Defense Contractor Fraud

Fraud involving contracts with the Department of Defense is nothing new. In fact, the False Claims Act itself was enacted in 1863 as a response to fight rampant fraud by government contractors who were misappropriating funds supposedly designated to aid in the war effort. Examples of the egregious fraud during the Civil War included boots made out of cardboard which fell apart while marching, and rotted ships that were freshly painted and sold to the NAVY as new.

Now, over 150 years since the enactment of the False Claims Act, defense contracts continue to be a source of fraud. While most general areas of contract fraud apply to the defense arena, there are some schemes that are unique to defense work:

  • Cross-Charging
  • Improper product substitution
  • Worthless or substandard products
  • Improper cost allocation
  • Inflation of costs and charges
  • Violations of the Truth in Negotiations Act (“TINA”)

Cross-Charging

Military contracts generally come in two forms – fixed-price contracts and cost-plus contracts. Fixed-price contracts establish one price for the product, without regard for the cost incurred in making the product. Cost-plus contracts provide the contractor with a set price for the product plus a percentage of the cost incurred to produce the product.

Cross-charging occurs when contractors transfer costs for items provided on a fixed-price contract to items purchased through a cost-plus contract. This can be done through accounting records or through telling employees to charge their time improperly to a cost-plus contract when the employees actually worked on a fixed-price contract.

TINA

The Truth In Negotiations Act, or TINA, requires single-source producers to fully disclose all relevant information about production costs to the government so that the government can make an informed decision about how much to reimburse a supplier of a unique item.

Sometimes, single-source suppliers improperly inflate prices of a unique or expensive item to increase their profit margin, knowing the government cannot obtain competitive bids to drive down prices because no other contractors can or will make the item.

As an Assistant United States Attorney, Brian P. Kenney worked closely with the Department of Defense Personnel Center near Philadelphia to prosecute cases involving defense contractor fraud. Our skills and experience will give you the greatest likelihood of holding wrongdoers accountable for their fraudulent actions, and we can place you in a strong position to maximize your whistleblower reward.

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