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The rigorous oversight to which federal contracts are subjected include the Defense Contract Audit Agency (DCAA), Inspectors General (IG), the Government Accountability Office (GAO), the Department of Justice (DOJ), and potential "whistle blowers" who are encouraged by the prospect of hefty "finder's fees" under the False Claims Act. Even traditional government contractors may find the oversight mechanisms in the Stimulus Bill to be startling:

• Inspectors General. The Stimulus Bill appropriates $200 million for various agency Inspectors General. The Bill requires the Inspectors General to investigate wrongdoing and to examine the records of every contractor, grantee, subcontractor, and subgrantee as well as any state or local agency administering the effected contracts, subcontracts, grants, and subgrants. The mandate transcends traditional "audits" and to not only review company records but to "interview any employee of the contractor, grantee, subgrantee, or agency regarding such transactions."

 

• Recovery Accountability and Transparency Board. The bill creates a new oversight board (the acronym "RAT" Board) which has the express mission of coordinating and conducting "oversight of covered funds to prevent fraud, waste, and abuse." The charter of the RAT Board is very broad. It issues "flash reports" to the President and Congress on pressing management and funding problems that require immediate attention, submits quarter reports to the recipients that summarize the findings of the RAT Board, and an annual report. The RAT Board is also empowered to conduct its own independent audits and reviews and to collaborate with Inspectors General investigations. The Board has the power to issue subpoenas and to compel testimony of non-federal officers and employees, to hold public hearings, to compel testimony at those public hearings and to "contract out" in support of its oversight functions. Finally, the Board will establish a website in which it includes findings from its audits, as well as the Inspectors General and GAO investigations in which it will likely seek to embarrass and punish alleged wrongdoers without the protection of the adversarial process to resolve factual disagreements.

 

• GAO Investigations. The Stimulus Bill in §901 requires that the GAO conduct ongoing oversight regarding the use of the stimulus dollars and to issue reports. All individuals receiving stimulus money must agree to the GAO audit process - access to records and again, the right to interview employees at all tiers (§902).
  
  

All of this oversight to deter, detect, and punish "fraud, waste, and abuse." Government contractors are already acquainted with the many tools at the disposal of the federal enforcement agencies which can be employed by the federal enforcement agencies in their quest to wipe out fraud, waste, and abuse. These include, among others:

• Civil False Claims Act (FCA) (31 U.S.C. §§3729-3731). Under the FCA the government can impose treble damages and penalties on individuals and companies that "knowingly" submit false claims to the government for payment. In recent years contractors have bitterly complained about the misuse of the FCA to discourage contractors from filing meritorious claims.

 

• Criminal False Statements (18 U.S.C. §1001). In the numerous interviews there will be many opportunities for obfuscation, half truths, and lies. This statute was employed by the government in prosecuting Martha Stewart. It is not the threatened allegation that snags you, "it is the cover up."
  

 

• Whistle Blower Protections. §1553 of the Act prohibits any type of discrimination or recrimination against an employee that "reasonably believes" that stimulus funds may have been improperly used. Government contractors are already familiar with whistle blower protections and the stimulus Bill promises an expansion of the Whistle Blower lawsuits.
  

Companies contemplating pursuing the stimulus dollars are warned that these contracts will come with a price. The price is transparency, scrutiny, and vigorous government control exercised by the Inspector General, the GAO, the RAT Board and Whistle Blowers.

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Washington's Stop Notice presents an aggressive alternative to the traditional mechanic's lien.

The Stop Notice procedure, set forth in Section 60.04.221 of the Revised Code of Washington, gives a claimant the power to interrupt a project's construction funding by requiring the construction lender to withhold amounts that are due to the contractor, but have not been promptly paid in accordance with payment terms.

Before filing a Stop Notice, however, the claimant should be certain that it has filed all necessary pre-lien notices. Depending on the role that the contractor plays in a project, the pre-lien notice could be a Notice to Owner, Notice to Customer, or Notice of Furnishing Professional Services.

The next step is to provide a written Stop Notice to the lender. A Stop Notice may not be provided sooner than 5 days after the payment due date, but it must be provided within 35 days of the payment due date. A Stop Notice must contain the name of the lien claimant and general contractor, a description of the property, and a brief statement that the claimant has performed work and is entitled to payment.

The lender, upon receiving a Stop Notice, is required to withhold the claimed amount from future disbursements. In the event that the lender chooses not to withhold the claimed amount, the Stop Notice automatically takes priority over the lender's prior mortgage interest. This creates significant leverage for the contractor claimant because a traditional mechanic's lien is routinely subordinate to a lender's mortgage interest. As an added bonus in this situation, the claimant will also be entitled to recovery of reasonable attorney's fees upon final judgment.

Despite the obvious benefits of a Stop Notice, a potential claimant should also be mindful of potential negative impacts to the project. For instance, a Stop Notice could actually slow progress of construction. Depending on the size of the claim, the lender's decision to withhold claimed amounts might burden finite construction funds, thereby preventing payment to other trades and eventually slowing the overall progress of construction. In addition, the presence of one Stop Notice may encourage other Stop Notices, thereby increasing the burden on finite construction funds. Finally, even if a lender withholds the claimed amount, the parties might not agree to its release, and the issue might not be resolved until the conclusion of a foreclosure action.

Despite the potential drawbacks, a contractor, when faced with delinquent progress payments, must take prompt action to protect payment rights. In such cases, Washington's Stop Notice provides the contractor with an effective hammer to gain leverage when progress payments are due.

Editor's Note: The original version of this article was published in the January 2009 edition of Associated General Contractors of Washington publication, Cornerstone.

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