On most construction projects, a project owner will require the contractor to certify that it has fully paid each of its subcontractors as a condition to the owner making payment to the contractor. The purpose of these certifications is to ensure timely payment to all subcontractors and to protect the owner 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 the contractor intentionally submits false payment certifications to the owner.
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 to design and construct a fiber optic network 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 on the completion of the project, any harm that arose was “de minimis”. Therefore, the Contractor argued that its 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 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 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. In order to prove entitlement under a theory of quantum meruit, the contractor must prove “both substantial performance of the contract and an endeavor on [its] part in good faith to fully perform.” Massachusetts law further 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 (the “ARRA”). The purpose of the statute is to create jobs in the wake of the 2008 recession and provide an economic boost to those impacted by the economic crisis. Because complying with contract provisions to ensure timely 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 timely and complete 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.