Articles Posted in Defense Industry Fraud

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DODThe U.S. Department of Justice announced yesterday that defense contractor DRS Technical Services Inc. (“DRS”) has agreed to pay $13.7 million to settle allegations that it violated the False Claims Act by overbilling the government for work performed by employees who in fact lacked the requisite job qualifications outlined in its contracts with the U.S. Army and the U.S. Coast Guard. The Herndon, Virginia-based company designs, integrates, operates, and maintains satellite and wireless network solutions, telecommunication services, and security systems for both government and private sector customers. An indirect subsidiary of DRS, Gaithersburg, Maryland-based DRS C3 & Aviation Company provides services to government agencies, including: aircraft maintenance, logistics support, depot support, and engineering support. For ten years, DRS and its predecessors were awarded time and materials contracts for services and supplies to be provided to the Army’s Communication and Electronics Command (CECOM) in Iraq and Afghanistan, and to the Coast Guard for aircraft maintenance. Continue reading

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Supreme Court PillarsOn Friday, the U.S. Circuit Court of Appeals for the Fifth Circuit overturned a federal trial court decision and ruled that the government can seek enhanced penalties against private military contractor Kellogg Brown & Root, Inc. (“KBR”) in connection with its employees’ alleged violations of the Anti-Kickback Act, a statute that prohibits government contractors and subcontractors from using bribes to influence awards. The court held for the first time that the company could be found vicariously liable for its employees’ conduct under that statute. The decision is part of ongoing litigation between the government and KBR for violations of the federal False Claims Act that were first exposed by two industry whistleblowers.

KBR secured an indefinite delivery and indefinite quantity contract to provide global logistical services to the Army in 2001. Under the contract, the Army would issue task orders to KBR. The task orders could then be fulfilled by KBR on its own or by a KBR subcontractor. The contract permitted KBR to charge the Army markups of 1% as profit and an award fee of up to 2% for its use of subcontractors to fulfill the task orders. KBR would then periodically bill the Army for the cost of performing the task orders, including any costs incurred by its subcontractors. KBR subsequently used two subcontractors to assist in the transportation of military equipment and supplies to Iraq, Afghanistan, and Kuwait between 2002 and 2006. The government intervened in United States of America ex rel. Vera, et al. v. Kellogg Brown & Root, Inc., et al. in 2010 with respect to allegations that KBR transportation department employees received illegal kickbacks in the form of meals, drinks, golf outings, and tickets to sporting events from two KBR subcontractors, Eagle Global Logistics and Panalpina Inc. Both subcontractors have since settled with the government.

After the government intervened, it sought to recover enhanced penalties against KBR for “knowing” violations of the Anti-Kickback Act. Under that law, civil penalties equal to twice the amount of each kickback as well as up to $11,000 for each occurrence can be assessed against a defendant that is found liable. The government’s complaint alleged that KBR employees took 317 separate kickbacks totaling approximately $46,000. Under the False Claims Act, a defendant is liable for treble damages as well as between $5,500 and $11,000 for each individual false claim. If found liable, KBR would be responsible under the False Claims Act for any fraudulently received subcontract award fee percentage and profit percentage as well as any of the kickback costs incurred by its subcontractors that were then charged to the Army under the prime contract.

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Aircraft CarrierA subsidiary of Alcatel-Lucent, Lucent Technologies World Services Inc. (“LTWSI”), has agreed to a $4.2 million settlement to resolve all allegations brought in a False Claims Act (“FCA”) suit against the company. Alcatel Lucent is a French global telecommunications equipment corporation, and LTWSI contracts with the U.S. Department of Defense to provide communications equipment in the ongoing U.S. effort to promote a stable government in Iraq. According to the government’s complaint, LTWSI submitted misleading testing certifications to the Army pertaining to the design, construction, and modernization of Iraq’s  emergency communications system. The government became aware of the allegations as a result of a whistleblower complaint filed under the qui tam (whistleblower) provisions of the False Claims Act filed by a former contract manager for the project in December of 2008.

In 2004, the U.S. Army awarded LTWSI a $250 million to build the emergency communications system, called the Advanced First Responder Network (AFRN), a 911 emergency response and first responder communications system designed to enable Iraqis to contact police, fire and medical assistance in emergencies. The False Claims Act complaint alleged that the company submitted claims for payment for equipment, services, and contract performance award fees pursuant to the AFRN contract based upon erroneous certifications that LTWSI had performed and completed testing of some of the project’s radio transmission sites as well as validation of the network as a whole. The tests were required under the contract to ensure the network’s proper functioning before the Army accepted the product and transferred control of the system to the Iraqi government.

Under the qui tam provisions of the False Claims Act, private whistleblowers with knowledge of fraud against the government may file legal claims on behalf of the government. The Act imposes liability on individuals and contractors for the submission of false claims for payment, as well as the retention of over-payments from the government. After whistleblowers (known as “relators”) file suit, the government has sixty days to investigate the allegations in the whistleblower complaint and determine whether or not to intervene in the litigation. Although the government may elect to intervene, it does not always exercise this right, and relators may proceed with their legal claims with our without the aid of federal investigators. Victorious relators stand to recover between 15% and 30% of any final judgment or settlement. Fraud in the performance and enforcement of defense contracts is a common cause of action under the False Claims Act, and the whistleblower in the LTWSI case will receive a $758,000 award for his participation in the litigation.

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The Louis Berger Group settled a False Claims Act case for $69.3 million, after receiving contracts for reconstruction projects in both Iraq and Afghanistan with both the United States Agency for International Development (USAID) and the Department of Defense. The suit alleged that LBG intentionally overbilled the government through an elaborate accounting fraud scheme. Specifically, LBG executives conspired to charge falsely inflated overhead rates to the government by: Continue reading

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Mission Essential Personnel, a government contractor providing language translators in Afghanistan, has recently lost a motion to dismiss a False Claims Act case filed by whistleblower Paul Funk. Funk, a former manager in 2007 and 2008, alleges that MEP committed fraud on the government by providing substandard translators overseas. Continue reading

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Rocky Mountain Instrument Company (RMI) recently entered into a settlement agreement with the DOJ to resolve False Claims Act allegations. RMI, a manufacturer of optical components used in laser and imaging applications, allegedly violated both the Arms Export Control Act and International Traffic in Arms Regulations by manufacturing some components overseas, using foreign workers. Because Department of Defense would not purchased components made in violation of law, RMI violated the False Claims Act as a subcontractor by causing contractors to submit claims for payment to the government. Continue reading

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The private security firm Blackwater is the subject of a False Claims Act (FCA) lawsuit in the United States and the company’s founder was answering questions in Abu Dhabi on August 23rd.  Erik Prince, the company’s founder, moved to the United Arab Emirates this past month, and the plaintiff’s attorney had to travel to that country to get a deposition from Mr. Prince. Continue reading

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Panalpina Inc., a Swiss-based contracting company, has agreed to settle a False Claims Act and Anti-Kickback case with the government which alleged that the company illegally paid kickbacks to another military contractor to secure subcontracting work.  Panalpina allegedly paid kickbacks to Kellogg Brown and Root, Inc., a logistics firm under contract with the U.S. Army to provide logistic support in Iraq and other areas.  Panalpina will pay the government $375,000 to settle these allegations. Continue reading