Under the California False Claims Act, overbilling on public construction projects could destroy a business. Be sure to take extra care when billing California public projects.

There are lots of considerations to keep in mind when working on public works projects vs. commercial or residential jobs. Public jobs require knowledge of bonding requirements, prevailing wage laws, and even a little bit of politics. For California contractors and subs, the California False Claims Act should be taken into account as well. Violations could result in steep financial penalties.

What is the California False Claims Act?

The California False Claims Act (CFCA) allows private individuals to bring an action on behalf of the government for attempts at defrauding any political subdivision of the State of California. This includes public schools and state colleges and universities. Once a claim has been brought, the government can intervene if they so choose. Afterward, the Act also provides protection against retaliation by employers of the person who filed the claim.

This Legislation Follows in the Footsteps of the Federal False Claims Act

The False Claims Act: What Construction Businesses Need to Know

What Does it Have to do With Construction?

For commercial or residential jobs? Nothing!

However, when a contractor or subcontractor is performing work on a public project, the California False Claims Act raises the stakes a bit. Any time that an invoice is exaggerated or a pay app is fudged, there’s some potential liability involved. But, when that happens on a California public project, serious penalties could come into play because that could amount to an attempt to defraud the state government. So, what may feel like ordinary gamesmanship when invoicing could turn into a world of pain for an unsuspecting contractor or sub. But, not every mistake will constitue a violation of the California False Claims Act. We’ll explore that in the sections below.

What Constitutes a Violation of the California False Claims Act?

In order to be found guilty under the California False Claims Act, a person or entity must knowingly:

  • Present a false claim for payment
  • Making or using false statements regarding the false claim
  • Conspiring to violate the CFCA
  • Delivering less than bargained for to the government
  • Making or providing false receipts (invoices)
  • Making false purchases
  • Reverse false claim– misrepresentation to decrease an obligation to pay the government
  • Inadvertently being beneficiary of a false claim (accidental overpayment).

The term “knowingly” in this context could refer to three different types of knowledge: (1) acting purposely; (2) acting in reckless disregard for the truth; or (3) acting in willful ignorance of the truth. So, the “It wasn’t intentional!” act won’t work if reckless disregard or willful ignorance is in play.

What Happens to Those Who Violate It?

Any person who commits any of the acts mentioned above is liable for treble (triple!) the amount of damages that the political entity sustained due to the acts of that person. Guilty parties will also be responsible for costs of the civil action brought against them, and a fine of $5,500 – $11,000 for each violation. These penalties may be reduced under certain circumstances such as full cooperation or self-reporting within 30 days of learning of the violation.

Features Unique to California

Like we’d mentioned earlier – the California False Claims Act follows in the footsteps of the federal False Claims Act. However, there are some differences. Here are some of the most important ones…

Inadvertent False Claims

Unlike its Federal predecessor, the California False Claims Act imposes an additional responsibility to report false claims if you have inadvertently received a benefit from a false claim. The best example of this would be an accidental overpayment that goes unreported.

Whistleblower Incentives

Besides the protection granted against retaliation, the California False Claims Act also provides lucrative monetary incentives as well. If the government does not intervene in the claim, the plaintiff is statutorily entitled to 25-50% of the total damages, including attorney’s fees! And even if the government does intervene, the claimant will be entitled to at least 15-33% of the recovery.

Statute of Limitations

The Federal FCA statute of limitation allows for claims to be made within 3 years of discovery of the issue or 6 years from when the fraud is committed. In the State of California, this is much longer. An action under the CFCA can be brought within 3 years after discovery or… 10 years from the date of the violation!

Bottom Line for California Construction Businesses

Contractors and subs shouldn’t operate in fear of the California False Claims Act. After all, the vast majority of construction businesses are honest and just want to be paid what they’ve earned. However, for those construction companies who take a relaxed approach when facing rules and regulations – it’s even more important to stay in between the lines on public jobs. One overbilling or exaggerated invoice could destroy the business.

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The California False Claims Act and Public Construction Projects
Under the California False Claims Act, overbilling on public construction projects could destroy a business. Be sure to take extra care when billing California public projects.
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