The Continuing Trend of Relatively Few Involving Defense Contractors
The False Claims Act (FCA) and the alleged misdeeds of companies doing business with the government made it possible for the U.S. Department of Justice to recover a record amount of $5.69 billion in civil settlements and judgments for the government for this past fiscal year. Notably a trend continues where relatively few actions involve defense contractors, albeit this group continues to be miscast as the bad players in government contracting. In FY2014, the true bad players continued to be those involved with federal health care programs ($2.3 billion) and the new kid on the block, bank and other financial institutions fraud ($3.1 billion).
The FCA provides the government with a civil remedy to restore government funds and property from fraud and false claims. In most instances, actions are filed using the act’s qui tam provisions. A qui tam lawsuit is a type of civil lawsuit which individuals (“relators” but more commonly called whistleblowers) bring on behalf of the government in which case the Government has the option to intervene (or to decline to intervene). In this process, whistleblowers have an incentive to come forward because the whistleblower could be entitled to as much as 30 percent of the amount recovered (if the government intervenes or 100 percent if not). In the past two years, the volume of FCA Qui Tam lawsuits filed has been more than 700 per year (a reminder to any government contractor that your “worst enemy” can be an employee or an ex-employee).
Although a majority of the dollars comes from other industries, FCA recoveries still involve some traditional Government contractors (defense or civilian agencies). The following cases were obtained from the U.S. Department of Justice media releases (which identified the contractor and in almost all cases, noted that “the claims resolved by this settlement are allegations only, and there has been no determination of liability”).
Hewlett-Packard (HP) Company
The action in this case was between the HP and the U.S. Postal Service (USPS). There were two interrelated allegations in the complaint made by the U.S. that led to a $32.5 million settlement between the two parties. The DOJ states that “The United States alleged that under a contract between HP and the USPS, HP overcharged USPS by failing to comply with pricing terms of the contract, including a requirement that HP provide prices that were no greater than those offered to HP commercial customers with comparable contracts. The United States also alleged that HP made misrepresentations during the negotiation of the contract regarding its pricing and its plans to ensure that HP would provide the required most favored customer pricing.” These were allegations only with no determination of liability.
Kellogg Brown & Root, Inc.
The U.S. Government is suing Kellogg Brown & Root, Inc. (KBR) and two foreign companies under the FCA and the Anti-Kickback Act. Only the issues with the claims via the FCA will be discussed here. The allegations of this complaint were originally filed in federal court by a whistleblower, Bud Conyers, under the qui tam provisions of the FCA. The complaint alleged that under contracts for logistics support in Iraq, KBR was claiming reimbursement for its subcontracts that “allegedly were inflated, excessive or for goods that were grossly deficient or not provided.” For example, the complaint alleges that KBR awarded a subcontract to another company for more than the goods were worth, and then KBR employees received a kickback from that subcontractor. To date this FCA action has resulted in three convictions of KBR subcontract managers who admitted to receiving kickbacks, but other matters are still pending. The government, however, has elected to intervene and this is one of many ongoing legal actions/contract disputes between the Government and KBR. Of more than passing interest and also related to contracts involving services in Iraq, KBR is suing the Government under the Federal Torts Claim Act, alleging gross negligence on the part of government contract auditors.
The Boeing Company
The U.S. government filed a complaint against the Boeing Company intervening in a Qui Tam allegation regarding labor charges on a T&M contract between the Air Force and Boeing (Boeing performed maintenance on the C-17 Globemaster aircraft). This suit was originally filed by former employees of Boeing before the U.S. government joined as a party of the action and a significant component of the allegation was that the maintenance that was performed by persons who did not meet the contract specific labor qualifications. With all T&M contracts, the labor categories are very specific regarding the qualifications (education and/or experience) of the individuals required to do the work. The allegation went further, stating that “the company knowingly and improperly billed a variety of labor costs in violation of applicable contract requirements, including for time its mechanics spent at meetings not directly related to the contracts.” Boeing settled this suit by agreeing to pay $23 million, with $3.91 million being split between the four whistleblowers. As noted in the DOJ media release the settlement was for allegations only and there was no determination of liability.
DRS Technical Services
The U.S. Department of Justice released another media release that dealt with a settlement concerning overbilling the government for allegedly unqualified worked performed by a contractor on a T&M contract. The U.S. government alleged that DRS Technical Services was not providing the appropriate labor and was allegedly misrepresenting employee qualifications. The U.S. District Attorney of Maryland announced the settlement that awarded the government $13.7 million and also noted that “the claims resolved by this settlement are allegations only, and there has been no determination of liability”.
