For Immediate Release - November 30, 2010

AG Coakley Reaches Settlement with Surety Company Regarding Allegations of Overbilling the State for Construction Project

USF&G will forfeit nearly $2.9 million claim and pay cost of AG's investigation

BOSTON - Attorney General Martha Coakley's Office has reached a settlement agreement with United States Fidelity and Guaranty Company (USF&G), a subsidiary of Travelers Insurance, following an investigation concerning certain USF&G claims for payment from the Department of Transportation (MassDOT), formerly known as MassHighway. USF&G and its principal, defunct Billerica construction contractor Roads, Inc. (Roads), submitted claims of nearly $2.9 million for delay damages to MassDOT in connection with highway reconstruction on Route 20 in Charlton. To resolve the investigation, the settlement provides that USF&G will forfeit its $2.9 million claim and pay $25,000 to the Commonwealth for the costs of AG Coakley's investigation.

"Every public dollar is critical to rebuilding our state's transportation infrastructure," said Attorney General Coakley. "Our office is dedicated to ensuring that individuals and companies that enter into contracts to do business with the Commonwealth adhere to the terms of their contracts and not risk taxpayer money by submitting fraudulent claims in order to profit off of public money."

"I want to thank Attorney General Coakley and her staff for resolving this matter favorably on behalf of the Department," said MassDOT Secretary and Chief Executive Officer Jeffrey Mullan. "The Governor and Lieutenant Governor have made efficient use of infrastructure funds a top priority as part of transportation reform, and this settlement sends an important message about MassDOT's financial expectations for contractors doing business with the Commonwealth."

The matter was referred to the Attorney General's Office by MassDOT in November 2009. The Attorney General's Office contended that USF&G sought payment for recovery of "actual costs," which were in fact inflated estimated costs that were contradicted by supporting documentation, sought to recover costs for which they had already been fully compensated, and sought to recover overhead costs and other markups that are prohibited under the contract. USF&G denied that it submitted inflated or improper claims, but agreed to resolve the dispute according to the terms of the settlement.

Massachusetts public construction contracts allow a contractor to submit a claim to recover its actual escalated costs incurred due to delays, if those delays were caused by the state agency that holds the contract. The Route 20 construction project at issue here was completed 3 years behind schedule. Following completion of the project, Roads submitted claims for damages in three different amounts, purportedly to recover the same delay damages. These claims were supposed to reflect increases in the cost of construction resulting from a MassDOT-caused delay. After claims for $1.3 million and $1.6 million were rejected by MassDOT, Roads resubmitted the claim again, increasing the claim to over $2.8 million. When Roads went out of business, around November 2006, USF&G, as Roads' surety, adopted the claim and again resubmitted it to MassDOT for payment. As a result of the settlement, USF&G will forfeit its nearly $2.9 million claim and pay the Commonwealth $25,000 for costs of the investigation.

This matter was handled by Assistant Attorney General Jonathan Engel with assistance from Assistant Attorneys General Christopher Barry-Smith and Matt Connolly all of AG Coakley's Public Protection and Advocacy Bureau.

##########