Thursday, December 5, 2019

Allegation that Contractor Overcharged the Government by $1.3 Billion

The Justice Department announced yesterday that it was enjoining a whistleblower suit charging Navistar Defense LLC with FCA (False Claims Act) violations by submitting fraudulent invoices to support inflated prices for commercial parts under its contract to supply MRAP (mine-resistant, ambush-protected) vehicles to the Government. Although the Justice Department press release made no mention of the amount in question, other news articles have reported the fraud could be an eye-popping $1.3 Billion on contracts totaling $9 Billion.

In 2007, the Marine Corps awarded Navistar a contract to build several hundred MRAP vehicles to replace the Humvee, which proved to be vulnerable to roadside explosive devices. Navistar ultimately provided nearly 3,000 MRAPs under the contract. In 2009, as the focus of the war effort transitioned from the paved roads and flat terrain of the Iraqi deserts to Afghanistan's rocky terrain, the Marine corps sought to upgrade its MRAP vehicles with a modified Independent Suspension System (ISS). During the course of contracting negotiations for the ISS, the Marine Corps asked Navistar to provide evidence of prior commercial sales of the various parts that made up the ISS to ensure that the prices paid were fair and reasonable. The lawsuit alleges that Navistar Defense knowingly submitted fraudulent invoices that falsely purported to show prior, comparable commercial sales to conceal the inflated prices it was charging the Marine Corps. In reality, these "prior sales" never occurred.

The lawsuit was initially filed under the qui tam or whistleblower provisions of the False Claims Act by a former contracts manager for Navistar. He alleged that on more than one occasion, Navistar employees "created forged sales histories to support the inflated prices it charged the Government". Moreover, this deliberate fraud was known to and supported by Navistar's executive leadership. Navistar, it is alleged, didn't just mark these parts up a little bit. The company charged the Marine Corps double the commercial prices and double the prices it sold under other contracts.

The claims alleged in the lawsuit are allegations only. The fact that the Government enjoined the lawsuit suggests that there is substance to the allegations.

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