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Unsigned, Sample Document Can't Support Fraud Pleading

Monday, May 01, 2017 04:57 am


False Claims---Fraud

U.S. and the State of New York ex. rel. v. Tishman Construction Corp., 2017 U.S. Dist. Lexis 15823 (E.D. N.Y. Feb. 2, 2017)

A former construction company employee came across sample financial forms that appeared fishy. But, before a U.S. Magistrate Judge, he needed more than speculation to show that fraudulent reimbursement payments and/or a False Claims Act violation actually occurred.

Relator Magdy M. Youssef brought charges of fraud and both federal and state False Claims Act violations against Tishman Construction Corporation, Turner Construction Company, and The Turner Company (collectively, defendants). Youssef (who worked as a structural engineer for Tishman and, later, Turner) alleged that, when the defendants were engaged on federal construction projects, they improperly invoiced the government for "standby trade" costs under time-and-materials (T&M) and cost-reimbursement (CR) contracts.

The underlying logic of the complaint may have been sound (in its decision, the magistrate did not opine on that), but as the allegations were based on inference and no concrete evidence, Youssef failed to state a claim or plead fraud with sufficient particularity.

Standby trade costs are required by the collective bargaining agreements (CBAs) that bind construction management companies to paying union workers for remaining on standby during ongoing construction projects. These costs don't affect the price of a fixed-price contract, but they are added to the price and subsequently reimbursed under T&M and CR contracts. (The price for a T&M contract is based on actual material costs and direct labor hours at specified hourly rates. Federal Acquisition Regulation (F.A.R.) §16.601(b). A CR contract provides for payment of "allowable incurred costs" where the parties have established beforehand a total cost estimate and cost ceiling. F.A.R. §16.301-1.)

In its false claims allegations, Youssef argued that the standby costs couldn't be charged to the government because those costs "don't actually represent work performed on a project," and therefore, the government is "paying for services not rendered."

In its fraud allegation, Youssef asserted that the standby costs weren't "reasonable" or "allocable" and therefore not "allowable&quo[...]

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