Integral to defense contracting are the Federal Acquisition Regulations (FARs), Cost Accounting Standards (CAS) and eligibility regulations. These regulations and standards provide requirements with which government contractors must comply in order to do business with the public fisc.
Unscrupulous contractors, however, have found no shortage of ways to circumvent these safeguards and in the process have cost the government — more specifically, taxpayers — billions of dollars. Warren | Benson Law Group has been one of the most successful law firms in the United States for helping the government recover fraudulently obtained funds through qui tam prosecutions. In the process, we have also helped individual whistleblowers reap financial rewards for their participation in federal prosecutions.
Common Forms Of Pricing, Accounting And Qualification-Related Fraud
Some of the more common forms of defense contractor fraud that involve contractor qualification and pricing in violation of the False Claims Act are:
- Violations of the Truth-in-Negotiations Act (TINA): Defense contracts are often negotiated on the basis of paying the defense contractor based on the contractor’s costs, plus either a fixed fee or a percentage for profit. These are known as “cost plus 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 so the Government has a fair estimate of what the costs for the current contract will be. 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, when an unscrupulous contractor lies about its historical costs, it does so with two motives. First, it might underreport its costs 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 scenarios are violations of the False Claims Act.
- 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 charging 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.
- Improper cost allocation: Improper cost allocation is 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.
- Misrepresentation of qualifications: Some defense contracts are intended to benefit an otherwise disadvantaged segment of defense contractors, such as Service Disabled Veteran Owned Small Businesses and Minority- or Women-Owned Small Businesses. These are known as Section 8(a) contracts. To qualify for a Section 8(a) contract, the contractor must self-certify its size and other qualifying requirements. Unfortunately, many contractors give false certifications and ignore prohibited business arrangements such as affiliation with a nonqualifying entity through overlapping familial, management and ownership factors.
Our firm has achieved virtually unmatched success in this area of qui tam litigation. We successfully recovered $56 million against two defense contractors for cost padding in a Lockheed contract and $32 million against another contractor for padding estimates on sole source contracts in violation of the Truth-in-Negotiations Act.
Contact Warren | Benson Law Group To Discuss Your Information
If you have information about government contract or program fraud and would like to learn about your rights as a whistleblower, we encourage you to speak with one of our attorneys. Contact any of our regional offices by sending an email now, or call toll free 800-844-4406.