Monday, October 13, 2014

Contractor Pays $23 million to Settle Allegations of Labor Mischarging

Last week, we reported on a settlement where a contractor had billed the Government for a certain skill level worker but used lesser-skilled individuals to perform the actual work. The contractor paid $13.5 million to settle the allegation. We have no idea of what it cost the Government to investigate - Government investigations do not come cheap and there were a lot of Agencies involved - U.S. Attorney's Office, DoJ Civil Office, DCAA, Army CID Major Procurement Fraud Unit and the Defense Criminal Investigative Service.

Now comes a report on another settlement involving labor costs. In this case, the contractor was Boeing and it agreed to pay $23 million to resolve allegations that it submitted false claims for labor charges on maintenance contracts with the Air Force for the C-17 cargo plane. It is noteworthy that the claims resolved by the settlement were only allegations and there was no determination of liability.

It is unclear from the Department of Justice (DoJ) press release as to the precise nature of the allegations. The only specific detail provided is that Boeing billed the Air Force for hours that it's mechanics spent at meetings not directly related to the contract. So, perhaps, the meetings related to administrative aspects of the job, or sensitivity training, or timekeeping practices, or whatever, and the time should have been charged to an indirect charge number rather than direct to the contract.

The interesting thing about this case however is that it arose, not from any Governmental agency oversight, but from internal whistleblowers. Four Boeing employees filed a false claims suit on behalf of the Government (referred to as Qui Tam actions). This allows them to share in the settlement. In this case, the four individuals received $3.9 million out of the $23 million settlement (well, that would be $3.9 million less attorney's contingency fees). Presumably, but we don't know for certain, these employees first tried to resolve the issues internally but were rebuffed by management. That procedures is often a prerequisite to sharing in any recoveries.

We have seen a number of Qui Tam cases in the past few years where company employees collected a share of the recoveries. This underscores the importance for contractors to have effective internal controls in place that include standards of conduct and ethical practices with oversight responsibilities and accountability. Employee concerns of wrong-doing should be investigated thoroughly and resolved timely. It takes only one disgruntled employee to make a contractor's life miserable.

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