New schools with glass atriums and sleek-looking transit hubs are carefully designed and look amazing. The craftsmanship and innovation that goes into these buildings can be awe-inspiring. However, sometimes there’s fraud lurking behind a carefully staged ribbon cutting. It could be a matter of inflated invoices, falsified payroll records, undisclosed kickbacks, or manipulated bids.
Publicly funded government construction projects are subject to strict regulations and oversights. When the rules are violated through crimes like fraud, bribery, false claims, or bid manipulation, it can trigger a federal investigation. When that happens, a grand jury will be convened to determine whether contractors, subcontractors, public officials, or consultants have violated federal law. But grand juries don’t operate like state-level criminal cases. They’re more intense, and charges seem to come out of nowhere.
“By the time you learn you’re the target of a grand jury investigation, the government has spent months or years building its case,” says a lawyer from SBBL Law. “A subpoena, search warrant, or target letter might come right before the indictment, after the government has built the majority of its case already.”
Federal scrutiny is serious. Just because no action has been taken—even for a long time—doesn’t mean the crime isn’t being investigated. Grand juries operate in secret while the prosecution builds its case. Once the crime has been discovered, it can take a long time for the prosecution to finish its investigation and seek a charge from the grand jury.
Public construction contracts are regulated
Unlike private development projects, all public contracts using federal funds must comply with transparent bidding procedures, current wage laws, and strict accounting standards. Contracts must be awarded through a competitive bidding process to avoid favoritism. When a contract is given to a preferred bidder or specifications are manipulated, that can be considered a criminal offense.
Public projects also must comply with Disadvantaged Business Enterprise (DBE) rules. Misrepresenting eligibility for minority- or women-owned business programs is common and often leads to investigations.
The False Claims Act can lead to grand jury investigations
The False Claims Act (FCA) allows the government and whistleblowers to pursue companies that submit false claims for payment. The Department of Justice reported more than $2.68 billion in FCA settlements in 2023 alone.
False claims include padding invoices or exaggerating change order costs on requests for federal reimbursement. Another false claim that constitutes a crime involves submitting safety certifications while knowingly violating standards. These crimes sometimes start as civil matters but can trigger a grand jury investigation when intentional fraud or kickbacks come to light.
Bid rigging and collusion are common instances of fraud
Public construction contracts are vulnerable to bid rigging and price-fixing schemes. These crimes fall under antitrust laws and can result in hefty fines and time in prison. Criminal antitrust violations can result in fines up to $100 million for corporations and 10 years in prison for individuals.
Fraud can encompass a range of deceptive schemes, including how contractors bid. For example, sometimes competing contractors agree not to bid against each other in certain regions, which constitutes a violation of the Sherman Act of 1890. Another way bidding is rigged happens when contractors intentionally submit high bids to give the impression of competition, while there’s already a predetermined winner. Sometimes contractor kickbacks are disguised as subcontractor arrangements, and that’s also a common trigger for a grand jury investigation.
Payroll fraud and misclassified labor are common
When construction projects involve subcontractors and temporary workers, payroll and reporting requirements are more complex. Sometimes companies misclassify employees as independent contractors to avoid paying payroll taxes and employee benefits. Contractors who pay workers off the books to avoid payroll taxes are at risk for prosecution. Sometimes companies misrepresent payroll totals to reduce their insurance premiums. These instances of fraud can trigger a host of criminal investigations by federal agencies, including the IRS.
Environmental and safety violations can trigger a federal investigation
Federally funded projects are governed by environmental laws like the Clean Water Act and OSHA regulations. When violations are intentional or involve false reports, it can trigger criminal charges. This includes illegal dumping, concealing environmental violations, submitting false safety logs, and permit violations. If violations are considered deliberate rather than negligent, a grand jury might be convened to determine criminal intent.
Federal funds come with tight regulations and serious consequences
Government-funded construction projects can be a wonderful addition to any community, but they come with serious legal obligations. Any violations involving deception, fraud, or misuse of public funds can trigger a grand jury investigation. Because of this, compliance must be treated seriously. Once a grand jury investigation begins, it’s too late to start following the rules.
