Harsh consequences for contractor’s false payment certifications in Massachusetts - by Elizabeth Wright

Elizabeth Wright, Robinson + Cole

A project owner often requires the contractor to certify that it fully paid each of its subcontractors as a condition to the owner making payment to the contractor. The purpose of these certifications is to protect owners from claims or liens by unpaid subcontractors. A recent Massachusetts decision highlights the importance of these certifications and the harsh consequences the contractor may expect if it intentionally submits false payment certifications.

In G4S Tech., LLC v. Mass. Technology Park Corp., 2016 Mass. Super. LEXIS 36, 33 Mass. L. Rep. 301 (Mass. Super. March 30, 2016), the contractor sought millions of dollars for alleged extra work and its contract balance for work performed on a state and federally funded project in western Massachusetts. The owner disputed the extra work and contract balance claims because the contractor intentionally breached the contract by submitting false payment certifications. The contractor did not deny that it submitted false payment certifications but stated that, because it eventually paid the subcontractors and the late payments did not cause a delay in completing the project, any harm that arose was de minimis. Thus, the contractor’s submission of false payment certifications should not prevent it from collecting its contract balance and pursuing its multi million-dollar claim. In addition, the contractor argued that it should be entitled to recover the cost of the work performed under the equitable theory of quantum meruit, which entitles the one who performed work to recover the cost of that work in the absence of a contract or agreement.

The court held that the contractor’s intentional breach precluded recovery of its claims as well as the contract balance. In support of its holding, the court noted that a contractor “cannot recover on a contract itself without showing complete and strict performance of all its terms.” The court found that by knowingly submitting false payment certifications the contractor did not demonstrate strict performance of the terms of the contract. In addition, the court held that the contractor could not recover under a theory of quantum meruit because the contractor could not prove “both substantial performance of the contract and an endeavor on [its] part in good faith to fully perform.” Massachusetts law holds that “an intentional departure from the precise requirements of the contract is inconsistent with good faith in the endeavor to fully perform it, and unless such departure is so trifling as to fall within the de minimis rule, it bars all recovery.” Thus, the court held that the contractor’s intentional submission of false payment certificates precluded any recovery by the contractor.

In reaching its decision, the court also dismissed the contractor’s argument that the breach was de minimis. The court noted that the owner received a large portion of the funding pursuant to the American Recovery and Reinvestment Act of 2009 (ARRA), whose purpose is to create jobs and provide an economic boost following the 2008 recession. Because complying with contract provisions to ensure payment to subcontractors was essential to meeting one of the purposes of the contract, the intentional submission of false payment certifications was not a de minimis breach.

Although the court’s decision relied in part on the fact that the owner received funding pursuant to the ARRA, given public policy concerns in favor of ensuring payment to subcontractors, it is possible that courts could reach a similar conclusion even in the absence of funding pursuant to the ARRA. Thus, this case serves as an important reminder to contractors of the harsh consequences that may arise from intentionally submitting false payment certifications.

Elizabeth Wright is an associate at Robinson+Cole, Hartford, CT