Amendments would modify the materiality test focus.

For decades, the California False Claims Act has been appropriately used by public agencies as a shield against false or fraudulent claims submitted by contractors on public works projects. At the same time, it’s also been misused by many public agencies as a sword to gain leverage in negotiating claims and closing out a project. Legislation is currently pending in Sacramento that would effectively codify a foreseeability test as to whether a false record or statement is “material” for purposes of the act.


The California False Claims Act (CFCA) [Government Code, §§12650-12656] was modeled after the Federal False Claims Act originally enacted into law in 1863 by President Lincoln to stop fraud being perpetrated by contractors against the government during the Civil War and, thereafter, during reconstruction.

As such, the act is interpreted broadly to provide for civil penalties and treble damages for any person who “knowingly presents or causes to be presented [to the state or any political subdivision] . . . a false or fraudulent claim for payment or approval.” (§12651(a)(1).) A governmental plaintiff may recover three times the damages it incurs including consequential damages, costs of a civil action and a civil penalty of not less than $5,500 and not more than $11,000 for each violation. (§12651(a).)

A “claim” includes any request or demand for money, property or services made to the state or any political subdivision thereof. (§12650(b)(1).) “Political subdivision” includes any “city, city and county, county, tax or assessment district, or other legally authorized local governmental entity with jurisdictional boundaries.” (§12650(b)(7).)

The government must show that the claimant had the requisite knowledge as to the falsity of the claim. For purposes of CFCA, however, the claimant is determined to have the requisite “knowledge” of the falsity of the claim if the claimant (1) has actual knowledge of the information, (2) acts in deliberate ignorance of the truth or falsity of the information or (3) acts in reckless disregard of the truth or falsity of the information. (§12650(b)(3).)

“Material” False Record or Statement

CFCA requires that the false record or statement be “material” to a false or fraudulent claim. “Material” is defined as having a “natural tendency to influence, or be capable of influencing, the payment or receipt of money, property, or services.” (§12650(b) (4).) With respect to whether a false record or statement is material, AB 1270 would modify §12650(b)(4) by requiring that the materiality test focus on the “potential effect of the false record or statement when it’s made, not on the actual effect of the false record or statement when it’s discovered.”

Claims preparation, particularly near the close out of a public job, is a detailed, methodical process that requires care. Extra-contractual damages are often subject to differing opinions and debate, particularly delay and disruption damages, which are often subject to diverging expert opinions relative to critical path activities, concurrent delays and, in the end, compensable and non-compensable damages.

Reasonable but differing interpretations of project specifications may exist, which would potentially affect the damages sought in a claim. AB 1270, however, would place on the claims’ preparer an assessment as to whether the damages sought, even if in dispute, have merely the potential effect of being interpreted as a false record or statement.

It’s difficult to prove a state of mind or the potential for a future event to occur. If that potential exists, however, AB 1270 could effectively establish the existence of a false claim.


SCCA’s Legislative Committee is currently opposing AB 1270 and will continue to report on its status.

Gerald W. Mouzis is the managing partner of The Mouzis Law Firm, APC, in Tustin, that specializes in construction and construction-related issues on public and private jobs, including claims and claims litigation. Mouzis is the current chairperson of SCCA’s Legal Committee and a member of the Legislative Committee. He is also the director of Mouzis Dispute Resolution Services, through which he conducts mediations, arbitrations and consulting focused largely on construction disputes.

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