New York’s False Claims Act (NY State Fin. § 188 et seq.), which follows the Federal False Claims Act (31 USC § 3729 et seq.) is designed to prevent fraud against the Government.
This statute subjects contractors on public work projects to a substantial amount of potential liability, not only for its own acts, but for the acts of its subcontractors as well. Liability is imposed for knowingly and/or recklessly presenting fraudulent or false claims or using false records in support of fraudulent or false claims to obtain approval for money or property to be used on the state or local government’s behalf. Liability is also imposed where the state or local government would provide reimbursement for the services provides. It is important to note that specific intent is not required to be found liable, rather mere recklessness will suffice.
The scope of this statute extends beyond the general contractor and, on a public works project, a subcontractor may be held liable for indirectly submitting a fraudulent claim to the government by submitting the claim to the general contractor. Furthermore, the general contractor is at risk for liability for submitting the subcontractor’s fraudulent claim as well. These fraudulent claims include, among other things, bid-rigging and/or delivery of sub-standard goods/material.
A contractor found liable under this statute faces an extremely costly monetary penalty which includes a civil penalty ranging from $6,000.00 to $12,000.00, plus treble damages (i.e. three times the amount of all damages), as well as attorneys’ fees and the costs of the action. This statute does include a possibility for a reduction of civil penalties, from treble to double damages, where the violator informs the government of the violation within 30 days of obtaining information of the violation, fully cooperates with the government, and at the time of disclosure, no legal proceeding had yet been commenced with respect to the violation.
In addition to the government commencing the civil action against the violator, this statute permits a whistleblower, referred to as a “relator”, to bring a “qui tam” action on behalf of the government and receive a sizable portion of the recovery (between 10% to 30%, in addition to attorneys’ fees and related costs). An anti-retaliation clause provides protection for a relator, further encouraging relators to come forward with their reports. In addition to the monetary incentive, the pleadings requirement for the relator under this statute is more relaxed, no longer requiring fraud to be alleged with particularity, but rather, that the facts, if proven true, would provide a reasonable indication of a violation and provide adequate notice of the specific nature of the alleged misconduct.
Therefore, contractors and sub-contractors on public work improvement projects need to be cautious before submitting claims, as they may be liable for significant civil penalties if found to be in violation of the False Claims Act.