There is a new twist on issues revolving around tariffs potentially impacting general contractors. AGC members Chris Denny, Vice President and Associate General Counsel of Turner Construction Company, and Bob Lizza, Chief Legal Officer, Consigli Construction Co., Inc., highlighted recent developments that could have serious implications for the construction industry. At a recent meeting in Washington, D.C., there was a discussion about growing federal enforcement efforts that contractors should not ignore.
It has been publicly reported that the U.S. Department of Justice intends to “aggressively” enforce the False Claims Act (FCA), as Deputy Assistant Attorney General Michael Granston said in a speech at the Federal Bar Association’s annual qui tam conference earlier this year. FCA cases alleging that an importer evaded customs duties by undervaluing imported products, misclassifying imports, or misrepresenting a product’s country of origin are on the rise.
In fiscal year 2024 alone, FCA settlements and judgments exceeded $2.9 billion, $2.4 billion of which arose from whistleblower lawsuits. The government, as well as private whistleblowers, have pursued actions alleging that an importer knowingly failed to pay specific custom duties owed to the U.S For instance, in a March 25, 2025, settlement involving Evolutions Flooring Inc., there was a $8.1M FCA settlement related to evading customs duties on wood flooring imported from China (see here).
Additionally, federal enforcement under the Trump Administration is leveraging artificial intelligence (AI) to detect possible fraud, including sudden changes in product classification or origin data that could indicate tariff evasion.
A general contractor is typically one step removed from the supply chain. Usually, the general contractor is not the importer of record – vendors, suppliers, or subcontractors usually assume that role and are responsible for customs declarations and tariff payments. However, under the False Claims Act, any party that knowingly submits, or causes the submission of a false claim to the federal government, including customs fraud, can be held liable. False Claim liability could be terribly costly because violations come with treble damages plus additional penalties for each violation. The penalties can be as high as $27,894 per violation and increase yearly with inflation (see here). On top of that, there are statutory financial penalties under the Customs Act, a material risk of debarment, and almost certain catastrophic reputational damage.
Recent legal cases demonstrate that a general contractor can face FCA liability if they are deemed complicit in a supplier’s incorrect tariff payment, and fraud goes uncorrected when discovered. More specifically, if a general contractor reviews a subcontractor or supplier tariff costs, and passing those costs on as part of a claim or cost-reimbursable contract they can be liable under the False Claims Act FCA if they remain “willfully blind” to their suppliers’ underpayment of customs duties … or the general contractor doesn’t exercise due diligence regarding the suppliers’ tariff practices.
Potential scenario: When importing products into the U.S., a supplier might change the product classification or country of origin, likely impacting product valuation and the applicable duty rate. For example, when importing curtain wall systems, a supplier may:
- Misrepresent the country of origin, or
- Change the product classification from aluminum derivative to glass; or
- Skew the pricing for components to reduce the price for more highly tariffed components.
Suppose the supplier does any of the above, and the general contractor is informed of this and its impact on the price of imported goods. In that case, general contractors should challenge potential mischaracterizations and ensure that such changes at least have a reasonable, good-faith basis. Project managers, under pressure to reduce costs, may sometimes fail to address these issues or not speak up. Consequently, construction companies should create proactive procedures to minimize risk.
Key Takeaways for Reducing FCA Risk Related to Tariff Violations:
- Vet suppliers for compliance with customs and trade regulations.
- Request and retain documentation verifying the country of origin and tariff classification for imported materials used on government projects, or when reviewing tariff claims, or on a cost-reimbursable contract.
- Assess and evaluate your suppliers’ current trade compliance programs, ensuring harmonization with the latest tariff classifications.
- Implement compliance procedures and establish clear employee reporting channels to protect the company from potential violations.
- Consider self-disclosure to the government if a violation is discovered. Many companies have benefited from proactive self-disclosure in resolving tariff issues.
Contact Brian Perlberg at brian.perlberg@agc.orgif you have any questions or comments about this article.