False Claims Bill Would Compound Mike M. Johnson Problems

By Douglas Roach Ahlers & Cressman PLLC

(Editor’s Note: Roach and fellow AGC Legal Affairs Committee member John Ahlers have been active in proposing language to address the problems with Senate Bill 5310. Roach and AGC’s Legislative Counsel Van Collins testified during a Feb. 4 Senate Judiciary Committee hearing in opposition to it. Watch their testimony via embedded link at end of this article.)

Senators Kline and Pflug are have introduced legislation (SB 5310) to enact a false claims act in the state of Washington modeled on the federal False Claims Act. The law would impose civil penalties of up to $10000 and three times the amount of the governments damages on anyone who knowingly makes a demand or request for payment to the government that is false or fraudulent.

The act gives whistleblowers a percentage of the governments recovery and if the attorney general declines to pursue an allegation private litigants are empowered to do so in the name of the state for an even bigger percentage of the recovery. The act allows the government or private plaintiffs to recover their fees if they prevail but it allows defendants to recover theirs only if the claim is shown to be frivolous--an almost impossible standard to meet. The main targets of the legislation appear to be Medicaid cheats but as drafted it encompasses claims by contractors on public works projects as well and that creates a unique problem in Washington.

As most readers know in 2003 in the case of Mike M. Johnson Inc. v. County of Spokane the Washington Supreme Court enforced contractual notice provisions that resulted in a waiver of a contractors otherwise meritorious claims because they were not submitted timely even though the owner was not prejudiced by the notice being late. That ruling has resulted in the most stringent enforcement of contractual notice provisions in the country and public owners have not hesitated to take advantage of it by inserting unreasonably short deadlines for contractors claims into their contracts for public works jobs. The short timeframes in those provisions often force contractors to submit claims to public agencies based on nothing more than rough guesses as to magnitude.

Time limits that require contractors to submit claims before they can be fully investigated and developed collide with the proposed False Claims Acts definition of knowingly. The act specifically states that it does not require proof of specific intent to defraud but includes claims submitted in deliberate ignorance of the truth or falsity of the information. This definition would encompass almost every claim a contractor is required to submit under Mike M. Johnson deadline. So the contractor is faced with either waiving its claim by failing to submit it on time or submitting it on time but in deliberate ignorance of its truth or falsity in violation of the false claims act

In order to remedy this impossible situation the AGC has suggested that contractors be exempted from the statute or in the alternative that claims subject to Mike M. Johnson time limits be excepted. The latter approach would give public agencies the choice of either short time limits on claims or false claims remedies for inaccurate ones but not both. Given that no other jurisdiction with a false claims act has notice and claim requirements as strict as those in Washington it would be manifestly unfair for the legislature to copy such laws without addressing the unique burden the Mike M. Johnson decision continues to impose on Washington contractors.