Defense contractor fraud continues to be one of the most active areas of False Claims Act (qui tam) litigation in the U.S. This type of fraud generally occurs when defense contractors submit false claims to the government regarding the products they manufacture or the services they provide. The government has already received billions of dollars from FCA cases involving defense contractors, largely as a result of whistleblowers coming forward to report fraud. The following are a few examples of common types of defense contractor fraud in an FCA context:
Deceptive Pricing via Impermissible Expenses
- This area can involve bribes, kickbacks and bid-rigging, as well as inflation of costs. For example, in 2018, Alpha Research & Technology agreed to pay $1 million to the U.S. to resolve issues that it had inflated contract pricing by including millions of dollars of personal expenses into subcontract proposals.
Cross-Charging in Fixed-Price and Cost-Plus Contracts
- Cross-charging has been one of the most common types of defense procurement fraud. Cross-charging occurs when a defense contractor improperly shifts costs and expenses from one defense contract to another in order to boost its profits.
Making False Statements to Obtain Government Contracts
- This area commonly involves contractors lying about a company’s small business status in order to have access to contracts that are reserved specifically for small businesses. For example, in 2018, TrellisWare Technologies, Inc. paid more than $12 million to resolve allegations that it was ineligible for multiple Small Business Innovation and Research (“SBIR”) contracts into which it had entered with government defense agencies, although it knew it did not qualify for SBIR contracts.
Improper Product Substitution
- Defense contracts frequently specify that the contractor use a particular grade, type or quality of product or parts. There are often additional requirements that the parts be new (as opposed to used or refurbished), and that those parts be made in the United States. Defense contractors often attempt to save costs and maximize profits by substituting cheaper or substandard parts, which constitutes v a violation of the FCA. For example, in 2018, Lockheed Martin Corp. paid $4.4 million to resolve claims it provided substandard faulty equipment to the government. Lockheed provided a Radio Frequency Distribution System (“RFDS”) to the U.S. Coast Guard that failed to meet the requirement of transmitting and receiving several different radio signals at the same time without undue interference.
U.S. ex rel. Roath et al. v. The Boeing Company
Defense contractor fraud continues to be an area of fraud in which the government has extreme interest. One of the most recent settlements in a defense contractor FCA case involved failure to comply with specific conditions of a government contract. In September 2023, The Boeing Company paid $8.1 million to resolve FCA allegations that Boeing failed to comply with certain contractual manufacturing specifications in fabricating composite components for the V-22 Osprey, a tiltrotor military aircraft. Specifically, the government contended that Boeing failed to perform required monthly testing on autoclaves used in the composite cure process and was not in compliance with additional requirements related to the testing. The alleged fraudulent conduct occurred between 2008-2017.
“All government contractors have a responsibility to follow the obligations and protocols set forth by their contracts,” said U.S. Attorney Jacqueline C. Romero for the Eastern District of Pennsylvania. “This office is committed to accountability and protection from false claims as shown in cases such as this.”
“Maintaining the integrity of the U.S. Department of Defense (DoD) supply chain is a top priority for the DoD Office of Inspector General’s Defense Criminal Investigative Service (DCIS),” said Special Agent in Charge Patrick J. Hegarty of the DCIS Northeast Field Office. “The DoD expects its contractors to adhere to contract specifications and provide quality products to the U.S. military. We are committed to working with our law enforcement partners to investigate allegations of contractors circumventing required testing protocols and submitting false claims during the DoD procurement process.”
A wide variety of misconduct can constitute fraud in the lucrative and complex area of defense contracting. If you believe you have information regarding defense contractor fraud, please contact Hoyer Law Group.