Mandatory Disclosure Rule Nets the Government $142 Thousand

Back in 2008, mandatory disclosure requirements involving fraud and overpayments on contracts (and subcontracts) over $5 million were added to Federal Acquisition Regulations (FAR) at Subpart 3.10 - Contractor Code of Business Ethics and Conduct. Among other requirements of this section and related contract clauses (e.g FAR 52.203-13), contractors must make timely disclosure of violations against criminal and civil laws. Criminal laws include fraud, conflict of interest, bribery, or gratuity violations. Civil laws include the False Claims Act. Contractors that fail to disclose credible evidence of such irregularities are themselves subject to penalties and sanctions (such as suspension and debarment).

The USS Ashland (LSD-48) is one of eight Whidbey Islad-class dock landing ships in the U.S. Navy fleet. A dock land ship is an amphibious warfare ship with a well dock to transport and launch landing craft and amphibious vehicles.

Fairbanks Morse Engine (FME) in Norfolk VA received two subcontracts to perform engine repairs on the USS Ashland; one a firm-fixed price and the other a time-and-materials subcontract. FME began charging supervisory hours to the time-and-materials subcontract. Sometime during subcontract performance, FME management came to the realization that supervisory time should have been charged to the fixed-price subcontract, not the time-and-materials subcontract. FME took corrective action (meaning that they ensured supervisory were property charging their time) once the improper conduct was revealed and refunded the overcharges. Additionally, in accordance with the mandatory disclosure rules of FAR (sometimes called the Contractor Business Ethics compliance Program and Disclosure Rule), made a disclosure to the Department of Defense's Office of Inspector General.

As a result of the disclosure and ensuing investigation, FME agreed to pay an additional $142,500 to settle alleged False Claims Act violations resulting from the disclosed conduct. This transaction settled the allegations - there was no determination of civil liability.

There is no public disclosure as to how the $142,500 settlement was derived nor do we know the magnitude of the labor mischarging. Given the size of the settlement, it was probably significant.

This is a reminder to contractors of their responsibilities to self-report any credible evidence of civil or criminal conduct occurring in their organization.