Subcontractor Liability

Excerpted from the Chapter, “Contractor and Subcontractor Liability under the False Claims Act” Written by Peter B. Hutt, II From the book False Claims in Construction Contracts: Federal, State, and Local

Edited by Charles M. Sink and Krista L. Pages

A recent case from the Court of Federal Claims, Daewoo Engineering and Construction Co. v. United States, dramatically illustrates the range of conduct that can give rise to FCA liability, including obtaining a contract under false pretenses, performing substandard work, making misrepresentations about site conditions, and submitting an inflated request for equitable adjustment. Daewoo won a contract for construction of a fifty-three-mile road around an island of the Pacific nation of Palau not only because of its record in comparable construction projects, but also because its bid was dramatically lower than the next higher bidder’s. Almost immediately, Daewoo encountered difficulties meeting contract specifications. During construction, Daewoo submitted a certified claim for additional compensation under the Contract Disputes Act4 for some $65 million. After trial, the court denied all of Daewoo’s claims, and it found that Daewoo deliberately underbid the contract while expecting to make up for the anticipated deficiency with later claims for equitable adjustments, thus obtaining the contract under false pretenses.

The court found that because of its fraudulent conduct, Daewoo had forfeited its legitimate claim for $13 million and was liable to pay an additional forfeiture of $50 million (plus costs) under the antifraud provision of the Contract Disputes Act. In all, Daewoo’s claim to recover $64 million ended up costing it more than $50 million.

Sponsoring Entity:

The ABA Forum Committee on the Construction Industry