In order to allow the restart of construction in the aftermath of the COVID-19 shutdown, the City of Boston created a form that requires construction general contractors to “swear” that they and their subcontractors have been, and would remain in compliance with various safety guidelines. Similarly, the State of New York is requiring contractors to “affirm” that they have and will continue to implement safety plans consistent with guidelines published by various agencies, including the EEOC, the CDC and OSHA.

While somewhat unrealistic, the newly defined compliance requirements and similar conditions imposed in other jurisdictions are not unfamiliar to the construction industry. In fact, almost all construction contractors, construction managers and subcontractors routinely execute documents that include representations about themselves, their products and their performance.

Requests for proposals, invitations for bids and subsequent construction contracts, both public and private, routinely require the proposer or bidder to provide certain representations and certifications, typically relating to the contractor’s capability to perform the work, from both financial and competence standpoints, as well as its past performance and the status of its current projects. Proposers often certify and promise their past, present and future compliance with laws, regulations, license and permit requirements, and more. During performance, shop drawings and catalog cuts are submitted with various representations, including, for example, compliance with specifications, published industry standards and origin of manufacture (as in “Buy America” or “Buy American” requirements).

Progress payment applications frequently require contractors to certify, upon penalty of perjury, that:

• the claimed percentage of work complete is accurate;
• that all of the documentation supporting the payment application is true, accurate and complete; and
• that the contractor, its subcontractors and its vendors, are in compliance with all contractual requirements and the law.

Contractors are also routinely required to certify, specifically, continuing compliance with wage and hour laws, minority participation requirements and, where applicable, prevailing wage requirements.

Based upon these common (and copious) requirements in the construction industry, it is not surprising that in jurisdictions hard-hit by COVID-19, governments and building authorities are requiring the submission of detailed safety plans, as well as regular affirmations, certifications and/or affidavits of compliance with those plans and published requirements and recommendations. Even where express representations are not required, general representations of compliance, such as those contained in payment applications, may be considered as implied certifications of compliance with mandatory safety protocols.

The representations and certifications that are routinely required and executed carry potentially significant legal consequences to both the immediate contract as well as the company itself. Whether intentional or simply the result of negligence, inaccurate or incomplete representations during contract formation can impair the validity of the contract itself. Inaccurate or incomplete representations during performance can constitute contractual breaches and, where safety is involved, could create tort liability to third parties. And both circumstances can lead to extensive damages—including punitive damages, if intentional.

If government money is involved in the project, representations and certifications of compliance and performance carry potentially greater significance as factually inaccurate statements can lead to civil liability under the various False Claims Acts that apply to federal, state and even local contracts. The liability under such statutes can be extensive—treble damages and penalties ranging in excess of $20,000 for each “false” claim. Moreover, many false claims statutes incentivize private persons (often referred to as "whistleblowers”) to report and prosecute “misrepresentations” by awarding the whistleblower a share of the recovery and some or all their attorneys’ fees.

Not every factual misstatement will lead to liability, but the standard of culpability is usually fairly low. For instance, under the Federal False Claims Act, the standard for liability is a false claim or a false statement in support of a claim that is made “knowingly,” which includes actual knowledge, deliberate ignorance or reckless disregard of the truth or falsity of the information on which the claim or statement is based. If the government contends that misrepresentations were intentionally made, prosecutors can also file parallel criminal charges against the company and any employee who participated in the misrepresentations.

Simply defending against false claims allegations can be ruinously expensive and the reputational damage can be extreme—especially for public contractors who are required to disclose the fact of any such allegations when proposing or bidding on future work. The disclosure of even unproven allegations carries the risk of suspension or debarment from public work or a finding of non-responsibility, which often has the same result.

Given that the newly required representations and certifications involve the safety of the workplace, they also can implicate potential personal injury liability to persons outside the contractual relationship including workers, delivery persons, inspectors and anyone else who comes onto the jobsite. Typically, such liability depends but can increase if more egregious conduct can be proven. Inaccurate representations and certifications concerning safety requirements also carry the potential for liability for fines and other sanctions imposed by the various agencies responsible for jobsite safety, including local code officials and OSHA.

Because of the ubiquitous and unavoidable necessity for representation and certifications in the construction process, it is highly advisable that construction executives implement policies and procedures that increase the probability that representations by the company and its employees are fully accurate and complete—potentially negating any argument that an inadvertent mistake was made negligently, knowingly or intentionally. Such policies and procedures can be contained in a Compliance Manual or even in Employee Manuals.

It is important, however, that the effort should not stop with publication of such written documents—compliance policies and procedures should be emphasized though regular, periodic training that is fully documented. Significant emphasis should be placed on the importance of accurate and complete representations and should provide an avenue for any would-be whistleblower to report their information to responsible and attentive management, thereby reducing the likelihood of a whistleblower to report outside the company. It is imperative that such policies and procedures prohibit adverse action against the whistleblower—which is prohibited by most, if not all, False Claims Acts—and creates an additional, expensive cause of action for retaliation.

In the context of representations and certifications, it is imperative that the person signing on behalf of the company either knows that the statements are true or has a good faith basis for believing their truthfulness. In either case, the basis for such knowledge or belief should be documented. In terms of the contractors’ performance, such documentation should include reports from employees who have direct knowledge of the matter. If, as is often the case, the representation includes the performance of others, such as subcontractors and suppliers, congruent representations and certifications should be obtained from such parties—and verified by company employees to the extent reasonable. Blind reliance on representations from others—including other employees—can be considered “reckless disregard” and could be disastrous to the company.

Although this article is too brief to detail all policies and procedures that should be included in a comprehensive compliance program, any such program should, at a minimum:

• emphasize the essential concept that every reasonable effort is to be employed to assure that company representations and certifications are true when made;
• establish procedures to gather, verify and maintain documentation to support the veracity of representations and certifications;
• provide effective mechanisms for whistleblowers to report concerns to responsible management;
• provide procedures to responsibly investigate any such reports and take appropriate action as necessary (including, potentially correcting past inadvertent misrepresentations); and
• protect whistleblowers from adverse actions.

The value of such policies and procedures is in their implementation. They must be taught and emphasized during performance in order to fully protect the company and its reputation.