Defense contracting is big business, and one with extensive rules and regulations to try to ensure that the government gets what it pays for. Unfortunately, the companies that support and supply our armed services sometimes bend the rules, cut corners, or outright lie to boost profits or secure contracts for which they aren’t eligible.
That isn’t anything new. In fact, the False Claims Act was first created to combat fraud by unscrupulous contractors selling shoddy goods to the Union Army during the Civil War. Today, the FCA is the key tool in the government’s fight against fraud.
Defense contractor frauds now are often more complicated than companies selling rags as uniforms or providing mules that can’t walk. Today, companies lie about products meeting complex testing requirements, or they hide illegal upcharges in their cost accounting. But although it may be slightly harder to explain, fraud is still fraud. Lying about a key part of a weapons system meeting materials standards is no different than supplying broken firearms.
As with any other procurement fraud, when defense contractors defraud the government, it has multiple negative impacts. Most obviously, the government isn’t getting what it paid for, which means the company is defrauding taxpayers. That’s a problem on its own, whether because the company is charging more than it is allowed to or because it’s providing substandard goods.
If a contractor is supplying bad or defective products, it then costs the public even more money when the government has to foot the bill to correct the problems or replace bad equipment. All of this also means delays in rolling out critical systems, long or unexpected maintenance periods, or the need for wholesale replacement.
Given the highly sensitive systems at issue, defense contractor fraud also often creates safety risks. When our servicemembers are deprived of essential equipment or given defective versions of it, the results can be deadly.
The most common frauds committed by defense contractors can be broken out into three types: frauds to get a defense contract, financial frauds involving upcharging, cost-shifting, or other manipulations once they have the contract, and supplying defective products under the contract.
Some defense contracting fraud occurs right at the outset, when contractors cheat to secure the contract in the first place. This can happen in a few different ways.
Contractors may work together to rig their bids, artificially inflating the price that the government has to pay. That breaks the law in two ways. Lying to secure a contract violates the False Claims Act, so whistleblowers can sue to put a stop to it. For example, a client of Whistleblower Partners attorneys exposed an alleged conspiracy by South Korean oil companies to artificially inflate fuel prices for contracts to supply U.S. military bases. The whistleblower’s information led to a $363 million government recovery and a $37 million whistleblower award.
This kind of price-fixing also may violate antitrust laws, so in the wake of that case, the Department of Justice created a Procurement Collusion Strike Force (PCSF) to combat exactly this kind of situation. Since its creation, it has brought multiple enforcement actions to stop bid-rigging by other contractors.
Once contractors have a deal with the government, they have to follow strict, agreed-upon rules for their billing. Unfortunately, there are numerous examples of unscrupulous contractors trying various ways to boost their profits by cheating. One way is by taking advantage of open-ended contracts to sell the Department of Defense far more than it wants or needs. For example, a client of Whistleblower Partners attorneys brought a False Claims Act lawsuit that resulted in defense contractor KBR paying $108 million to settle allegations it had over-billed the U.S. government for unneeded supplies and materials under contracts to support the Iraq war.
Another common way to illegally boost profits is to mess with cost accounting. By doing so, companies can falsely claim reimbursement for unrecoverable or inflated costs, or even for work done for others (for which they may already be receiving compensation under another contract). As reported in the NY Times and LA Times, a client of a Whistleblower Partners attorney received a $27 million reward for putting a stop to similar alleged behavior by Northrop Grumman and TRW.
Contractors violate the FCA when they knowingly supply products that do not meet contractual requirements. That can range from the classic example of guns that don’t shoot to more complex, but no less critical failures, like knowingly installing defective microelectronic parts in spy satellites—an allegation that Northrop Grumman settled for $325 million.
Defective products cases illustrate some of the most dangerous aspects of defense contractor fraud, since substandard equipment and supplies can pose real dangers. Take for example the battlefield flares sold by what is now ATK Launch Systems. A whistleblower represented by one of our attorneys alleged those flares could accidentally ignite if dropped as little as 11 inches, burning 36 pounds of propellant at 3600 degrees Fahrenheit. That company settled the resulting fraud allegations for $37 million.
Another common defective products fraud involves the knowing failure to test products or the falsification of test results. Defense contractors are given rigorous specifications for what they sell to the government for a very good reason. Lives can be on the line. So when they lie about testing, or cover up bad test results, they can be sued for fraud. For example, a Whistleblower Partners attorney represented a client who alleged that Northrop Grumman knowingly failed to properly test parts it sold the government for use in navigation systems in warplanes, submarines, and space equipment. The company paid $12.5 million to resolve the False Claims Act lawsuit.
Under the FCA, whistleblowers can bring lawsuits against defense contractors who are engaged in fraud. As an incentive, whistleblowers can be rewarded 15-30% of the amount the contractor ultimately pays the government as a result of the case.
Whistleblower Partners has secured multiple high-profile wins in defense contracting fraud cases and can help you assess whether you might have a case. If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.
These descriptions of defense contracting frauds are general in nature and do not constitute legal advice. Defense contracting frauds are complex and ever-evolving. The attorneys at Whistleblower Partners understand the complicated, constantly changing legal landscape and are happy to discuss any potential matter further.
If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.
