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DEFENSE  CONTRACTOR  FRAUD

Since the inception of the False Claims Act, defense contractor fraud has been a billion dollar industry for unscrupulous defense contractors.

Warren | Benson Law Group has handled some of the most complex defense contractor fraud qui tam cases in history and has been involved in the following types of cases:

  • FAR, CAS & Accounting Violations
  • Bid Rigging Fraud
  • Defective Pricing
  • Cross Charging
  • Product Defects
  • Product Substitution
  • Indirect Cost Rate Proposals
  • Quality Assurance & Testing
  • Improper Cost Allocation
  • Kickbacks
  • Buy America Act
  • SBA and Minority Set Asides
  • Energy Performance Savings (ESPC)
  • Central Asia / Mid-East Contracts
  • Foreign Military Sales
  • Foreign Corrupt Practices
  • False Inventory
  • Warehousing Storage and Logistics
  • False Qualifications
  • Commissary and Exchanges
  • Arms Export Control Act
  • Overhead and Indirect Cost
  • Related Entities Pricing

The following examples are some of the typical schemes seen in defense contractor fraud:

VIOLATIONS OF THE TRUTH-IN-NEGOTIATIONS ACT:

Defense contracts are often entered into on the basis of paying the defense contractor based on the contractor’s costs, plus a percentage for profit. These are known as “cost plus fixed fee” contracts. In these situations, a law known as the Truth In Negotiations Act (TINA) requires that the contractor submit its historical cost and pricing data for similar work, in order that the Government can have a fair estimate of what the costs for the current contact will run. As part of the contracting process, the bidding contractor must certify that it has complied with TINA, by truthfully and honestly submitting all relevant cost and pricing data and historical information for the contract.

However, where the unscrupulous contractor lies about its historical costs, it does so with two motives. First, it might under-report its costs in order to win the contract bid and then rely on receiving “change orders” to increase the value of the contract. Second, if the contract is a sole-source contract, the contractor might overstate its historical costs so that it can fraudulently charge more under the contract. Both of these situations are violations of the False Claims Act.

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CROSS CHARGING:

In the cross-charging scheme, a contractor might have both fixed price contracts and cost-plus contracts. In this situation, the contractor might defraud the Government by improperly recording the labor, materials and overhead from its “fixed price” contract, to its “cost-plus” contract. Through this scheme, the contractor will still receive the full fixed price on its one contract, but defraud the Government into paying an inflated amount on its cost-plus contract, by paying for costs that never should have been recorded as being related to the cost-plus contract.

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IMPROPER COST ALLOCATION:

Improper cost allocation is a similar to the cross-charging scheme. It is not uncommon for contractors to have contracts for commercial customers and contracts for Government customers. In the cost shifting scheme, the contractor will improperly record costs related to its commercial contracts, onto the cost ledgers for its Government contracts. By doing so, the contractor defrauds the Government into paying for costs and overhead unrelated to its Government contracts. This is a violation of the False Claims Act.

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FAILURE TO COMPLY WITH CONTRACT SPECIFICATIONS:

All government contracts have specific design specifications to what the resulting products can perform to the increased stresses of combat or space. When the contractors on these contracts seek payment, they are required to certify that the products comply with the required design specifications. However, many times the contractor will cut corners and will lie about whether its work complied with the design specifications. This is a violation of the False Claims Act.

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PRODUCT SUBSTITUTION:

All government contracts also carry specific requirements that the products or goods being purchased by the Government under its contracts meet a certain grade or quality. Much like the temptation for contractors to lie about whether they have complied with design specifications, some contractors substitute cheaper and inferior goods or components in an attempt to save money. However, when the contractor asks to be paid, it must certify that the goods or components meet the standards designated in the contract. When the contractor lies about this compliance, it can be a violation of the False Claims Act.

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