Defense Contractor Pays $13.7 Million to Settle False Claims Allegation

Here's an alert for contractors holding T&M (Time and Material) or Labor-Hour contracts. Under these types of contracts, the Government is contracting for individuals with specific skills and qualifications. It doesn't matter whether someone without the requisite qualifications can do the job as well or better than someone with those skills - the Government expects its contractors to adhere to the terms of their contracts.

If you have a T&M contract, you're going to be audited. T&M contracts are subject to final audit.And the auditor is going to perform two basic steps. First, they are going to trace the hours billed back to timesheets or some other form of timekeeping record. Secondly, they are going to check to see if the work was performed by employees who possess the requisite qualifications. So, for example, if the Government contracted for a senior engineer with a bachelor's degree in industrial technology and at least ten years of relevant experience, you can bet that the auditor will check to see if the employee billed under that category has those qualifications.

We've written about this before. See here and here, for example. contracts. Its a relatively simple audit step for contract auditors and usually, contractors have to scurry around to prove the qualifications (the scurrying around points to a different issue, one concerning the availability and sufficiency of supporting documentation).

Yesterday, the Department of Justice issued a press release announcing that a Defense Contractor had agreed to refund $13.7 million in order to settle allegations that it billed the Government for work performed by individuals who lacked the job qualifications required by their T&M contracts. The press release reads:

... from Jan 1, 2003 to Dec. 31, 2012, (the contractor billed the Government) for work performed by individuals whose job qualifications did not meet all the qualifications prescribed by the contracts for the labor categories under which their efforts were billed, thereby falsely increasing the amount of money (the contractor) claimed and (the Government) paid.

This case was initiated by a routine DCAA audit of incurred costs. It should be a wake-up call for contractors tempted to do the same thing. Don't do it. It's "low-hanging" fruit for a contract auditor.