In a case of first impression, a Massachusetts Superior Court judge recently ruled that
a general contractor (G4S) could not recover over $14M from a public owner (MTPC) because G4S had violated its contract with MTPC by falsely certifying that it had paid its subcontractors in full and on time. G4S Technology LLC v. Massachusetts Technology Park Corporation, Suffolk Superior Court, CA No.2014-02998-BLS2.
The MTPC-G4S contract required G4S to pay its subcontractors all sums due within the time required by the subcontracts, and to certify that it had done so in its payment applications to MTPC. G4S submitted dozens of such certifications to MTPC knowing full well that it hadn’t paid its subcontractors as required. MTPC paid G4S in reliance on the false certifications. G4S utilized the sums paid by MTPC, but not paid to its subcontractors, to make its financial condition look better to outsiders, e.g. shareholders and potential investors. G4S eventually paid its subcontractors all sums due.
MTPC refused to pay G4S a $4.1M contract balance or $10.1M in extra work claims citing G4S’s intentional failure to pay its subcontractors as required. G4S then sued MTPC claiming that it would be unfair for MTPC not to pay G4S over $14M because its subcontractors had suffered relatively (to the $14M) little harm.
The judge dismissed G4S’s suit because G4S could not show that it made a good faith effort to fully perform its contractual obligations since intentionally ignoring contractual obligations is inconsistent with good faith. The Court also ruled that the fact that G4S eventually paid its subcontractors all sums due did not change the fact that G4S had submitted false certifications to MTPC to induce it to pay G4S. Finally, the Court found that G4S’s late payments to its subcontractors did not adversely affect the project or harm MTPC in any material way, financially or otherwise.
- This decision relies on long-standing Massachusetts decisional law which provides that a contractor which intentionally violates a contractual requirement can recover nothing for its work (exceptions: if the departure is de minimus or if there were other mitigating factors, e.g. the owner was partially responsible for the contractor’s failure to perform.)
- The Court justified the harsh result here in part on the fact that some of the funds MTPC used to pay G4S were from a Federal grant, the purpose of which was to benefit subcontractors hurt by the 2008 financial crisis.
- The fact that G4S furnished numerous knowingly false certifications for a period of more than a year likely also contributed to the judge’s willingness to impose such a harsh result.
- While the Court did not find that G4S’s certifications were fraudulent, a person who signs false certifications stating that subcontractors were paid can be personally liable for the owner’s loss, i.e. the signer is not protected the by the corporate “veil.”
About the Author
Maury Lederman has over 35 years of experience in construction law and litigation. He represents all players in the construction industry: public and private owners and developers, construction managers, general contractors, subcontractors, designers, and materials manufacturers. He represents clients in contract preparation and negotiation, problem-solving and preservation of rights during construction, and all types of dispute resolution: mediation, arbitration and litigation.
Maury can be reached at 781-997-1610 or firstname.lastname@example.org