Wednesday, April 16, 2014

Contractor Pays $1.1 Million to Settle False Claims Allegations

This is a followup to a posting we made just last month discussing the necessity of contractors including T&M (Time and Material) contracts in their Incurred Cost Submissions. You can read that posting by clicking here. One of the points we made was this:
Auditors are also interested in the qualifications of the employees billed under the various skill codes specified in the contract. For example, a T&M contract might spell out rates for Senior Engineer, Junior Engineer, and Technician. The auditor will want to ensure that the contractor is not billing a Junior Engineer at a Senior Engineer rate. That is why auditors sometimes request HR information related to employees charging T&M contracts. It doesn't matter nor will the contractor be able to assert that the Junior Engineer was better qualified than the Senior Engineer for the job. If the Government called for a Senior Engineer and paid the rate for a Senior Engineer, it should get the services of a Senior Engineer. Any evidence that the contractor is using lower priced employees will get referred to the contracting officer.
One company found out the hard way what happens when a contractor bills higher rates for lesser skills. The Department of Justice, in a press release yesterday, announced that it had settled a False Claims allegations with a contractor that did just that - falsifying the qualifications of employees in order to bill for labor charges at rates higher than allowed under its Government contract. It cost the company $1.1 million to resolve the issue. The press release did not state what the damages were to the Government but presumably, this settlement covered the known damages and a little more.

 The press release indicated that the contractor had falsified resumes for employees to qualify them for higher paying positions, thereby falsely increasing the amount of money billed for labor. The problem was uncovered by DCAA (Defense Contract Audit Agency) in the course of reviewing an annual incurred cost submissions, simply by following standard audit guidance and audit program steps. The auditors simply asked to examine the qualifications of the individuals billed under the T&M contracts and then dug a little deeper when the data submitted to them seemed a little "fresh".

If the Government calls out for a civil engineer with a masters degree and six or more years of experience, contractors need to provide employees that meet those qualifications. Don't provide someone who doesn't meet those qualifications, even if you know that they can perform the work effectively. Buoyed by these results, you just know that every auditor is going to start asking the penetrating questions concerning labor billed under T&M contracts.

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