Thursday, August 17, 2017

Government Recovers $9.2 Million in Labor Mischarging Scheme

Huntington Ingalls Shipbuilding has agreed to pay $9.2 million to settle allegations that it violated the False Claims Act by knowingly over-billing the Government for labor charges on Navy and Coast Guard ships at its Pascagoula, Mississippi shipyard.

This represents the culmination of a long drawn-out investigation and prosecution for labor mischarging that occurred beginning in 2003. Previously, three individuals who worked for Huntington were prosecuted and sentenced under the case. Two were sentenced in 2015 and the third in 2016.

Huntington billed the Navy and Coast Guard for labor costs that were actually worked on other contracts. Presumably, the Navy and Coast Guard contracts were cost-reimbursable contracts while the other "unmentioned" contracts were fixed-price contracts and may have been in overrun position.

Huntington also billed the Navy and Coast Guard for dive operations to support ship hull construction that did not actually occur.

The labor mischarging allegations were originally raised in a whistleblower lawsuit (i.e. a Qui Tam action) which permits private individuals to sue on behalf of the Government and share in the recoveries. In this case, the whistleblower will receive nearly $1.6 million (or we should say that the whistleblower and his attorney(s) will share in the $1.6 million reward). The poor whistleblower probably thought he would never see the end of it. Indeed, some whistleblowers have died before their cases were settled.

As is typical in these matters, the settlement does not mean that Huntington is guilty. Its just a settlement to put the matter behind them.

Here again, as we've written many times, the importance of effective internal controls over labor charging which includes the proper "tone at the top" is essential to prevent labor mischarging from occurring. Integrity should not be too much to ask from Government contractors.

You can read the full Justice Department press release concerning this settlement here.

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