Monday, August 24, 2015

Lockheed Martin Pays $4.7 Million to Settle Unallowable Lobbying Cost Case

Here's a reminder that lobbying is lobbying and the cost of lobbying activities is unallowable. It does not matter that the lobbying serves other purposes than just lobbying - if it involves attempts to influence the outcome of elections, referendums, legislation, and other governmental actions, it's lobbying effort and unallowable. Just ask Lockheed Martin. To read a comprehensive series on FAR 31.205-22, Lobbying and Political Activity Costs, start here.

Since 1993, Lockheed Martin has operated the Sandia Corporation, a Government-owned, contractor-operated laboratory that is part of DOE's (Department of Energy's) nuclear weapons complex. The initial contract was awarded in 1993 and has been extended non-competitively several times. The contract was set to expire on March 30, 2014 however two weeks before that date, DOE announced that it was "moving forward with a noncompetitive extension for a period of 2 years whith an option for a third year" while it prepared for a full and open competition.

In 2014, DOE's Inspector General published a report that called into question $223 thousand in fees paid by Sandia to Heather Wilson LLC (the principle of which is a former member of the U.S. House of Representatives. That report concluded that Sandia, through this consultant, attempted to influence an extension to the contract and paid for these activities with taxpayer funds.

The IG found that Sandia used Federal contract funds to engage in activities that were intended to influence the extension of the Sandia contract valued at $2.4 billion per year. In particular, Sandia developed and executed a plan that involved meeting with and attempting to influence Federal and congressional officials to provide assistance in obtaining a noncompetitive extension of its contract. The IG found that these expenditures were unallowable under Title 31 U.S.C. 1352, FAR 31.205-22 and the terms of the contract.

Ultimately, the Justice Department opened an investigation into the matter. Last week, the Justice Department announced that Sandia had agreed to pay $4.7 million to resolve allegations that it used pubic funds for lobbying activity.  Sandia, in its defense, maintained that the activities were typical of those for any contract intent on continuing a relationship with its sponsor, especially a long-term relationship, and that it was preparing to demonstrate that it deserved a full 5-year extension as permitted by the FAR. Justice didn't buy that argument and ultimately, Sandia decided to settle. Although $4.7 million is a lot of money, it is no doubt a small fraction of the profits that Lockheed earned from the contract.

No word on how the costs were uncovered. It could have been through routine oversight by contract auditors or from a whistleblower. We do know that DCAA (Defense Contract Audit Agency) has emphasized reviews of lobbying expense in recent years.

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