Fraud by defense contractors, scamming the Union Army, is the reason the federal False Claims Act was originally enacted in 1863. Today, the federal government spends upward of $300 billion a year on defense contractors, and fraud in defense contracting remains a vital concern and one of the most active areas of False Claims Act enforcement.
Fraudulent practices by defense contractors include, knowingly:
- Inflating costs and charges
- Charging time or materials used for one project to another (“cross charging,” often by shifting charges from a fixed-price to a cost contract)
- Shifting costs that should be allocated to private customers to the government instead
- Failing to comply with contract specifications
- Bribing government procurement officials
- Failing to conduct required quality-control testing or forging, concealing or lying about test results
- Bid rigging or collusion to frustrate competitive bidding
- Substituting inferior parts, or parts not made in the U.S.A.
- Violating the Truth In Negotiations Act (TINA)
- Billing for goods and services not delivered or rendered
- Providing defective products or services
- Failing to comply with contract specifications
- Making false statements to obtain, or to keep, a contract
- Inflating overhead costs or other expenses
- Failing to credit the government for rebates received from subcontractors
Defense contractors have been frequent targets of False Claims Act cases. By way of example:
In 2013, ATK Launch Systems agreed to pay $46.5 million to resolve whistleblower claims that it violated the False Claims Act by knowingly selling dangerous and defective flares, which did not conform to contract specification, to the Army and the Air Force. The whistleblower in the case was an ATK employee.
In 2012, Maersk Line Limited agreed to pay $31.9 million to resolve claims that it violated the False Claims Act by knowingly overcharging the Department of Defense to transport cargo to support U.S. troops in Afghanistan and Iraq. The whistleblower in this case, a former shipping industry insider, received $3.6 million as his share of the settlement.
In 2009, Leo Burnett Company, USA paid the federal government $15.5 million to settle claims alleging the company overcharged the government for work on a new advertising campaign for the Army, to replace the Army’s “Be All You Can Be” recruiting slogan and ad campaign. The allegations in the case covered work Leo Burnett performed between 2000 and 2005 on a $360 million, multi-year contract—at that time, the largest Army advertising contract that had ever been awarded. The relators, a former vice-president and the former comptroller at Leo Burnett, alleged that the ad agency had violated the False Claims Act by fraudulently passing off labor costs for the internet portion of the ad campaign as out-of-pocket expenses paid to independent contractors when, in fact, the work on the internet campaign was performed in-house by the ad agency’s own internal internet unit, ILEO. This deception enabled Burnett both to charge the Army higher hourly rates for work done on the internet campaign and circumvent the contract’s cap on government reimbursement for Burnett’s in-house work. The case also involved allegations that the ad agency improperly inflated its hourly rates when it billed the Army. The whistleblowers received $2.79 million as their share of the settlement.
In 2006, Boeing agreed to pay $565 million to resolve claims that the company violated the False Claims Act by improperly acquiring thousands of pages of rival Lockheed Martin’s proprietary documents and using them to help win a Pentagon contract, as well as by illegally recruiting a senior Air Force procurement officer while she had authority over billions of dollars in other Boeing contracts.
In 2005, Northrop Grumman agreed to pay $62 million to resolve claims that the company violated the False Claims Act by falsifying charges for scrap, failing to provide the government with credits for scrapped parts that were salvaged and reused, and lying to the government about progress toward developing a radar-jamming device for the B-2 bomber and thereby fraudulently inducing the government to award the company a contract to build it. The whistleblowers in this case were a former auditor and former test engineer for the company; they received about $12.4 million as their share of the settlement.
In 2003, Northrop Grumman agreed to pay $80 million to resolve claims that the company violated the False Claims Act by selling the Navy defective equipment and by billing the government for costs for the design and development of tankers that the company had contracts to build for commercial customers.
In 2000, Boeing agreed to pay $61.5 million to resolve claims that the company had violated the False Claims Act by installing faulty transmission gears in Army helicopters. The whistleblower in this case was a quality control engineer and received $10.5 from the settlement.
If you have knowledge and solid evidence of fraud or false claims involving defense contracting, please contact our Chicago whistleblower lawyers.
Consultations are free and confidential.