Digging a Big Hole
A false or misleading statement may happen honestly
It has been held that a claim or statement may be false even though it contains no untrue information or entries if, within the totality of the circumstances, the claim is not valid.
In a recent case regarding the supply of inadequate concrete to Boston’s “Big Dig,” a federal court of appeals affirmed the criminal convictions of two principals of a concrete contractor for knowingly making false claims to the government.
False claims against the government are a serious offense and can carry civil (monetary) and criminal penalties. Contractors who do business with the government need to take care to avoid submitting false information. The federal government and most states have passed False Claims Acts that prohibit fraud in contracting and carry stiff penalties. In order to be criminally liable, an individual must know their claims were false at the time they were made. It has been held that a claim or statement may be false even though it contains no untrue information or entries if, within the totality of the circumstances, the claim is not valid.
In United States v. Prosperi (July 13, 2012), the U.S. Court of Appeals for the First Circuit affirmed the criminal convictions of two principals of Aggregate Industries NE, Inc. (Aggregate) for knowingly providing non–conforming concrete to the Big Dig.
The Big Dig, a central artery/tunnel project in downtown Boston, lasted from 1991 to 2007. It is one of the largest and most expensive public works projects in the history of the United States. At the time of its completion, it cost an estimated $14.6 billion.
The Big Dig was managed by a joint venture between Bechtel Infrastructure and Parsons Brinkerhoff Quade & Douglas (B/PB). These companies acted as design consultants and managed the construction, which was performed by multiple major general contractors and various subcontractors. Overall, approximately 150 construction contracts were awarded in connection with the Big Dig.
The Big Dig required approximately 4.2 million cubic yards of concrete. Aggregate supplied 60 percent of the concrete for project. The Big Dig’s concrete suppliers were required to: (1) adhere to a certain mix design, or recipe, for the concrete, based on the intended use; (2) have plants with an automatic batching system that ensured the proper mixture of each load, or batch, of concrete; (3) have in place recorders that captured information regarding the mix design, as well as the date and time of batching for each load of concrete, and provide a printout, called a “batch ticket,” containing all the required information; (4) not add any additional water after the concrete mixture was loaded onto trucks for delivery; and (5) in most circumstances, place the concrete at the construction site within 90 minutes of the time it was mixed and loaded onto the delivery trucks.
The batch tickets served as a quality control mechanism. Aggregate’s drivers would give the batch tickets to B/PB inspectors as they delivered their loads. The inspectors checked the batch tickets for certain criteria, including the time the concrete was loaded, the mix design, the volume loaded and the amount placed.
In the mid-1990’s, Aggregate began to supply non-conforming concrete to the Big Dig. Aggregate instituted a practice of topping-off loads of leftover concrete, sometimes with concrete of a different mix design that met contract specifications. Aggregate would provide the entire load as if it were fresh concrete. These loads were designated “10/9” loads, which was the radio call signal that drivers used to alert the dispatcher they had leftover concrete.
The decision to use 10/9 concrete on the Big Dig was made by Aggregate’s Ready Mix Division management, including Robert Prosperi, general manager, and Gregory Stevenson, operations manager. Once this process was instituted, 10/9 concrete was sent to the Big Dig on a daily basis. Dispatchers kept logs of the 10/9 concrete and these logs were provided to Prosperi, Stevenson and others on a daily basis.
Aggregate instituted a system to trick the inspectors by printing dummy batch tickets, by manually inputting the concrete quantity, mix design and time of loading using the batch computer’s demonstration mode. When inspectors came to Aggregate’s plant to check that procedures were being followed, the batch men would call the dispatchers and use the term “city plant” to signal that inspectors were present and 10/9 loads should not be sent out. In addition, when Aggregate ran out of fly ash, an important ingredient in some mix designs, Aggregate continued to supply concrete without fly ash by falsifying batch tickets to make it appear the loads contained fly ash. It is unclear how many loads without required fly ash were provided to the Big Dig.
Using the 10/9 logs, government investigators estimated that Aggregate provided 5,337 loads of 10/9 concrete to the Big Dig. In addition, the government included an estimated 1,200 loads of 10/9 concrete supplied to other public construction projects within Massachusetts. These loads totaled approximately 64,163 cubic yards of non-conforming concrete. The government paid an average of $80.90 per cubic yard of concrete. As a result, the government asserted a loss amount of $5.2 million. Overall, these non-conforming 10/9 loads amounted to approximately 1 percent of all the concrete provided by Aggregate to the Big Dig, and 0.6 percent of all concrete used in the project.
After a several week jury trial, Prosperi and Stevenson were convicted of multiple criminal offenses, including mail fraud, highway project fraud and conspiracy to defraud the government. They were sentenced by the trial court. On appeal, their sentences were affirmed.
Although it is obvious that one should not make false or misleading statements in any contract — especially with the government — for those who fail to heed this maxim the Prosperi case serves as a cautionary tale that criminal penalties can be the end result.
Brian Morrow is a partner in Newmeyer & Dillion LLP, a law firm in California. He is a licensed California Civil Engineer, and specializes in the field of construction law, including road and heavy construction. Contact him at firstname.lastname@example.org