That stimulus money doesn't come cheap

With more than $110 billion in federal stimulus funding headed for infrastructure projects in the coming years one might expect construction firms clamoring to get in line for their share. Perhaps, but Stephen O’Neal, a partner with the law firm Howrey, tells us there’s some potential downside to that money as well.

Federal stimulus funds will go toward many heavy construction projects.

The American Recovery and Reinvestment Act includes $5.5 billion in “green building” funding through the General Services Administration, $4.5 billion for “smart grid” efforts through the Department of Energy, $7 billion for military construction and modernization, and $27 billion roads and bridge repairs. Here’s a link to a state-by-state expectation of infrastructure stimulus funds
The flood of money is such that the federal government is hiring heavily to help administer it, O’Neal said, such as hundreds of new OSHA inspectors to keep up with the safety inspections for all the new construction sites.
But that money won’t come cheap, given the many strings attached.
For example, the definition of what constitutes a “false claim” (i.e. an overcharge of a contract) is different when working under a government contract these days. In the past the government needed to show intent, that the company meant to make a false claim. Now even an accidentally overcharging can get a company in hot water.
And contracting with the government under the recovery act requires new levels of public disclosure, including the total compensation of the top-five executives in the contracting company. Publicly traded companies are used to doing this, but much of the construction business is dominated by privately-held companies that like to keep that information close to the vest.
“That’s the one I get the most calls about,” said John Heisse, a San Francisco-based partner with Howrey.
(BTW, while O’Neal and Heisse are considered old hands in the business, they’re relatively new additions to Howrey, the result of the acquisition of Thelen LLP’s construction practice in San Francisco).