Defense Fraud


There are a number of ways that unscrupulous defense contractors can cheat the federal government and the U.S. taxpayer by submitting false claims.  Set forth below are some examples of the type of false claims that have been made in the past.  If you have knowledge of some of these illegal practices, please contact David Pearline at once.  You may have a viable claim under the False Claims Act.

·         Substandard Products

·         Dishonest Allocation of Costs

·         Supplying False Information

·         Contract Specification Violations

Substandard Products

DoD contractors may try to defraud the government through product substitution.  The government may specify a specific quantity or quality of products, and a defense contractor may change the quantity or quality of the product in order to make more money.  Frequently, the product substituted is of an inferior nature.  A contractor could violate the False Claims Act if the contractor did not get authorization from the government before substituting the substandard product.

Dishonest Allocation of Costs

A dishonest DoD contractor may try to increase his/her profit by allocating costs from a private commercial contract to a government contract.  For example, a defense contractor may have certain overhead costs that are associated with a private commercial contract.  The contractor may attempt to charge those costs to a government contract, particularly if the government contract is on a cost-plus basis in which the government promises to reimburse the defense contractor for costs and then pays an additional amount for profit.  Under this scheme, the defense contractor can then make a lower bid on the private commercial contract since he/she knows that costs of fulfilling the commercial contract will be improperly charged to the government.  This type of dishonest cost allocation violates the False Claims Act.

Another type of dishonest scheme engaged in by some defense contractors is to switch the costs allocation between two defense contracts held by the defense contractor.  This is sometimes known as cross-charging.  To understand how this scheme works, you need to know about two different types of defense contracts.  There are “fixed price” contracts, where the defense contractor receives a fixed price for producing a certain item, e.g., a missile, no matter what the cost is to produce the the item.  There are also “cost-plus” contracts where the defense contractor is reimbursed for his/her costs to produce the item, e.g., a fighter aircraft, and then receives an additional amount as profit.  A corrupt defense contractor may attempt to switch costs it incurs working on a fixed-price contract to a cost-plus contract since the government will reimburse all its costs on the cost-plus contract.  There are various methods used to switch costs from a fixed-price contract to a cost-plus contract.  For example, an employee may be instructed to certify on a time card that he worked on a cost-plus contract when in reality he worked on a fixed price contract.  If you are aware of this type of practice, you may have a viable lawsuit under the False Claims Act.

Supplying False Information

Sometimes a weapon system can only be manufactured by a single contractor.  In this situation, there will be no competitive bids for the weapons system.  Instead, the government will enter in what is called a “sole-source” contract with a company to purchase the weapons system.  A contractor must disclose all relevant information about the costs to produce such a weapons system to ensure that the government does not pay more than it should for the weapons system.  A corrupt defense contractor may deliberately overestimate the costs to produce the weapons system so as to increase his/her profit.  This type of practice constitutes a false claim under the False Claims Act.

 Contract Specification Violations

Government contracts almost always contain detailed specifications on the quality of the material to be used, how it is to be produced, the tolerances it must withstand, etc.  It is vital that defense contractors adhere to these specifications.  Lives of our soldiers may literally be lost if the item produced, e.g. blades for a helicopter, do not meet specifications resulting in a catastrophic loss of a vehicle which incorporates the item.  A corrupt defense contractor attempting to reduce costs so as to increase profits may cut corners in the production process by falsely certifying that an item produced meets the government specifications.  This type of practice constitutes a false claim under the False Claims Act.