cp109-c.pdf (last accessed June 16, 2010). as necessary, as directed by the Port Authority's IG. 321 Conformance with Sentencing Guidelines.âThe Federal Sentencing Guidelines, adopted in Novem- ber 1991, are indicative of the standards to which business organizations and their officers are now held. One of the guidelines for sentencing provides for the review of steps taken by the organization to ensure that it has an effective program to pre- vent and detect violations of law.322 Adoption of a monitor conforms to these requirements. Similar monitoring programs are part of admin- istrative settlement and compliance agreements negotiated between the USDOT and contractors to avoid debarment and suspension as authorized by 2 C.F.R. § 1200.635. Typically these agreements may require the contractor to adopt a code of ethics and corporate compliance program. They may pro- vide for the company to retain an independent monitor to oversee implementation of its corporate compliance program. The monitor would submit periodic reports directly to FHWA for 3 years re- garding the contractor's implementation of meas- ures required by the agreement. The adoption of monitors can be a useful tool to prevent waste, fraud, and abuse. A key component of a monitor or IPSIG arrangement is the re- quirement that they be truly independent and not subject to control by the contractor they are supposed to be monitoring. Attention should also be focused on the monitor's adherence to a code of ethics to ensure independence and impartiality. 4. Strengthen Claims Certification Requirements Another tool for state transportation agencies to consider adding to their tool chests for the preven- tion of false claims is to adopt strong certification language requirements to accompany claims or requests for equitable adjustments. Several of the experts we interviewed, including Toby Thacher of Thacher Associates;323 Omer Poirier, General Coun- sel of the USDOT OIG;324 and John F. Terzaken, an attorney with the National Criminal Enforce- ment Section of the Antitrust Division of the DOJ,325 recommended that state transportation agencies consider doing this. 321 Port Authority of NY & NJ, Request for Propos- als, RFP 9392, Feb. 23, 2006. Ch. 2, Scope of Work, at 7, and Exhibit A, at 2â3. 322 Neil Getnick & Leslie Ann Skillen, Structural Reform: The Front Line Fight Against Organized Crime, 1 NY LITIGATOR (Nov. 1995). 323 See note 293, supra. 324 See note 294, supra. 325 Interview with John F. Terzaken, a trial attor- ney with the National Criminal Enforcement Section of the Antitrust Division of the U.S. Department of Justice, in Washington, D.C. (Dec. 3, 2009).
75 A typical certification requires the contractor to certify that: I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief, that the amount requested accurately reflects the contract adjustment for which the contractor believes the department is liable and that I am fully author- ized to certify the claim on behalf of the Contrac- tor.326 Please note that such a certification omits any reference to perjury, false claims violations, or state criminal law. Recently, the Ohio DOT has implemented a cer- tification requirement to be submitted with monthly contract payments. The Ohio DOT certifi- cation provides: Pursuant to C&MS 109.12.D.4, I, , a duly author- ized representative of the Prime Contractor for the Referenced Project, hereby verify based on personal knowledge or reasonable investigation and good faith belief that the Work was performed in accor- dance with the Contract documents as required by C&MS 105.03.327 The Contractor Progress Payment Certification provides: I, , a duly authorized representative of the Prime Contractor for the Referenced Project hereby verify based on personal knowledge or reasonable inves- tigation and good faith belief that all items rep- resented by this estimate were constructed in reasonably close conformity with the Contract documentsâ¦Pursuant to C&MS 109.09 execution of this document by the Contractor acknowledges full, fair and timely compensation for the work represented by this estimate, any exception to the foregoing is listed below.328 In drafting contract provisions, state transpor- tation agencies often refer to the AASHTO Con- struction Guide. The Guide's Specifications for Highway Construction provide an example claim certification that provides: Under penalty of the law for perjury or falsification, the undersigned..... hereby certifies that the claim for extra compensation and time if any made herein for work on this contract is a true state- ment of the actual costs incurred and time sought, and is fully documented and supported under the contract between the parties.329 326 Tit. 43, pt. 1, ch. 9, subch. A, Rule § 9.2 (g)(2)(C), TEX. ADMIN. CODE. 327 Ohio Department of Transportation Form CA-D- 11. 328 Ohio Department of Transportation Form CA-D- 12. 329 American Association of State Highway and Transportation Officials (AASHTO), Guide Specification for Highway Construction 2008, at 33; this can be or- dered from AASHTO online, see https://bookstore. transportation.org/Item_details.aspx?id=1197 (last ac- At Caltrans, the certification provides: Under penalty of law for perjury or falsification and with specific references to the California False Claims Act, Government Code Section 12650 et seq. the undersignedâ¦hereby certifies that the claim for the additional compensation and time if any made herein for the work on this contract is a true statement of the actual costs incurred and times sought and is fully documented and supported under the contract between the parties.330 FHWA's required contract provisions for fed- eral-aid highway construction contracts require that DOTs obtain certain certifications from con- tractors. For example, Section 102-17 of New York State DOTs Standard Specifications of May 1, 2008, requires bidders for federal-aid projects to pro- vide certification, under penalty of perjury, as to their current history regarding suspensions, de- barments, voluntary exclusions, determinations of ineligibility, indictments, convictions, or civil judg- ments required by 49 C.F.R. Part 29. Strengthening the certification to incorporate references to state or federal criminal provisions, false statements acts, perjury, false statements or other relevant criminal laws, and state false claims statutes should also be given consideration to focus serious attention on the certification and help deter and prevent false claims. In addition, strengthening the certification lan- guage to require that it be signed by the CEO, owner, or CFO and include language indicating "that I have reviewed the documents and know the facts and information to be true based upon my personal knowledge and belief," will focus se- rious attention on the certification clause and help prevent and deter false claims. 5. Include Failure to Disclose False Claims Among Grounds for Suspension, Debarment, or Findings of Nonresponsibility As discussed in Section IV of this digest, the fed- eral government has expanded the grounds for sus- pension and debarment to include the knowing failure by a principal to disclose violations of the civil FCA.331 Several of the experts we interviewed, including Omer Poirier, General Counsel of the USDOT OIG, and attorneys Peter J. Plocki and Thomas F. Mahoney of the Office of General Counsel of the USDOT Office of the Secretary of Transportation, suggested that state transportation agencies con- sider adding this to their tool chests to prevent and deter false claims and waste, fraud, and abuse.332 cessed on June 17, 201 0). 330 California Department of Transportation Form CEM-6201, A, B, and C. 331 2 C.F.R. pt. 180. 332 See notes 294 and 295, supra.
76 Faced with a false claim, state transportation agencies should consider commencement of state suspension or debarment or, if appropriate, refer it to the USDOT to initiate federal suspension or de- barment procedures. 6. Training Several of the experts we interviewed, includ- ing Omer Poirier, the General Counsel of the USDOT OIG,333 John F. Terzaken of the DOJ An- titrust Division,334 Patrick Burns and Cleveland Lawrence III of the Taxpayers Against Fraud Education Fund,335 and Chris Rosetti of BST336 concurred in recommending that state DOTs should provide fraud awareness training to em- ployees involved in reviewing bids, responsibility issues, contract awards, construction work, re- quests for payment, requests for orders on con- tracts, construction claims, and compliance with D/M/WBE requirements. Recent training initiatives by the USDOT OIG and the DOJ Antitrust Division provide a useful model. Mr. Poirier said that the OIG, aware of the exposure of stimulus funding to fraud, had gotten out early in training FHWA and state transpor- tation officials about precautions to take on both the front end (contract award) and back end (con- struction oversight and claims review) of the con- struction contracting process.337 As indicated by the responses to Question 9 of the survey pre- sented in Section XV of this digest, at least 17 State DOTs, or more than half of the 31 respond- ing, have been contacted by the OIG and/or the Antitrust Division about such training since January 2009. Mr. Terzaken of the Antitrust Di- vision, who worked with the OIG in organizing and presenting that training, said that those state DOTs that had not already done so could request the DOJ Antitrust Division and the USDOT OIG to provide such training.338 The authors of this digest consider this a prudent step for state DOTs to take. Mr. Poirier and Mr. Terzaken (and also Chris Rosetti of BST) considered it important for state DOTs to train their personnel on "red flag" lists developed by U S DOT and DOJ to help identify bid-rigging, false claims, or fraud affect- ing federal-aid state projects.339 Mr. Poirier fur- ther indicated that the OIG considers active and independent state DOT oversight of the quality of contractors' work through field inspection and 333 See note 294, supra. 334 See note 325, supra. 335 See note 297, supra. 336 See note 306, supra. 337 See note 294, supra. 338 See note 325, supra. 339 See notes 294, 306, and 325, supra. See also Ap- pendices B and C to this digest. materials testing to be important for preventing false claims and fraud.340 Mr. Rosetti of BST noted the need to monitor government personnel as well as contractors. He recommended that state DOTs should be alert to any tip-offs to possible corruption in the behav- ior or lifestyle of engineers and inspectors in- volved in overseeing construction projects, such as individuals with modest salaries appearing to live beyond their means.341 7. Revise State False Claims Statutes to Conform to FERA Patrick Burns and Cleveland Lawrence III of the Taxpayers Against Fraud Education Fund indicated that most of the state false claims stat- utes currently in existence had been modeled on the former version of the Federal FCA, as it ex- isted prior to the FERA amendments to the FCA in 2009.342 They noted that, as state courts inter- preting state false claims statutes tended to look to federal judicial precedents interpreting the Federal FCA, state agencies attempting to seek false claims recoveries under state statutes mod- eled on the former version of the federal statute might be stymied by the federal judicial interpre- tations of the former federal statutory language. They also noted that Congress had clearly in- tended FERA to overturn restrictive interpre- tations of the former version of the FCA by fed- eral courts. The Deficit Reduction Act of 2005 provides fi- nancial incentives for states to enact FCA that establish liability to the state for submission of false or fraudulent claims to the state's Medicaid program.343 If the state's false claims law is de- termined by the OIG, in consultation with the AG of the United States, to meet certain re- quirements, the state is entitled to an increase of 10 percentage po ints in State medical assis- tance percentage. Many States have passed false claims laws that conform to the federal require- ments set forth in 71 Federal Register 48552. Since FERA made significant changes to the FCA, States may be required to get their statutes recertified to conform to the new provisions of FERA that would require enactment of state legislation to conform their statutes to the changes reflected in FERA. Finally, it was sug- gested that those states that brought their state statutes into alignment with the FERA amendments to the Federal FCA might have a greater likelihood of being successful in pursuing 340 See note 294, supra. 341 See note 306, supra. 342 See note 297, supra. 343 See § 6031 of the Deficit Reduction Act of 2005, § 1909 of the Social Security Act, and 42 U.S.C. § 1396h(b).
77 damages for false claims under state false claims statutes.344 To date, only California has passed legislation (effective January 1, 2010) incorporat- ing provisions that conform that state's FCA to the FERA amendments to the Federal FCA. 8. Establish a Dedicated False Claims Review Unit Within State DOT Claims Bureau or State Attorney Generalâs Claims Bureau Creation of a dedicated false claims unit within the state AG's office or transportation agency war- rants consideration. Some states have established a special false claims unit within the office of the State's AG. In California, the dedicated false claims unit has reportedly recovered $400 million in the last 10 years. That unit consists of 12 attorneys, auditors, analysts, and investigators who specialize in the false claims area. Other states have report- edly also hired forensic accountants and experts to examine contractors' claims. 9. Require State DOT Attorneys to Review All Construction Claims for Potential False Claims Act Exposure At Caltrans, all claims and disputes are re- viewed by an attorney for potent ia l false claim liability. Based upon such review, any potential false claim would then be referred to the office of California's State AG for fur ther action. So far as we have been able to determine, no other state has undertaken this e f for t to date. State DOTs could, of course, choose to do this volun- tarily as an internal administrative matter . During the course of discussions with state transportation officials following up on the questionnaire distributed during the prepara- tion of this digest, at least one state official sug- gested that it might be easier and more likely for states to do this if USDOT required them to do so. We raised this issue when we interviewed Omer Poirier, the General Counsel of the USDOT OIG. While acknowledging that this might be desirable, Mr. Poirier indicated that USDOT is currently unable to impose such a requirement upon state DOTs through federal- aid project funding agreements due to the "Com- mon Grant Rules."345 Regulations promulgated by the U.S . Depart- ment of Commerce prohibit individual federal agencies such as USDOT from imposing any addi- tional requirements in grant agreements other than those authorized by the regulations.346 USDOT would probably have to obtain enabling legislation 344 Id. 345 See note 294, supra. 346 15 C.F.R. pt. 24, "Uniform administrative re- quirements for grants and cooperative agreements to State and local governments." from Congress to impose an FCA review re- quirement upon states as part of any federal-aid funding agreement provisions going beyond those authorized by the Commerce regulations. 10. Incorporate Setoff Provisions for Recovery of False Claims Investigative Costs into State DOT Consultant and Construction Contracts Two of the experts we interviewed, Toby Thacher of Thacher Assoc iates LLC and Steven A. Pas ichow of the Office of Inspector General of the PANYNJ, recommended that state transporta- tion agencies consider modifying standard contract set-off provisions in order to authorize recouping the cost of false claims investigative efforts through appropriate deductions from contract payments.347 A setoff provision for investigative cost for pre- vailing age violations has been adopted by the New York School Construction Author i ty , and pro- vides: The contractor agrees to pay for the cost of any in- vestigation conducted by or behalf of the SCA which discovers a failure to pay prevailing wages by the Contractor or its subcontractor(s). The Contractor also agrees, that should it fail or refuse to pay for any such investigation the SCA is hereby authorized to deduct from the Contractor's account an amount equal to the cost of such investigation. PANYNJ utilizes the following provision: The Contractor shall be required to pay the Author- ity an amount equal to the Authority's cost of any investigation conducted by or behalf of the author- ity, that discovers a failure to pay wages and or supplements as required by the Contract by the Contractor or its subcontractors, the cost of such investigation to be determined by the Chief Engi- neer personally. If the Contractor fails or refuses to pay for the cost of such investigation after demand by the Authority, the Authority may deduct from any amount payable to the Contractor by the Au- thority under the Contract or under any other open contract between the Contractor and the authority, an amount equal to the cost of such investigation. Adaptation of the prevailing wage setoff provi- sion to the cost to recover the cost of false claim investigation should be given active consideration. Our research has not found a setoff provision for false claim investigation costs in any existing DOT contracts; however, Wisconsin has successfully used its equitable right to setoff in a negotiated resolu- tion of a fraudulent claim. 11. Pursue State Legislation to Adopt Contract Disputes Act and Other Provisions for Forfeiture of False Claims The Federal Contract Disputes Act provides that if a contractor is unable to support any of his claim, 347 See notes 293 and 296, supra.
78 and it is determined that such inability is attribut- able to misrepresentation of fact or fraud on the part of the contractor, the contractor shall be liable to the Government for an amount equal to such unsupported part of the claim plus costs to the Government attributable to the cost of reviewing said part of the claims.348 As discussed in Section I of this digest, this provision became a major issue in a noted FCA case in which the contractor, Dae- woo, was ordered to pay $50.6 million to the public owner under the provisions of the Contract Dispute Act. State transportation officials should consider pursuing enactment of a similar statutory provision at the state level. 12. Dedicate False Claims Damage Recoveries to Support Future Investigations One of the more interesting findings of this pro- ject was that the provisions of the individual FCA enacted by nine states (California, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Rhode Island, and Tennessee) au- thorize or require that a portion of the State's re- covery in any false claims litigation or settlement go to the State's AG to support the ongoing in- vestigation and litigation of claims cases.349 Those statutes do not necessarily provide for recovery of the investigative costs incurred by state DOTs in false claims cases, however. This reinforces the suggestion in item 10 above that state DOTs pro- vide for recovery of their own investigative costs through contract setoff provisions. One illustration of the need for this was pro- vided by California officials, who mentioned dur- ing an interview that the state had recovered $400 million in false claims cases, but that all of that recovery had been deposited into that state's General Fund and had been used to help balance a state budget deficit, rather than being made avail- able either to investigate future false claims or to benefit transportation programs. 13. Establish, Maintain, and Publicize a Hotline to Receive Allegations of False Claims Several of the experts we interviewed, particu- larly those having direct personal experience in the investigation and litigation of false claims mat- ters, agreed regarding the importance for state transportation agencies of establishing, maintain- ing, and publicizing a toll-free telephone Hotline to receive allegations of false claims and other waste, fraud, and abuse on a confidential basis. They indicated that hotlines are a significant source of investigative leads. 348 41 U.S.C.A. § 604 and 28 U.S.C.A. § 2514. 349 See § XIII of this digest, supra, for the citations to the False Claims Acts in those states and summa- ries of their provisions. Omer Poirier and William Owens of the USDOT OIG indicated that, between February and October of 2009, the hotline maintained by the USDOT OIG received 184 allegations of false claims or other fraud or abuse, with 7 of those allegations, includ- ing 2 false claims, cases accepted for prosecu- tion.350 They indicated that the benefits of hot- lines are not limited to identifying fraud and initiating enforcement actions. Agencies can, for example, review and analyze the complaints re- ceived by their hotline to identify and analyze trends in suspected false claims and fraud, and use such information to strengthen administrative safeguards against new types of false claims and fraud as they emerge, on a timely basis.351 The authors of this digest note that Ohio DOT cur- rently includes a notice in proposals for ARRA- funded projects informing prospective bidders of the existence of a hotline and its availability for reporting collusion and other forms of waste, fraud, and abuse. Steven A. Pasichow, a manager of investiga- tions for the PANYNJ, told us that hotlines are good, but that it was possible to cause confusion for the public by having too many different hot- lines, and that agencies should keep things simple for the public by maintaining only one hotline to receive reports of all different types of false claims, fraud, and abuse rather than multiple ones for specific purposes.352 Toby Thacher of Thacher Associates similarly indicated that hotlines were a significant source of leads for personnel investigating false claims and other frauds.353 Chris Rosetti, an experienced investigator, told us that it was prudent for state transportation agencies and other public owners to maintain a hotline to receive confidential tips about possible false claims or fraud. He indicated that the Asso- ciation of Certified Fraud Examiners had concluded that agencies with hotlines were cutting their fraud-related losses by roughly 50 percent.354 He added that when he worked for New York State's Office of the State IG, most if not all of that in- vestigative agency's leads regarding alleged false claims and fraud affecting state agency contracts came from that agency's hotline. He told us that the administrative costs of maintaining a hotline were relatively modest, but that agencies needed to have follow-up programs to evaluate the alle- gations received by hotlines and take steps to address problems and vulnerabilities revealed by hotline complaints. He indicated that, in his ex- perience, construction was one of the program 350 See note 294, supra. 351 Id. 352 See note 296, supra. 353 See note 293, supra. 354 See note 306, supra.
79 areas most vulnerable to false claims and fraud (along with Medicaid and taxation), at least in part because state agencies lacked adequate staff and administrative resources to review and verify claims fully before paying them. He acknowl- edged, however, that it might be easier for agen- cies to catch false claims and fraud through hot- lines than through auditing.355 14. Share Information Regarding Problem Contractors with Other Agencies and States Some state DOTs do share false claim informa- tion with other state agencies, but we have found no regular, routine process for sharing information among state DOTs nationwide. State DOTs do re- view the federal debarment and suspension list- ing information and must rely on their own in- ternal investigatory efforts and disclosure requirements to ascertain the existence of false claim violations to determine bid responsibility and bid qualifications. Steven Pasichow of the PANYNJ OIG suggested that consideration be given to establishing a national clearinghouse of information concerning contractors having false claims or other responsibility issues, and the au- thors of this digest concur in that recommenda- tion.356 15. Conduct Timely and Thorough Review of Orders on Contract and Claims and Enhanced Scrutiny of Firms and Projects Experiencing Problems Both government and private-sector experts we interviewed, including Omer Poirier of the USDOT OIG, attorneys Peter J. Plocki and Thomas Ma- honey of the USDOT Office of the Secretary of Transportation, Steven Pasichow of the PANYNJ OIG, and Patrick Burns and Cleveland Lawrence Ill of Taxpayers Against Fraud, concurred in em- phasizing the importance to state DOTs of review- ing contract payment requests, contractor requests for orders on contract (change orders), and contract claims on a timely and thorough basis. Messrs. Poirier, Plocki, Mahoney, Burns, and Lawrence all stressed the risk of false claims asso- ciated with contractor requests for change orders, in particular, and the associated need for close re- view of such requests.357 Mr. Poirier said that, in his experience, there was considerable abuse af- fecting change orders on federal-aid state trans- portation projects. He said that some contractors got contracts by intentionally underbidding and then built a profit margin by fleecing state DOTs on change orders.358 Messrs. Plocki and Mahoney 355 Id. 356 See note 296, supra. 357 See notes 294, 295, and 297, supra. 358 See note 294, supra. similarly told us that false claims issues often came up in connection with change orders.359 Messrs. Burns and Lawrence commented that fraud on change orders could be a profit center for a corrupt contractor.360 Mr. Poirier strongly rec- ommended that state DOTs review contractor requests for change orders (and also contract pay- ment requests and contract claims) on a timely basis, rather than allowing them to stack up until the end of a project and then reviewing them hast- ily under pressure to close out the contract as quickly as possible. He commented that time pres- sures often led state DOTs to skimp on reviewing them, and to fail to identify or correct problems that would be revealed by a diligent review; and that state DOTs frequently lost significant amounts of money by closing contracts out too fast without adequate review of change orders.361 Mr. Poirier added that some firms were aggressive about pre- senting sketchy and poorly documented claims, hop- ing that at least some of them would be approved. He told us that the risks involved went beyond false claims, and that public safety could also be placed at risk if construction work such as guide rail installation was not performed properly.362 Both Steven Pasichow of the PANYNJ OIG and Patrick Burns and Cleveland Lawrence of Tax- payers Against Fraud recommended that State DOTs give enhanced scrutiny to contractors ex- periencing any significant problems on projects, because such problems might be symptomatic of ethical or management issues giving rise to addi- tional problems that were not yet readily appar- ent.363 Messrs. Burns and Lawrence suggested that detecting fraud was a bit like hunting wildlife, in that one looked not just for obvious and readily visible fraud, but for patterns and signs that might reveal concealed fraud. Problems should trigger closer scrutiny, they said, because if a con- tractor were cutting corners on materials or hiring illegal aliens as workers, he might well also be sub- mitting false claims.364 Messrs. Plocki and Mahoney recommended that state DOTs take whistleblower allegations seri- ously and review them carefully, even if agency staff had good working relationships with the con- tractors in question, and should not be skeptical of the merits of whistleblowers' allegations just be- cause the possibility of filing false claims actions might give them financial motives. They also rec- ommended that state DOTs receiving credible alle- gations of false claims or fraud on federal-aid pro- jects inform both the USDOT OIG and FHWA 359 See note 295, supra. 360 See note 297, supra. 361 See note 294, supra. 362 See note 294, supra. 363 See notes 296 and 297, supra. 364 See note 297, supra.
80 counsel at the regional and national levels. They pointed out that, in addition to enabling USDOT to address the issues involved in a timely and coordi- nated way, this would allow USDOT to identify situations in which the same firms were involved in suspected false claims or fraud on a multistate ba- sis.365 16. Maintain Records of Damages After a Potential False Claim is Identified State transportation agencies should keep accu- rate cost accounting records of the costs of investi- gation and remediation, as well as any purported costs billed for fictitious work. Such records can play a valuable role in attempts to recover false claim damages beyond the statutory penalties. 17. Use Red Flag Lists Our research did not discover any red flag list maintained by state DOTs, but did find a red flag list maintained by the USDOT OIG. That list, attached as Appendix B to this digest, pro- vides red flag indicators for common fraud, bid- rigging and collusion, material overcharging, time overcharging, product substitution, DBE fraud, quality control testing fraud, bribery, kick- backs, and conflicts of interest.366 Transportation agencies would be well warranted in focusing on that red flag list in training and in the admini- stration of their construction program. The DOJ Antitrust Division has also developed a red flag list of indicators of collusion and bid-rigging on public projects, attached as Appendix C to this digest. These red flag lists are in active use by Missouri DOT. 18. Adopt Bid Escrow Provisions Many false claim issues that arise in connec- tion with requests for contract adjustments relate to extra costs that were not anticipated at the time of bid. Establishing what was anticipated by the contractor is often difficult because of lack of record retention or refusal to provide the docu- ments. Establishing a provision to escrow bid documentation would make this task easier, and could serve as a valuable deterrent to false claim submissions. The Los Angeles MTA has adopted bid escrow provisions to assist with ef- forts to deter and prevent false claims. 365 See note 295, supra. 366 See also U.S. DEPâT OF TRANSP., DOTâs IMPLEMENTATION OF THE AMERICAN RECOVERY ACT: CONTINUED MANAGEMENT ATTENTION IS NEEDED TO ADDRESS OVERSIGHT VULNERABILITIES ( 2009); avail- able online at http://www.oig.dot.gov/sites/dot/files/ Phase2_11.30.09_w508.pdf (last accessed June 17, 2010). I. Recent Trends Several apparent trends emerged from the survey and interview results. These included the following: ⢠Fiscal pressures and accountability. Both fed- eral and state transportation officials are oper- ating in an environment that has shifted rapidly over the past few years, with the economic reces- sion and state fiscal and staffing constraints pos- ing significant challenges to state DOTs at the same time that the expenditure of billions of dollars in federal economic stimulus funding, including USDOT-sponsored federal-aid highway and bridge projects, has driven growing public demands for accountability and expectations for transparency. In such an environment, it appears more important than ever for state DOTs to take the risk of exposure to false claims and fraud seriously and to review existing contract provi- sions, staff training, and state legislation with a view toward strengthening defenses against false claims and fraud. ⢠Training. The commendable efforts of the USDOT OIG and the DOJ Antitrust Division to address risks of false claims and fraud by under- taking a nationwide outreach effort to sponsor fraud awareness training for FHWA and state DOT officials offer a model for those state DOTs which have not yet conducted such training. Many of the experts interviewed during the preparation of this digest, including private- sector experts as well as government officials, stressed the importance of ongoing staff training efforts in reducing the risk of exposure to fraud. As one such expert, Chris Rosetti of BST, suc- cinctly put it: "They can't catch fraud if they don't know what to look for."367 ⢠Legislative dedication of recoveries to inves- tigations. It is noteworthy that nine states have enacted state FCAs that dedicate portions of false claims recoveries to supporting the costs of ongo- ing and future investigations of additional false claims cases, typically through assigning a fixed percentage of recoveries to the state AG for such purposes.368 This appears to be an emerging state legislative trend. ⢠Business ethics, compliance, and IPSIG re- quirements. Imposing requirements for contrac- tors to adopt a code of conduct and business eth- ics compliance program also appears to be an emerging trend. The FARs require this for direct federal agency contracts over $5 million; such a requirement is often included in settlement agreements resolving false claims litigation, bid- der responsibility issues, or debarment proceed- ings; and Texas DOT is actively considering in- 367 See note 306, supra. 368 See § XIII of this digest, supra, for citations to and summaries of State False Claims Acts.
