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Defense Contractor Fraud
The government spends billions of dollars improving, building, and maintaining weapons systems, defense-related equipment and facilities, as well as supporting our military personnel. A majority of the defense contract work is performed through contracts made with private companies in theUnited Statesand throughout the world.
The inspection and testing of goods and evaluation of services rendered to the U.S. government has increasingly involved a much less rigid process of regulation. This has enabled defense contractors to cheat the government out of vast amounts of money in exchange for improperly tested and defective goods, or services that were never provided. When these contracts are breached and the government is cheated out of millions (if not billions) of dollars, the taxpayers and the brave men and women of our armed forces using these goods are cheated as well – often jeopardizing their well-being and safety.
The False Claims Act is the federal statute that allows people to “blow the whistle” on defense contractors who are defrauding the government. A successful whistleblower may be entitled to 15% to 30% of the government’s total recovery. See our False Claims Act FAQ [link to FAQ] section for a more detailed discussion.
Defense contractor fraud has been a prevalent concern for the U.S. Department of Defense since the 1800’s under the Lincoln Administration, and in fact was one of the motivating forces in passage of the False Claims Act. Defense contractor fraud has dramatically increased as the annual amount of spending by the Department of Defense has increased, reaching billions of dollars in recent years. As the amount of hired defense contractors rises, so does the percentage of fraudulent contracts.
Common Forms of Defense Contractor Fraud
Fraud against the government as it relates to defense contracting can take just about any form, but some of the most common include:
- Cross Charging
This situation involves a contractor with two different types of contracts for the same project: “fixed price” and “cost-plus.” The “fixed price” contract gives the contractor a fixed price for each unit it produces; whereas the “cost-plus” contract entitles the contractor to be reimbursed for the costs of making each unit. In this type of fraud, the contractor will bill the government under the “cost-plus” contract for goods produced under the “fixed price” contract, which is a potential violation of the False Claims Act.
- Product Substitution
The government frequently specifies that its defense contractors build products meeting a certain specification or standard. Sometimes companies substitute inferior (and often cheaper) parts and certify to the government that they have complied with all standards and qualifications. If companies do this, they may be liable under the False Claims Act.
- Violations of the Truth-in-Negotiations Act (“TINA”)
In the defense industry, oftentimes there will only be one supply source for a critical part that the military needs. For example, if the Air Force needs a stealth bomber, there may only be one company that can build it. When this happens, the government needs assurances that it pays a fair (i.e., market) price since competitive bidding is not possible. TINA requires the contractor to truthfully disclose all relevant information about its costs to the government in sole-source contract negotiations. That way the government can make an informed decision about what price is fair to pay for the product. Contractors sometimes can hold back relevant information or deliberately provide false information in order to receive a higher bid price from the government. This is a potential False Claims Act violation.
Defense Contractor Fraud Attorneys
Robbins Geller Rudman & Dowd LLP is committed to fighting for our whistleblower clients in their courageous efforts to combat fraud. If you are aware of an instance where a government contractor is committing, or has committed, fraud on the government and are thinking of blowing the whistle, please contact Jonah H. Goldstein or James E. Barz. We can help you understand how to file a claim, what compensation you may be entitled to for your effort, and what protections you are afforded as a whistleblower, and can answer any other questions you may have concerning the False Claims Act.