BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley announced on Tuesday that she has reached a settlement with a surety company that allegedly overbilled the state on a construction project.

United States Fidelity and Guaranty Company, a subsidiary of Travelers Insurance, along with its principal -- the defunct Billerica, Mass.-based construction contractor Roads Inc. -- allegedly submitted inflated claims of nearly $2.9 million for delay damages to MassDOT in connection with highway reconstruction on Route 20 in Charlton, Mass.

The lawsuit alleged that USF&G sought payment for recovery of "actual costs," which were really inflated estimated costs that were contradicted by supporting documentation.

The company also allegedly tried to recover costs that had already been fully paid and asked for overhead costs and other markups that were prohibited under the contract.

"Every public dollar is critical to rebuilding our state's transportation infrastructure," Coakley said.

"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."

Under terms of the agreement, USF&G will forfeit its $2.9 million claim and pay $25,000 to the state for costs associated with the litigation. USF&G, in agreeing to the settlement. denied that it submitted inflated or improper claims.

According to state law, 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.

Roads allegedly submitted claims for damages in three different amounts, purportedly to recover the same delay damages for the three-year delay in the Route 20 project. Once 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.

Roads went out of business in November 2006, and USF&G adopted the claim and resubmitted it to MassDOT for payment.

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