When unanticipated conditions impact a contractor’s ability to perform its work as efficiently as expected, the contractor may consider pursuing a lost productivity or inefficiency claim. There are many ways to price or calculate a contractor’s inefficiency claim damages, some of which can be quite “creative.” Despite the temptation to calculate inefficiency damages in a manner that will create the biggest claim possible, contractors are best served to make their claims as accurate as possible. That is especially true when a contractor must submit its claim to a government owner such as the federal government. In a very recent case, Lodge Construction, Inc. v. United States, the contractor learned its lesson the hard way regarding the submission of inflated inefficiency claims to the government.

In Lodge, the United States Army Corps of Engineers awarded a project to a contractor to rehabilitate a levee in South Florida, which was part of the Corps’ overall “Everglades Update” restoration mission. During construction, the contractor’s cofferdam breached in two sections, flooding the project site. Later, the contractor submitted several claims to the government for three alleged conditions that impacted the contractor’s performance, including constructive changes to the contract specifications and a differing site condition. The contracting officer denied those claims, and the contractor appealed the decisions by filing lawsuits with the United States Court of Federal Claims. Those lawsuits were consolidated, and a five-day bench trial was held regarding the contractor’s claims.

After the trial, the court issued a 46-page opinion in which the court essentially threw out the contractor’s nearly $4 million in collective inefficiency claims against the federal government, because the court found the contractor’s claims were fraudulent. In particular, the court concluded that the contractor’s claims were fraudulent in at least four ways:

(1) Fraudulent dump truck rates: The contractor’s claims included costs for the use of dump trucks to move materials at the project. The truck rates the contractor used were based on the Corps’ equipment manual, which specifies rates for different types of equipment, including trucks. The rates the contractor used were for operating equipment purchased new in 2006 with a value of over $880,000 each. The problem with using those rates was that the contractor’s trucks were not bought new in 2006–the trucks were purchased used with model years ranging from 1988 to 1999, and the contractor appeared to have bought each truck for somewhere between $14,000 and $24,000. This means that the contractor was billing the government for operating and owning trucks with an $880,000 value, even though the trucks the contractor was actually operating were worth far less. The court concluded that the contractor’s claims were false with respect to the operating and standby costs of the trucks that were included in the claims.

(2) Flawed inefficiency ratio: The contractor contended that the government should be partially responsible for construction inefficiencies encountered due to higher-than-expected water levels on the project site. In an effort to price the inefficiency impact, the contractor applied an “inefficiency ratio” to a pool of overhead, labor, and equipment costs accrued during the six or so months the contractor’s work was impacted. The ratio took the number of days it took to complete the work during the impact period and divided that number by the number of days the contractor had allocated to that work in its baseline schedule.The contractor claimed it took 285 “actual days” to do the work during the impact period, but the contractor had allocated 115 days for that work in its baseline schedule. 285 / 115 = 2.478 or 247.8%. As the court noted, the contractor’s ratio indicated that the contractor took about 2.5 times longer than expected to do the work at issue.

The court found that the contractor’s inefficiency ratio was fraudulent in at least two ways. First, the contractor miscalculated the 285 “actual days” to do the work at issue. The contractor counted any day it did the pertinent work as an “actual day” of work, no matter how minimal. As the court noted, “if a laborer or piece of equipment worked in a single subsection for any period at all, no matter how briefly, [that work] was counted as a full activity day.” This resulted in an inflated inefficiency ratio because there were many days where the contractor had recorded multiple “activity days” in a single calendar day. This caused an inflation of the contractor’s inefficiency ratio, which the court found to be intentional.

Second, the court found that the contractor improperly included 55 activity days in its ratio that were outside the alleged impact period. In other words, it appears the contractor included delay/impacted days in its damages that were outside the claim period. Based on that finding and the contractor’s improper calculation of the “actual days” to do the work in question, the court concluded the contractor’s use of the flawed inefficiency ratio rendered the contractor’s claims fraudulent.

(3) False batch plant equipment costs: The contractor had to use a batch plant to produce soil cement used to armor the levee. As a part of its claims, the contractor sought alleged costs related to ownership and operation of the batch plant. The batch plant claim was based, in part, on the hours of operation of the batch plant. In its claim to the government, the contractor represented the number of hours it used the batch plant based on the amount of time the batch plant operator logged on his timesheet. But internally, the contractor tracked its batch plant runtime by logging the hours the generator for the batch plant was running.The court found that had the contractor “properly recorded batch plant operating time based on generator operating time, [the contractor] would have reported far fewer operating hours for the batch plant in both its . . . claims.” The court made this finding, in part, because the evidence “indicate[d] that there was no correlation between batch plant operation time and [the operator’s] work hours.” As such, the court concluded that the contractor’s “calculation of its equipment costs with respect to the batch plant was false because it relied on a wholly inappropriate metric for measuring run-time.”

(4) False dewatering pump costs: Finally, the contractor included operating and standby costs for its dewatering pumps during the impact period. The issue with including these costs in the contractor’s claim was that the contractor had already been paid a lump sum for dewatering activities. Thus, the court concluded that the contractor’s “representation had no colorable or plausible basis and was therefore false.” The court also found that the contractor “knew that including the dewatering pump costs would, in effect, ‘double-bill’ the” government.

Based on the above findings, the court proceeded to impose penalties under the False Claims Act and the government’s Special Plead in Fraud counterclaim. As to the FCA, the government did not pay any of the contractor’s claims, so there were no actual damages and the court was limited to statuary penalties under the FCA. In that regard, the court imposed a $22,000 penalty on the contractor.

More importantly, the court brought down the hammer under the government’s Special Plea in Fraud counterclaim. As to that counterclaim, the court held that it was “bound to forfeit” the contractor’s claims as causes of action before the court. Translation–the contractor’s $4 million in claims at issue were tossed, and absent the court changing its ruling or being overturned on appeal, the contractor will recover nothing for the above-discussed inefficiency claims.

Bottom Line: It is very important to ensure that any claims submitted to the government are as accurate as humanly possible. When pricing inefficiency and other claims, care should be taken to review the claims and make sure they do not include inflated or otherwise fraudulent costs. While it may seem self-serving for me to say, a contractor submitting a claim to the government should always consider hiring experienced counsel to assist with preparation of the claim. Otherwise, the potential consequences can be severe, including forfeiting any claim the contractor may have otherwise have had.

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