Construction Risk

Turnabout at Trial: Contractor Ordered to Pay $50 Million for Fraudulent Claims

By J. Michael Littlejohn, Esq.

Akerman Senterfitt Wickwire Gavin

In October, the Court of Federal Claims issued a decision determining that, based on trial testimony, a construction contractor that had been seeking affirmative claims against the United States Corps of Engineers had actually submitted false claims and committed fraud under the Contract Disputes Act.  As a result, instead of recovering on its multi-million dollar claim, the contractor was ordered to pay more than $50,000,000 to the Government under the CDA’s fraud provisions and $10,000 under the False Claims Act.

The facts and issues in the 89-page decision are too voluminous to recount in this newsletter, and there is ample room for the decision to be questioned on appeal.  In sum, the contractor, Daewoo Corporation, had a construction contract with the Corps to build a 53-mile road on the island of Palau .  The Corps estimated the project to be worth around $100 million and Daewoo’s bid was only $73 million.  After experiencing severe weather delays during the project, Daewoo submitted a certified claim to the Contracting Officer in the middle of its work in the amount of $64 million, seeking $13 million for added costs incurred and $50 million for “costs to be incurred” after the date of the claim.  Daewoo’s basic argument was that it had been misled by the weather clause in the contract and that the Corps had understated the amount of adverse weather to anticipate on the project.  Daewoo argued that it was entitled to an adjustment for the impact of the weather because the clause was defective and that the Corps had superior knowledge about conditions.  It also argued that the embankment clause in the contract was defective and that the specifications were impossible to perform.

A few of the more interesting aspects of the case are set forth below:

<        DOJ did not raise a fraud defense until after Plaintiff rested its case at trial.  At that point, DOJ argued that unexpected testimony by Plaintiff’s witnesses should allow DOJ to amend its answer to assert counterclaims based on the False Claims Act (31 USC § 3729), the Special Plead in Fraud (28 USC § 2514), and the CDA Fraud Provisions (41 USC § 604).  The court allowed the counterclaims.

<        The court appears to have been troubled by several issues that led it to believe the claims were fraudulent:

—  Plaintiff pursued legal arguments relating to the interpretation of the weather clause in the contract that the Court found were “not credible.”

—  The testimony from Plaintiff’s witnesses was “disturbing” according the court.  The Korean company’s executives apparently testified in a “vague and unreliable manner.”

—  One of the company’s witnesses testified that it filed its $50 million-plus certified claim with the Corps as a “negotiating” ploy to make the government to “pay attention” to the situation on the site.

—  Plaintiff’s loss of productivity claim stated that it was based on the “cost of operations” but trial testimony revealed that the claim was based on “planned costs of operations.”  Accordingly, the judge found that the claim misled the Corps into thinking that it was based on “actual” costs rather than “estimated” costs.

—  After submitting the claim, Plaintiff engaged an accounting expert that “updated” or “repriced” the claim.  The court was concerned that the “updating” resulted in the original $50 million claim being reduced to $29 million.

As a result of its findings, the court held that the contractor had attempted to defraud the Government by submitting its claim.  The court entered judgment for the United States under the fraud provisions of the CDA for the amount of the claim that was filed in bad faith by the contractor — $50 million.  It also reserved entering final judgment against the contractor under the False Claims Act and for the Government’s costs related to the CDA counterclaim.  According the court, it could enter additional judgment against the contractor for $4,000,000, representing the Government’s costs of trying the counterclaim.  It also has reserved deciding whether the overstatement of more than 700 items of equipment and 27 items of scrapped equipment in its claim would allow the court to enter judgment for multiple violations of the False Claims Act, amounting to $7,620,000.

About the Author

Michael Littlejohn, Esq. is a shareholder with the law firm of Akerman Senterfitt Wickwire Gavin, in the Tysons Corner , Virginia office located at 8100 Boone Boulevard, Suite 700 . Vienna,  VA   22182-2683 .  He advises government contractors on day-to-day contract administration issues, claim avoidance, and claim preparation; Litigates claims and bid protests before boards of contract appeals, United States Court of Federal Claims, GAO, and other federal agency dispute resolution offices; and Represents government contractors on issues before Congress and federal agencies. He may be reached at

Exit mobile version