Monday, March 26, 2012

Prime Contractors, Monitor Your Subs

Tools and Metals Inc. (TMI) was a subcontractor to Lockheed Martin on several aircraft programs. TMI produced perishable tools and sold them to Lockheed for use on military aircraft including the F-22 and F-35 fighter jets. TMI inflated the costs of these tools for seven years before the Government caught on to the scheme. During this time, Lockheed passed the inflated costs on to the United States Government under various prime contracts. The president of TMI ultimately plead guilty and was sentenced to prison for seven years. But that is not the end of the story.

The Federal Government then brought civil claims against Lockheed under the False Claims Act alleging that Lockheed contributed to the inflated amounts paid by the United States in connection with TMI's pricing scheme. Specifically, the government alleged that Lockheed acted "recklessly" by failing to adequately oversee TMI's charging practices and by mishandling information revealing these practices.

Last week, Lockheed agreed to pay $15.8 million to settle these allegations. In announcing the settlement, the Department of Justice stated "It is troubling that a large defense contractor with long-established contractual ties with the United States failed to undertake appropriate measures to ensure the integrity and validity of the costs is submitted to the United States.."

What are those"appropriate measures" that DoJ talked about? We are going to take the next few days to explore exactly what is required by prime contractors in administering its subcontracts. This was a painful lesson for Lockheed. Don't make the same mistakes.

No comments:

Post a Comment