The purchasing agents at DLA (Defense Logistics Agency) believed they were getting a fair and reasonable price because that's exactly what they did - bought two turn signals for $74,000. Evidently no one in DLA compared the cost to the intrinsic value of what they ordered. The Navy however did take notice and challenged the price.
The Navy needed a couple of replacement turn signals for one of its munition trailers so they asked DLA to procure them. DLA issued a solicitation. There was one bidder, Shubhada Industries so DLA issued an order for two assemblies at $32,000 each.
Shubhada then went out to the OEM manufacturer and bought two assemblies from them at $675 each. Shubhada then relabeled the boxes to make it look like they manufactured the parts and shipped them off to the Government.
Someone at the Navy balked at the cost and challenged the price. That's when Shubhada began lying - at all times maintaining that thy manufactured the product in-house and telling Government representatives that they didn't understand and were not qualified to assess the methods and intricacies required to design, engineer, and manufacture these turn signals - a brazen assertion from a company of two people occupying a small office in a strip mall. The Court wrote:
(Shubhada) has not been forthright or cooperative in the Government's investigation of the claims alleged in the amended complaint. They shrug off the Government's investigation and this proceeding. In their amended answer, they state that "We can negotiate a refund over a cup of coffee instead of a court room, wasting everybody's time. Shubhada will buy the coffee!"The case is significant because the Government obtained a judgment on the merits and without trial. Additionally, the Court's judgment was based in part on its conclusion that it could draw an adverse inference against the individual defendants who invoked their Fifth Amendment right against self-incrimination.
Shubhada was ordered to pay $233 thousand to the United States. It is uncertain that the United States will recover as Shubhada has since filed for bankruptcy.