The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:
MEMORANDUM OPINION AND ORDER
Relator Greg Hudalla has brought qui tam claims on behalf of the United States against Walsh Construction Company under the False Claims Act (FCA), 31 U.S.C. § 3729(a). Hudalla claims that Walsh utilized fraudulent billing practices while working as general contractor on eight federally funded affordable housing projects and that it thereby received federal government money to which it was not entitled. Walsh has moved for summary judgment on Hudalla's claims, and Hudalla has cross-moved for partial summary judgment on liability and Walsh's affirmative defenses. For the reasons stated below, the Court denies Walsh's motion and grants Hudalla's motion in part.
The Court takes the following facts from the parties' memoranda of law and statements of uncontested facts. On a motion for summary judgment, the Court construes all facts favorably to the nonmoving party and makes reasonable inferences in that party's favor. Eaton v. Ind. Dep't of Corr., 657 F.3d 551, 552 (7th Cir. 2011). Although Hudalla and Walsh disagree about the relevant aspects of what constitutes appropriate billing and accounting practice on a construction project that involves government funding, they agree on most of the historical facts.
Walsh is a Chicago-based construction management and general contracting firm that has worked since the mid-1990s on a variety of public housing projects. In 1999 or 2000, the Woodlawn Community Development Corporation (WCDC) became the "project sponsor" (also referred to as the "owner" or "developer") for a Chicago housing project called South Park Plaza. After securing funding from various private and government sources, WCDC hired Walsh as its general contractor. A general contractor administers a construction project, overseeing logistics and hiring subcontractors to perform necessary "trade work" such as carpentry or plumbing. A developer usually works directly with and pays only the general contractor, which is then responsible for directing and compensating the subcontractors and paying other project expenses.
Hudalla served as WCDC's construction-site representative for South Park and in that capacity had the opportunity to review Walsh's applications for payment from WCDC during and after the project. After the project was completed, he concluded that Walsh had utilized fraudulent billing practices to receive more money than it was allowed to make for its work on South Park. He claims in this lawsuit that Walsh also engaged in the same fraudulent practices in the course of its work on seven other Chicago affordable-housing construction projects: Beth-Anne Extended Living, Lake Park Crescent, Pershing Courts, Roosevelt Tower, St. Sabina Senior Housing, and Westhaven I and II.*fn1 Walsh for the most part does not deny that it made estimates and kept billing records on South Park and the other projects in the manner Hudalla claims, but it denies that there was anything wrong with its practices or methodology.
All of the projects received one or more of four types of financial support that originate with the United States Department of Housing and Urban Development (HUD). First, HUD directly funded two projects through its Capital Advance program. Second, HUD provided funds to the City of Chicago to finance projects through the HOME program. Third, HUD provided funds to the Chicago Housing Authority (CHA) to finance projects through the Mixed Finance program. Several of the projects at issue received funding via the HOME or Mixed Finance programs. Fourth, on certain projects, HUD guaranteed mortgages against developer default. Each of the projects at issue that received mortgage guarantees also received funds via one of the other sources just described.
Each project was completed under one of two types of contracts: "lump sum" contracts for Beth-Anne, Roosevelt, and Pershing, and "cost plus" contracts for the rest. To be awarded a lump sum contract, a general contractor enters into a competitive bidding process. The amount of the winning bid is the amount the winning contractor receives for its work on the project, regardless of whether its actual expenses are lower or higher. In a cost plus contract, the general contractor receives the lower of its expenses on a project or the "guaranteed maximum price" (GMP) for that project, which is a total it works out in advance with the developer.
Walsh was paid periodically during the course of its work on each project to ensure that it would have enough funds to pay for expenses and subcontractors, a practice typical of general contracting arrangements. The projects established interim pay periods, each of which concluded with a meeting that included Walsh, representatives of the architect and developer, and sometimes government agency personnel. The meeting attendees certified that a project was more or less on track. After each of these certifications, Walsh received a fixed percentage of the project's total price (the lump sum or the GMP, depending on the type of contract). These interim percentage payments were structured so that Walsh would receive its entire fee by the conclusion of a project. At the end of a cost plus project, Walsh submitted a statement of its overall costs to be measured against the GMP for the project. In at least one case, these costs exceeded the GMP, and Walsh therefore did not receive reimbursement for all of its expenses.
The lump sum or GMP for a project can be altered during construction with a "change order" form, but the figures tend not to change very much between estimation and final payment. Because the maximum amount a general contractor can receive on a project is basically established before it begins work, the contractor goes through a detailed process of estimating costs before it submits a bid or agrees to a GMP. This estimation process may involve contacting subcontractors for bids or price quotes, as well as considering what other kinds of work will be necessary for a site. The process culminates in the creation of a document called a "schedule of values" (SOV). An SOV lists the total expected costs for a project, broken down into separate line items for various categories of general contractor and subcontractor work. The projects receiving Capital Advance funding and funding administered by the City of Chicago required Walsh to submit its expected costs on HUD form 2328, which asks for the same information that is included in a typical SOV. The Court will refer to Walsh's SOVs and 2328 forms collectively as SOVs.
For all of the projects except Pershing and Westhaven I and II, the parties agree that Walsh's construction contracts were finalized only after HUD approved the SOVs. These contracts all incorporated the SOVs as exhibits, and the GMP or lump sum listed in each contract was the same amount indicated by the SOV for the project. Walsh completed 2328 forms for Pershing and Westhaven I, but it points out that the forms were not signed by anyone from HUD and are not exhibits to the construction contracts. It contends that they therefore did not factor into the approval process in the same way as the other SOVs. Walsh also completed a non-2328 SOV for Westhaven II that it claims HUD approved, although neither the form itself nor the contract to which it is an exhibit indicates that approval. Just as with the other five contracts, however, the lump sum or GMP for each of these projects is the same value that appears on the SOV for the particular project.
Each SOV includes a total expected cost for the project, broken down into itemized lists of costs. These lists are further subdivided into two main sections. The first section is called the "trade lines" or "trade items." These lines include the costs of each particular kind of "hard construction" work that the project requires, such as masonry or carpentry. The second section indicates three separate allotments of money specifically for the general contractor: profit, builder's overhead, and general conditions. Profit represents a stipend for the general contractor over and above its expenses. Builder's overhead is a fixed amount that the general contractor receives in consideration of its day-to-day expenses not directly associated with a particular project, such as rent for its home office. General conditions, also called general requirements, comprise the cost of non-trade-specific work that the general contractor itself performs on a construction project, such as safety, cleanup, and site security, as well as general expenses such as electrical consumption.
The central point of contention in this case is whether certain self-performed work that Walsh listed and billed as part of the trade items on each project's SOV instead should have been listed under "general conditions." For example, on the Lake Park project, Walsh completed an additional form called a "sworn statement" that listed costs in a more detailed way than the Lake Park 2328 form. The sworn statement indicated that Walsh's calculation of trade costs included compensation for itself for work including "safety, clean-up, firestopping, unloading and delivery." Walsh does not dispute that the totals on the 2328 form reflected billing for these activities or that these amounts represented money that was paid to Walsh separately from the amount it received for general conditions. Walsh maintains, however, that the all relevant project stakeholders knew that it was billing this way, and it denies that it broke any rules or hid anything from HUD.
Hudalla argues that this practice constituted fraudulent billing. Specifically, he contends that Walsh's inclusion of costs on the trade lines was fraudulent because most of the costs should have been listed under "general conditions" and that certain other costs were not costs for which Walsh was entitled to bill in the first place. Hudalla alleges that the costs billed as trade items either duplicated work already accounted for under general conditions or that, by separating these costs from the general conditions line item, Walsh billed more for general conditions than it was allowed to. In support of the latter argument, Hudalla cites the "Cost Control and Safe Harbor Standards for Rental Mixed-Finance Development," which apply to five of the projects at issue, as establishing that HUD prohibits general contractors from receiving more than six percent of the hard construction costs on any given project as general conditions, as well as two percent as builder's overhead and six percent as profit.
Hudalla contends that the six percent limitation represents a hard cap for general conditions costs. Therefore, he argues, any general contractor that manages to take home a higher percentage based on work like safety and clean-up -- which Hudalla says should be categorized, by definition, under "general conditions" -- is cheating the system and deceiving the government. Thus, according to Hudalla, Walsh illegally supplemented its income in two ways. First, Walsh received the wrongfully added amounts themselves over and above the six percent allocated on the general contractor lines, thereby receiving compensation for general conditions work that exceeded six percent of the project's hard construction costs. Second, because Walsh counted these amounts along with subcontractor-performed work when calculating the total construction costs, the total fourteen percent cut that it received was higher than it otherwise would have been. Walsh denies all of these allegations.
Although Hudalla worked only on the South Park project, his complaint identified four other projects and alleged that, due to the way in which Walsh billed as a matter of practice, it had, "on information and belief, knowingly and recklessly damaged the United States Government" on other projects, "including, but not limited to" several that Hudalla named. Am. Compl. ¶ 33. Walsh moved to dismiss in part, arguing that the non-South Park projects were not properly part of the lawsuit because they were not referenced with sufficient specificity in the complaint. On June 23, 2009, the Court denied the motion, noting that Hudalla did not have access to the records for other projects and that his allegations were sufficiently specific to meet the requirements of Federal Rule of Civil Procedure 9(b). During discovery, Walsh objected to producing materials regarding projects not named in the complaint. The Court granted Hudalla's motion to compel discovery of these materials.
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In other words, a court may grant summary judgment "where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
A. Non-South Park projects
As a threshold matter, Walsh contends that some or all of the projects other than South Park should not be considered in this case because of deficiencies in Hudalla's complaint or other alleged missteps.
1. Adequacy of the complaint
In his original complaint, filed in October 2005, Hudalla alleged in detail how he contended Walsh had committed fraud in connection with South Park. He then alleged that he was told by Walsh supervisory personnel "that this is how Walsh regularly does business and accounts for its expenses." Compl. ¶ 26. Walsh went on to allege that the damage to the government on South Park exceeded $1,300,000 and that given the sheer number of other government financed construction projects for which Walsh serves as general contractor, including, but not limited to, the federally financed construction projects known as Westhaven, Park Boulevard, Park Crescent, and Altgeld Gardens, and the manner in which Walsh "accounts" for its costs, expenses and fees, Walsh has, on information and belief, knowingly or recklessly damaged the United States Government in an as yet undetermined amount but, in any event, in excess of $5,000,000.
Id. ¶ 32. In his amended complaint, Hudalla beefed up his allegation regarding Walsh's general billing practices, alleging that he was told by various Walsh supervisory personnel that
Walsh regularly "does business" this way and routinely collects additional funds in this manner on construction projects which are governed by maximum cost contracts such as SPP and other federally funded construction projects on which it is, or has, been hired.
Am. Compl. ¶ 28. He also supplemented his separate allegation regarding Walsh's use of fraudulent practices on projects ...