Defense contractor fraud is one of the largest areas of government contracts fraud, wasting millions of taxpayer dollars every year. In 2020, the DOD Office of Inspector General reported that roughly one-in-five ongoing investigations from the department were linked to procurement fraud. Over a five-year period, more than $6.6 billion in taxpayer dollars was recovered from fraud cases involving defense contractors.
Whistleblowers who report defense contractor fraud can not only protect government investment, but they can also ensure that the products designed to protect service members are of the quality that they should be. Defense contractor fraud endangers American lives while cheating taxpayers out of what they have paid for. In recognition of this, defense contractor fraud whistleblowers are eligible to receive financial rewards from information that leads to successful recovery of defrauded government contractor money. They are also eligible for federal protections against retaliation.
What is a Defense Contractor?
A defense contractor is an organization or corporation that provides goods and services to the Department of Defense or any of its sub-agencies. Defense contractors are not service members, although they may at times be armed security personnel. Other examples of defense contractors may be healthcare providers who provide services to active duty service members overseas, IT specialists who oversee cybersecurity protocols or manufacturers who build weapons, protective gear, uniforms, and more.
In FY2021, the Department of Defense spent more money on federal contracts than the contract spending of all other government agencies combined. Fiscal year 2021 saw $397 billion invested into defense contractor goods and services.
Why Does the Government Use Defense Contractors?
From the 1990s onwards the Department of Defense, like many other government agencies, has begun to rely more and more on private defense contractors to provide crucial services. Some analysts advocate for contractor use because doing so can provide:
- Faster response times in tailored areas
- Specialized expertise in fields like linguistics, design, or maintenance
- Competition to lower costs
- More freedom for service members to focus on military-only tasks and goals
On the other hand, inappropriate awarding of contracts, poor quality of work, hiring unskilled employees, and other kinds of defense contractor fraud can also have serious consequences, jeopardizing military operations, stability in volatile regions, as well as the lives of those who serve.
What is Government Defense Contractor Fraud?
Government defense contractor fraud is a kind of procurement fraud that can take place both before a DOD contract is awarded as well as after. Defense contractor fraud is any attempt to manipulate the outcome of the bidding process illegally. Military defense contractors can also commit fraud by failing to follow through on contract outlines, falsely certifying the quality and completion of their work, mischarging for supplies, hiring unqualified employees, and more.
Types of Defense Contractor Fraud
The False Claims Act was first enacted during the American Civil War to combat defense contractor fraud techniques such as selling diseased mules and rotten food to the Union Army. Today, the methods and types of defense contractor fraud have greatly expanded. Common defense contractor fraud examples include:
- Bribes: Bribery at any point in contract negotiations is reportable by a defense contractor whistleblower. Bribery may take place in order to secure a contract or sub-contract, or to conceal shortcuts taken during the fulfillment process. When bribery takes place between international parties, defense contractor whistleblowing may also qualify for a claim under the Foreign Corrupt Practices Act and be eligible for a separate reward.
- Subpar product substitutions: Product substations may be done to cut costs, but they also can put lives at risk in defense contracting. Some defense contracts specify that goods and components must be made in America, or that certain countries’ manufacturing is not eligible. Sourcing goods from ineligible areas is a method of defense contractor fraud in manufacturing.
- Kickbacks: Kickbacks may be monetary payments like bribes, or they may entail discounts, “freebies,” or other kinds of special treatment. Kickbacks are often offered to secure a project or between contractors and suppliers.
- Improper cost allocation: Improper cost allocation occurs when a contractor charges the government for the cost of supplies or labor that is used on other clients. In some cases, commercial or international projects may funded by taxpayer dollars when contractors improperly allocate their costs.
- Bid rigging: Bid rigging is a kind of collusion, or effort to control what price the government pays and/or which contractor is selected for a job. Bid rigging reduces competition and inflates project costs.
- Making false statements to secure contracts: Statements and certifications made must be accurate both during the project timeline as well as when bidding to secure a DOD contract.
- Cross-charging: Cross-charging is a kind of mischarging designed to increase profits. Cross-charging occurs when US defense contractors with more than one active government contract charge activities completed in service of one contract to another. It often take the form of charging costs and supplies to a “cost-plus” contract instead of a fixed-price one.
- Poor quality products or services: Defense contractor fraud revolving around poor quality products and services has included claims of hired guards who could not shoot, and bulletproof vests that were ineffective, and more. When contractors accept a project with the federal government, they have an obligation to deliver goods and services of an agreed-upon quality.
- Inflated costs: Running up costs in a “cost-plus” DOD contract inflates payments at the expense of the taxpayer. Supplies may then be misallocated to other projects or resold for profit.
- Violations of the Truth In Negotiations Act (TINA): Failing to disclose discounts or relevant pricing information when bidding or negotiating for a government contract is a violation of the Truth in Negotiations Act. TINA violations, also sometimes called defective pricing, conceals actual costs and expenses from federal entities in an effort to increase profit for the contractor.
How to Identify Defense Contractor Fraud
The US Government Accountability Office reports that four of the most common kinds of defense contractor fraud to identify are:
- Use of counterfeit parts
- Billing for work not performed
- Fraudulent bid submissions with falsified pricing (TINA violations)
- Failing to report conflicts of interest
Red flags for these and other kinds of fraud include:
- Shoddy record keeping
- Missing details from invoices
- Bid submissions with information that is too close to government estimates
- Shifting timelines for completion
- Consistent selection of one contractor or provider
- Acceptance of late or incomplete bids
Report Defense Contractor Fraud
Reporting defense contractor fraud is the right thing to do. A defense contractor fraud lawyer can help guide you through the filing process and reporting to the government agencies that may be involved in a DOD fraud case. You will need to be able to bring a credible claim that fraud has occurred in order to be eligible for whistleblower rewards and protections. A qualified qui tam lawyer can assess your claim to ensure that your proof is substantive enough to receive full consideration from federal investigators. A firm with a pristine reputation and expert whistleblower attorneys is the most powerful tool in your arsenal when bringing a fraud claim against any of the top defense contractors active in the United States today.
Defense Contractor Whistleblower Rewards
Defense contractor fraud cases involve lucrative settlements because of both the size of the average defense contract, as well as the treble liability imposed by the False Claims Act. Defense contractor whistleblowers are eligible to receive anywhere from 15 to 30% of the total settlement, inclusive of repayment as well as additional penalties and fines assessed against the perpetrator. Information must be unique and previously undisclosed in order to lead to a reward. Whistleblowers must also be the first to report information in order to be eligible.
Defense Contractor Whistleblower Protection Act
The National Defense Authorization Act extends the rights and protections of the Whistleblower Protection Act to employees of federal government contractors. Disclosures from an employee of a contractor or subcontractor about fraud, waste, abuse of authority, gross mismanagement, danger to public health and safety, or flaunting of rules and regulations are considered protected if they are made with a reasonable belief that wrongdoing has occurred. They may be made to any of the following parties:
- A member of Congress, or testimony before a committee
- The Office of the Inspector General
- The Government Accountability Office
- A supervisor or auditor with responsibility to investigate and address misconduct
- Federal employees responsible for oversight of the contract
- A court or jury
How Can a Qui Tam Lawyer Help in a Defense Contractor Fraud Case?
You can report defense contractor fraud through a defense contractor fraud law firm and remain anonymous. Your defense contractor fraud attorney can also help you create and file your whistleblower lawsuit, advise you about what kinds of evidence will be necessary, help insulate yourself against liability, and ensure you cooperate fully with federal investigators for the highest possible reward.
Finally, if the DOD and DOJ decline to intervene in your case, your defense contractor fraud lawyer can pursue your claim in court on your behalf, if you choose to proceed. Whistleblowers who bring a successful claim without government intervention are automatically rewarded the full 30% of a qui tam relator share from the settlement.
List of Defense Contractors that Have Been Involved in Fraud Cases
US defense contractors who have been involved in fraud cases are unfortunately numerous. Many major defense contractors have been implicated in fraud, and continue to receive government contracts. From the largest defense contractors to minor suppliers and providers, a company is only as honorable as its employees and practices.
An incomplete list of some companies that contract with the Department of Defense that have been involved in cases of fraud include:
- Northrop Grumman
- Pfizer Inc
- Advanced Solutions for Tomorrow, Inc.
- B&J Multi Service Corporation
- Matthews Manufacturing, Inc.
- Nova Datacom, LLC
- NP Precision, Inc.
- Quantell, Inc.
- Tab Construction Company, Inc.
- Megabite Electronics, Inc.
- Skedco, Inc.
- Science Applications International Corp. (SAIC)
- Alliant Techsystems
- Louis Berger Group
- Maersk Line Limited
- Envistacom LLC
- PowerSecure, Inc.
- American Systems
Notable Defense Contractor Fraud Cases
The following are some recent and notable defense contractor fraud cases:
- $31.9 million settlement from Maersk Line Limited: Maersk Line Limited, the American subsidiary of the Denmark-based company Moller Maersk, agreed to pay $31.9 million to resolve allegations that they engaged in false billing and submitted inflated invoices to the American government while transporting thousands of containers to military destinations in Iraq, Pakistan, and Afghanistan. The whistleblower in this case received $3.6 million as their relator share.
- $12.5 million settlement from Northrop Grumman: One of the largest names in defense contracting Northrop Grumman agreed to pay $12.5 million to settle allegations that they falsely certified electronic components to be used in military aircraft and submarines had been tested to withstand extreme conditions. A former compliance manager at the company filed the lawsuit as a whistleblower, and received $2.4 million for their information.
- $7 million settlement from Envistacom LLC: In a case involving bid rigging and procurement fraud, three military contractors with Envistacom LLC were convicted of preparing “sham documents” to secure government contracts, as well as concealing pricing details and forging cost estimates. This case resulted in criminal convictions as well as fines and repayment.
- $8.4 million settlement from PowerSecure, Inc: PowerSecure paid $8.4 million to settle allegations that the company violated TINA regulations in its bid with the US Army Corps of Engineers in order to repair Puerto Rico’s power grid after damage done by Hurricane Maria in 2017.
Defense Contractor Fraud: FAQs
The following are some frequently asked questions about defense contractor fraud and how to report it:
Who is the biggest defense contractor in the world?
Currently, the biggest defense contractors receiving US funding are:
- Lockheed Martin Corporation
- The Boeing Company
- Raytheon Technologies Corporation
- General Dynamics Corporation
- Pfizer Inc
- Northrop Grumman Corporation
Who regulates fraud associated with military contractors?
The US Department of Justice investigates fraud claims associated with government contractors. Private citizens such as contractor employees may also bring fraud claims under the False Claims Act‘s qui tam provision.
Do government contractors have immunity?
Under certain circumstances, government contractors are eligible for derivative sovereign immunity. This concept applies when a contractor is performing services for the United States government under a validly awarded contract, is adhering fully to the terms and conditions of the contract, and the US government would itself be considered immune if the claims had been brought against it instead of the contractor. Derivative sovereign immunity applies when contractors perform “combatant activities of the military or naval forces during time of war.” It does not provide immunity against claims of fraud, waste, or gross mismanagement.
Ask Our Qui Tam Attorneys about Defense Contractor Fraud
Military defense contractor fraud is dangerous and difficult to spot. Often times contract terms may be confidential, or activities classified. Lives may depend upon defense contracts being carried out correctly, and bids containing reliable and accurate information. Because of this, it is imperative that employees with information about defense contract fraud step forward as whistleblowers. Whistleblowers protect the public interest, taxpayer funds, and their own professional reputation by reporting fraud. In the case of defense contractor fraud, they also protect service members, civilians, and those who depend on services from the US Army Corps of Engineers and other entities of the Department of Defense.
For a complimentary and confidential consultation about becoming a DOD whistleblower, contact the law firm of Tycko & Zavareei LLP today.