Defense Contractor Fraud
In America defense contractor fraud remains one of the biggest areas for False Claims Act litigation. Listed below are common tactics used by underhanded defense contractors to cheat the federal government. On many occasions, when an individual blows the whistle on a defense contractors it is usually discovered the contractor is guilty of a combination of number of fraudulent schemes as described below.
Cross‑Charging
Cross charging is one of the most common types of defense procurement fraud. Cross charging usually occurs when a defense contractor has one contract with the federal government that is a fixed‑price contract. A fixed‑price contract is where the defense contractor receives a fixed price from the federal government for a certain number of weapons no matter how much it costs the defense contractor to produce them. On some occasions the same defense contractor may also have another contract with the federal government that is a cost‑plus contract. A cost-plus contract is where the federal government pays the defense contractor for the cost of making the weapons, plus a percentage of defense contractor’s cost as a profit. In this circumstance it has been discovered the defense contractor has a strong incentive to charge time spent working on the fixed‑price contract to the cost‑plus contract where the defense contractor gets paid for costs plus profit. A Defense contractor may accomplish this scheme by instructing employees to write down on their time cards that they worked on the cost‑plus contract when they actually worked on the fixed‑price contract.
Product Substitution
The federal government frequently specifies that its defense contractors build products using a certain grades of materials and/or certain quality of parts. In some cases it is often required the materials and/or parts be purchased from American companies only. Sometimes defense contractors are tempted to provide substitute materials and/or parts that are inferior, materials and/or parts that they can purchase at a cheaper price from an unauthorized source. If defense contractor does this without getting permission from the federal government-contracting officer, it can form the basis for a False Claims case.
Improper Cost Allocation
Improper cost allocation is a clever version of the cross‑charging scheme. If a defense contractor has both federal government contracts and private commercial contracts like most large aircraft companies do, the defense contractor is supposed to spread or allocate the costs fairly among the different jobs. Improper cost allocation occurs when defense contractor shift more costs to the federal government project away from the defense contractor’s private customers, who simply pay the market price for the aircraft. Such cost‑shifting allows defense contractors to quote lower prices to their commercial customers while gaining a competitive advantage without having to absorb the losses for such price cuts. Defense contractors that deliberately allocate a disproportionate share of "indirect" or "overhead" costs to the government are committing fraud.
Failure to comply with contract specifications
Because reliability is critical with expensive and lethal weapons systems, the federal government requires its contractors build said systems in accordance with very detailed specifications. These specifications dictate not only the type of materials to be used for the product, but other requirements such as the appropriate quality assurance steps that the defense contractor must follow to ensure the quality of the product. Although the burdens imposed by the federal governments specifications are costly, the government covers those costs as part of the defense contractor's payment. If a defense contractor starts to overrun its budget on a contract, particularly a fixed‑price contract, or falls behind in its delivery schedule, it may be tempted to cut corners and fail to comply with the federal governments contract specifications. If defense contractor cuts corners and does not comply with contract specifications, it can form the basis for a False Claims case.
Violations of the Truth‑in‑Negotiations Act (TINA)
When the federal government needs to procure highly specialized weapons systems, it frequently chooses to use a defense contractor that already makes them, known as a sole‑source supplier. This ensures the federal government that a defense contractor with expertise will be the one making the weapons. The problem for the federal government is to ensure that it pays a fair price to the defense contractor since it cannot put out the contract to other sources for competitive bids. The Truth‑in‑Negotiations Act (TINA) requires the defense contractor to truthfully disclose all relevant information about its costs to the federal government in sole-source contract negotiations. That way, the federal government can make an informed decision about what price is fair to pay for the product. Defense contractors are sometimes are tempted to hold back relevant information and/or to deliberately inflate their projected costs to get a higher price from the federal government. Such conduct by a defense contractor can form the basis for a False Claims Act case.
Whistleblowing Reporting of Suspected Defense Contractor Fraud
If you have reason to believe a defense contractor is defrauding the federal government, simply click on the link below in red for a free case evaluation. Any and all information provided to Whistleblower Rewards Network will be kept strictly confidential and will be for the use of our designated attorneys and tax fraud investigating agents. Whistleblower Rewards Network strictly prohibits the dissemination, distribution or copying of your information to any unauthorized outside parties.
Thank you for visiting our website and remember as Dr. John Raymond Baker once said, “To see a wrong and not to expose it, is to become a silent partner to its continuance.”
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