Showing posts with label qui tam. Show all posts
Showing posts with label qui tam. Show all posts
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.
Tuesday, November 19, 2019
Contractor Pays $110 Thousand to Resolve Billing System Deficiencies
Eagle Alliance, a partnership involving Northrop Grumman, has paid $110 thousand to resolve FCA (False Claims Act) allegations that it improperly billed the Government for computer hardware. In doing so, the Company did not admit liability - the settlement only resolved some outstanding allegations.
Eagle Alliance had (has?) a contract to provide new computer hardware to NSA (National Security Agency). According to the settlement agreement, in 2012 and 2013, Eagle Alliance billed the Government twice for the same equipment. Moreover, investigations alleged that Eagle Alliance had billed the Government for used computer equipment as if they were new.
These allegations were filed by a former Eagle Alliance employee under the qui tam (whistleblower) provisions of the FCA. Those provisions permit private individuals with knowledge of fraud to sue on behalf of the Government for false claims and share in any recoveries. The former employee will receive nearly $19 thousand of the settlement.
As fraud cases go, this is a very small one and it seems to us like it was a billing issue rather than a scheme to defraud the Government. After all, no individual person benefited, it didn't go on for years and years, and what is $110 thousand to Northrop Grumman?
This case does illustrate the importance of maintaining an adequate billing system, especially for companies in the Government contracting environment. It also illustrates that fact that employees are aware of the qui tam provisions of the FCA and are constantly looking for transgressions that can yield a bit payday for themselves.
Eagle Alliance had (has?) a contract to provide new computer hardware to NSA (National Security Agency). According to the settlement agreement, in 2012 and 2013, Eagle Alliance billed the Government twice for the same equipment. Moreover, investigations alleged that Eagle Alliance had billed the Government for used computer equipment as if they were new.
These allegations were filed by a former Eagle Alliance employee under the qui tam (whistleblower) provisions of the FCA. Those provisions permit private individuals with knowledge of fraud to sue on behalf of the Government for false claims and share in any recoveries. The former employee will receive nearly $19 thousand of the settlement.
As fraud cases go, this is a very small one and it seems to us like it was a billing issue rather than a scheme to defraud the Government. After all, no individual person benefited, it didn't go on for years and years, and what is $110 thousand to Northrop Grumman?
This case does illustrate the importance of maintaining an adequate billing system, especially for companies in the Government contracting environment. It also illustrates that fact that employees are aware of the qui tam provisions of the FCA and are constantly looking for transgressions that can yield a bit payday for themselves.
Tuesday, December 18, 2018
Unsealing "Qui Tam" Cases
The publicizing of a "Qui Tam" suit happens at the time the Government decides whether to intervene. The underlying investigation took months, and sometimes years, to complete.U
Under the False Claims Act (FCA), private parties may bring suit in the name of the United States. The private parties, known as qui tam relators, must initially file the complaint under seal. Sealing protects the United States' investigation while the Government determines whether to intervene in the action. Once the United States decides whether to intervene, the qui tam complaint is unsealed. This is keeping with the general presumption that the public enjoys free and unfettered access to Court records.
To justify continued sealing of qui tam court records, the risk of disclosure must outweigh the public benefits in access to court records. What might those risks be? Such risks for continued sealing would be a showing that the particular pleading either includes confidential investigative techniques, jeopardizes an ongoing investigation or risks injury to non-parties. By contrast, if the pleading merely discloses routine investigative procedures which anyone with rudimentary knowledge of the investigative process (i.e. someone who watches crime shows on television) would assume would be utilized in the regular course of business and contains no information about specific investigatory techniques, then the pleading would be unsealed.
Sometimes the Government will try to maintain pleadings under seal. Perhaps the real reasons for trying to do do are not disclosed but the Government still tries and usually fails. In one recent case, the Government cited motions for extensions of time, routine investigative matters such as the numbers of subpoenas issued, witnesses interviewed, and pages of documents reviewed. as justification for continued sealing. The Court ruled that none of the pleadings implicate specific people or provide any substantive details about the investigative or decision-making efforts beyond memorializing routine investigative steps involved in any such process.
Under the False Claims Act (FCA), private parties may bring suit in the name of the United States. The private parties, known as qui tam relators, must initially file the complaint under seal. Sealing protects the United States' investigation while the Government determines whether to intervene in the action. Once the United States decides whether to intervene, the qui tam complaint is unsealed. This is keeping with the general presumption that the public enjoys free and unfettered access to Court records.
To justify continued sealing of qui tam court records, the risk of disclosure must outweigh the public benefits in access to court records. What might those risks be? Such risks for continued sealing would be a showing that the particular pleading either includes confidential investigative techniques, jeopardizes an ongoing investigation or risks injury to non-parties. By contrast, if the pleading merely discloses routine investigative procedures which anyone with rudimentary knowledge of the investigative process (i.e. someone who watches crime shows on television) would assume would be utilized in the regular course of business and contains no information about specific investigatory techniques, then the pleading would be unsealed.
Sometimes the Government will try to maintain pleadings under seal. Perhaps the real reasons for trying to do do are not disclosed but the Government still tries and usually fails. In one recent case, the Government cited motions for extensions of time, routine investigative matters such as the numbers of subpoenas issued, witnesses interviewed, and pages of documents reviewed. as justification for continued sealing. The Court ruled that none of the pleadings implicate specific people or provide any substantive details about the investigative or decision-making efforts beyond memorializing routine investigative steps involved in any such process.
Monday, June 4, 2018
Davis-Bacon Act Violations Cost Company $625 Thousand
The Davis-Bacon Act (in conjunction with the Contract Work Hours and Safety Standards Act) requires that contractors on Federal programs submit weekly payroll reports certifying that they correctly classified their workers according to work actually performed and that workers be paid not less than prevailing wages and benefits for each classification. Prevailing wages are determined by the U.S. Department of Labor.
A whistleblower accused James River Air Conditioning Company of underpaying its workers and submitting false certified payroll reports for work it performed on several federal construction and renovation projects. The Justice Department evidently saw merit in the whistleblower allegation and decided to initiate an investigation into the matter.
The investigation was coordinated among a gaggle of investigative agencies including including the Inspector Generals of the Labor Department, the Defense Department and the Veterans Affairs Department as well as the Army Criminal Investigation Command. Certainly all of those resources cost the Government more than the $625 thousand James River agreed to pay to get the matter behind them - especially after paying the whistleblower $106 thousand as his qui tam reward.
There was no determination of civil liability in this matter. The Government's claims settled by this agreement were allegations only. Certainly James River was glad to put this matter to rest.
A whistleblower accused James River Air Conditioning Company of underpaying its workers and submitting false certified payroll reports for work it performed on several federal construction and renovation projects. The Justice Department evidently saw merit in the whistleblower allegation and decided to initiate an investigation into the matter.
The investigation was coordinated among a gaggle of investigative agencies including including the Inspector Generals of the Labor Department, the Defense Department and the Veterans Affairs Department as well as the Army Criminal Investigation Command. Certainly all of those resources cost the Government more than the $625 thousand James River agreed to pay to get the matter behind them - especially after paying the whistleblower $106 thousand as his qui tam reward.
There was no determination of civil liability in this matter. The Government's claims settled by this agreement were allegations only. Certainly James River was glad to put this matter to rest.
Friday, June 1, 2018
$20 Million Settlement to Resolve False Claims Allegations
Earlier this week, several Inchape Shipping Services entities (Inchape) entered into a settlement agreement with the U.S. Department of Justice (and three qui tam whistleblowers). Inchape has agreed to pay $20 million to resolve allegations that the company violated the False Claims Act by knowingly over-billing the U.S. Navy under contracts for ship husbanding services. Inchape is a marine services contractor headquartered in UK.
Inchape provided goods and services to Navy ships at various international ports including food and other subsistence items, waste removal, telephone services, ship-to-shore transportation, force protection services and local transportation.
In 2014, three former employees of Inchape filed a Qui Tam or whistleblower suit alleging, among other things, that for nine years, from 2005 to 2014, Inchape
Inchape denied the charges. In its own press release, Inchape stated that it "remains confident in its legal positions, the action was filed eight years ago and yet remains in its earliest stages. Absent this settlement, the litigation would likely continue to distract Inchape personnel and drain resources for years to come".
Inchape further stated that it has determined to put this matter behind so that the company can focus on the future. The settlement agreement ending this matter does not find fault related to the disagreements that underlie the litigation.
Since this is a qui tam action, the three whistleblowers will share in $4.4 million of the $20 million settlement.
Inchape provided goods and services to Navy ships at various international ports including food and other subsistence items, waste removal, telephone services, ship-to-shore transportation, force protection services and local transportation.
In 2014, three former employees of Inchape filed a Qui Tam or whistleblower suit alleging, among other things, that for nine years, from 2005 to 2014, Inchape
- submitted invoices that overstated the quantity of goods and services provided
- billed at rates in excess of applicable contract rates, and
- double-billed for some goods and services
Inchape denied the charges. In its own press release, Inchape stated that it "remains confident in its legal positions, the action was filed eight years ago and yet remains in its earliest stages. Absent this settlement, the litigation would likely continue to distract Inchape personnel and drain resources for years to come".
Inchape further stated that it has determined to put this matter behind so that the company can focus on the future. The settlement agreement ending this matter does not find fault related to the disagreements that underlie the litigation.
Since this is a qui tam action, the three whistleblowers will share in $4.4 million of the $20 million settlement.
Friday, February 23, 2018
Materiality is Critical to a False Claims Allegation
A United States District Court (Middle District of Florida, Tampa Division) vacated a $350 million jury verdict against Salus Rehabilitation, an operator of specialized nursing facilities, under the Federal False Claims Act (FCA). The Judge ruled that the relator (a Qui Tam relator - the Government did not enjoin this particular suit) failed to establish that Salus' failure to (i) maintain comprehensive care plans and (ii) sign and date documents were material to payment decisions by Medicaid.
The Whistleblower alleged that Salus failed to maintain comprehensive care plans for each patient and failed to properly sign and date documents as required by the Medicaid program. A Jury agreed and the $350 million judgment was levied against Salus.
But wait a minute. Were these significant infractions? The Federal Judge ruled that the Whistleblower failed to offer evidence of materiality. Under a previous case, the Court ruled that an FCA claim on an implied false certification theory fails if the non-compliance is disclosed to, or discovered by, the United States; and if the United States pays notwithstanding the disclosed or discovered non-compliance. Thus, for a relator to prevail on an FCA claim, the defendant must know, or reasonable should know, that its non-compliance was material when it sought payment, and the defendant's misrepresentation must be material to the Government's decision to pay.
In the Salus case, the Court found no evidence on how the Government might have addressed the disputed practices and the lack of evidence left the jurors to guess. According to the Court, the Government was and is aware of the disputed practices, aware of this action, aware of the allegations, aware of the evidence, and aware of the judgments for the relator. But the Government never ceased to pay or even threatened to stop paying Salus for the services provided to patients.
The controlling question in this case is whether the Government would refuse to pay a provider on a large scale because of a dispute about the method or accuracy of payment after the Government permitted the practice to remain in place for years without complaint or inquiry. Every day that the Government continues to pay for a good or service, the greater the practical impediment to proof of materiality.
You can read the full decision here.
The Whistleblower alleged that Salus failed to maintain comprehensive care plans for each patient and failed to properly sign and date documents as required by the Medicaid program. A Jury agreed and the $350 million judgment was levied against Salus.
But wait a minute. Were these significant infractions? The Federal Judge ruled that the Whistleblower failed to offer evidence of materiality. Under a previous case, the Court ruled that an FCA claim on an implied false certification theory fails if the non-compliance is disclosed to, or discovered by, the United States; and if the United States pays notwithstanding the disclosed or discovered non-compliance. Thus, for a relator to prevail on an FCA claim, the defendant must know, or reasonable should know, that its non-compliance was material when it sought payment, and the defendant's misrepresentation must be material to the Government's decision to pay.
In the Salus case, the Court found no evidence on how the Government might have addressed the disputed practices and the lack of evidence left the jurors to guess. According to the Court, the Government was and is aware of the disputed practices, aware of this action, aware of the allegations, aware of the evidence, and aware of the judgments for the relator. But the Government never ceased to pay or even threatened to stop paying Salus for the services provided to patients.
The controlling question in this case is whether the Government would refuse to pay a provider on a large scale because of a dispute about the method or accuracy of payment after the Government permitted the practice to remain in place for years without complaint or inquiry. Every day that the Government continues to pay for a good or service, the greater the practical impediment to proof of materiality.
You can read the full decision here.
Monday, January 22, 2018
Lockheed Pays $4.4 Million to Settle False Claims Charges
The Federal Government just announced a $4.4 million settlement with Lockheed Martin regarding defective communication systems the company installed in six new Cutters for the U.S. Coast Guard. The settlement resolves a whistleblower lawsuit filed in the U.S. District Court for the Northern District of California. An engineer who at one time worked for Lockheed Martin filed the case pursuant to the qui tam provisions of the False Claims Act. Under those provisions, private citizens, known as "relators", may file lawsuits on behalf of the United States and receive a portion of the proceeds of a settlement or judgment. In this case, the relator, the former Lockheed Martin employee, will be receiving almost $1 million as his share of the Government's recovery.
Lockheed Martin was under contract to manufacture and install communication systems on new Coast Guard Cutters. These systems are known as Radio Frequency Distribution Systems (RFDSs). The systems that Lockheed provided and installed on Cutters however, did not meet specifications. They were unable to transmit and receive several different radio signals at the same time without undue interference (i.e. simultaneous operations), an essential requirement of the contract. To settle the allegations, Lockheed agreed to pay $2.2 million as a penalty and to spend another $2.2 million to repair the RFDSs already installed on Coast Guard Cutters.
The Justice Department tends to herald the successes of the whistleblower program and these stories makes pretty good press - especially when, like here, the whistleblower walks away with a big payday. However, the real work of protecting the taxpayers is performed quietly every day by contract administrators and contract auditors who work tirelessly, quietly, and usually behind the scenes to ensure that contractors' business systems (accounting, billing, EVMS, purchasing, timekeeping, etc) are up to standards and that codes of conduct and ethics are present and adhered to, and the products meet contractual and technical standards. Without these individuals, Government purchases would undoubtedly cost a lot more than they do already.
Lockheed Martin was under contract to manufacture and install communication systems on new Coast Guard Cutters. These systems are known as Radio Frequency Distribution Systems (RFDSs). The systems that Lockheed provided and installed on Cutters however, did not meet specifications. They were unable to transmit and receive several different radio signals at the same time without undue interference (i.e. simultaneous operations), an essential requirement of the contract. To settle the allegations, Lockheed agreed to pay $2.2 million as a penalty and to spend another $2.2 million to repair the RFDSs already installed on Coast Guard Cutters.
The Justice Department tends to herald the successes of the whistleblower program and these stories makes pretty good press - especially when, like here, the whistleblower walks away with a big payday. However, the real work of protecting the taxpayers is performed quietly every day by contract administrators and contract auditors who work tirelessly, quietly, and usually behind the scenes to ensure that contractors' business systems (accounting, billing, EVMS, purchasing, timekeeping, etc) are up to standards and that codes of conduct and ethics are present and adhered to, and the products meet contractual and technical standards. Without these individuals, Government purchases would undoubtedly cost a lot more than they do already.
Thursday, December 15, 2016
Government Recovers $4.7 Billion in False Claims Settlements in Fiscal Year 2016
The Department of Justice announced that during fiscal year 2016 (ending September 30, 2016) it obtained more than $ 4.7 billion in settlements and judgments from civil cases involving fraud and false claims against the Government. This represents the third highest recovery since fiscal year 2009 and brings the total amount recovered during that period to $ 31.3 billion.
Government contracting was not the major culprit in these recoveries. Of the $4.7 billion recovered, more than half ($2.5 billion) came from the health care industry including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. Justice pointed out that the $2.5 billion represented only the Federal portion of losses. Significant additional recoveries were recovered by state medicaid programs.
After the health care industry, the next largest recoveries came from the financial industry, notably involving housing and mortgage fraud. Settlements and judgments in cases alleging false claims in connection with federally insured residential mortgages totaled nearly $1.7 billion.
Together, the health care and financial industries accounted for $4.2 of the $4.7 billion (89 percent) in recoveries.
Justice reported that most false claims actions are filed by whistleblowers under the qui tam provisions of the False Claims Act. When the Government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery. In Fiscal Year 2006, whistleblowers filed 702 qui tam suits, averaging 13.5 new cases per week. $2.9 billion of the $4.7 billion in recoveries were the result of whistleblower suits. During Fiscal Year 2016, whistleblowers collected a total of $519 million.
Although small by comparison to health care and financial industry fraud, the Justice Department pursued a variety of procurement fraud matters. Justice specifically called out L-3 Communications who paid the Government $25.6 million for defective holographic weapon sites sold to Homeland Security and the FBI.
Read more about Justice's recoveries here.
Government contracting was not the major culprit in these recoveries. Of the $4.7 billion recovered, more than half ($2.5 billion) came from the health care industry including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. Justice pointed out that the $2.5 billion represented only the Federal portion of losses. Significant additional recoveries were recovered by state medicaid programs.
After the health care industry, the next largest recoveries came from the financial industry, notably involving housing and mortgage fraud. Settlements and judgments in cases alleging false claims in connection with federally insured residential mortgages totaled nearly $1.7 billion.
Together, the health care and financial industries accounted for $4.2 of the $4.7 billion (89 percent) in recoveries.
Justice reported that most false claims actions are filed by whistleblowers under the qui tam provisions of the False Claims Act. When the Government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery. In Fiscal Year 2006, whistleblowers filed 702 qui tam suits, averaging 13.5 new cases per week. $2.9 billion of the $4.7 billion in recoveries were the result of whistleblower suits. During Fiscal Year 2016, whistleblowers collected a total of $519 million.
Although small by comparison to health care and financial industry fraud, the Justice Department pursued a variety of procurement fraud matters. Justice specifically called out L-3 Communications who paid the Government $25.6 million for defective holographic weapon sites sold to Homeland Security and the FBI.
Read more about Justice's recoveries here.
Friday, November 25, 2016
Contractors Pay $125 Million to Settle Safety Concerns
A DOE (Department of Energy) contractor and its primary subcontractor have agreed to pay $125 million to settle allegations that they charged the Government for materials and work that did not meet standards required for nuclear facilities and used Government funds to pay for lobbying expenses. Bechtel National will pay $67.5 million and AECOM Energy and Construction Inc. will pay $57.5 million. AECOM, for its part, is a successor in interest to URS Energy and Construction Inc.and maintains that the events leading to the settlement occurred prior to its acquisition of URS. We wonder if this liability was reflected in the purchase price of URS.
This settlement resolved a qui tam suit (whistleblowwer suit) brought by three former contractor and Government employees. It had been sealed until last week when the Government decided to enjoin that action. When the Government jumped in, the contractors quickly moved to settle. The settlement is not an admission of guilt, it only resolves the issues. Nevertheless, $125 million is a hefty price and the whistleblowers (and their attorneys) will receive a cut of the proceeds, possibly as much as $31 million.
The case involved the construction of a vitrification plant on the Hanford nuclear reservation. The "vit" plan, which began construction in 2002 will process 56 million gallons of radioactive waste into a stable glass form for disposal. According to the lawsuit, Bechtel and URS did not comply with nuclear quality requirements. Examples included the use of grout not formulated to withstand high radiation levels, the acceptance of piping without the required harness to withstand a severe earthquake, and welds and duct work that could not be shown to meet nuclear quality requirements.
Allegations of lobbying effort paid with Government funds included money to pay a lobbyist in 2009 and 2010 to downplay the significance of technical concerns raised by the Defense Nuclear Facilities Safety Board and using funds to secure an extra $50 million in federal money when the company was fearful that the $50 million was in jeopardy because of safety concerns.
You can read the Justice Department's press release here. A local account from the Tri-City Herald can be found here.
This settlement resolved a qui tam suit (whistleblowwer suit) brought by three former contractor and Government employees. It had been sealed until last week when the Government decided to enjoin that action. When the Government jumped in, the contractors quickly moved to settle. The settlement is not an admission of guilt, it only resolves the issues. Nevertheless, $125 million is a hefty price and the whistleblowers (and their attorneys) will receive a cut of the proceeds, possibly as much as $31 million.
The case involved the construction of a vitrification plant on the Hanford nuclear reservation. The "vit" plan, which began construction in 2002 will process 56 million gallons of radioactive waste into a stable glass form for disposal. According to the lawsuit, Bechtel and URS did not comply with nuclear quality requirements. Examples included the use of grout not formulated to withstand high radiation levels, the acceptance of piping without the required harness to withstand a severe earthquake, and welds and duct work that could not be shown to meet nuclear quality requirements.
Allegations of lobbying effort paid with Government funds included money to pay a lobbyist in 2009 and 2010 to downplay the significance of technical concerns raised by the Defense Nuclear Facilities Safety Board and using funds to secure an extra $50 million in federal money when the company was fearful that the $50 million was in jeopardy because of safety concerns.
You can read the Justice Department's press release here. A local account from the Tri-City Herald can be found here.
Tuesday, March 8, 2016
Failure to Meet Specifications Results in $3 Million Settlement
ArmorSource, an Ohio company was awarded a contract to produce helmets for the Army. It subcontracted the work to Federal Prison Industries (FPI) also known as UNICOR. In 2010, a batch of 44,000 potentially defective helmets were recalled. According to a Congressman at the time, FPI did not meet protective standards, nor did it meet required deadlines in its production of helmets. The helmets failed ballistics testing.
From 2008 to 2010, FPI was awarded contracts for 100 percent of the military's needs, effectively shutting out private industry. Congressional investigations at the time concluded that FPI utilized poorly paid and often indifferently supervised prisoners to produce products that are in direct competition with private-sector businesses. As a result of the investigations, FPI no longer gets preferential treatment when it comes to helmet production (though it continues to receive preferential contracting treatment on many other products the Government buys).
Fast forward six years to this week when the Department of Justice (DoJ) announced that Armorsource has agreed to pay $3 million to settle false claims act allegations related to helmet subcontract to FPI. The investigation found that ArmorSource had delivered Advanced Combat Helmets (ACH) that were manufactured and tested using methods that did not conform to contract requirements and that failed to meet contract performance standards.
The DoJ press release noted that the allegations of poor performance were brought by two whistleblowers who worked for FPI (prisoners, we presume) and that as a result of the settlement, received $450 thousand as Qui Tam relators.
You can read the full DoJ press release here.
From 2008 to 2010, FPI was awarded contracts for 100 percent of the military's needs, effectively shutting out private industry. Congressional investigations at the time concluded that FPI utilized poorly paid and often indifferently supervised prisoners to produce products that are in direct competition with private-sector businesses. As a result of the investigations, FPI no longer gets preferential treatment when it comes to helmet production (though it continues to receive preferential contracting treatment on many other products the Government buys).
Fast forward six years to this week when the Department of Justice (DoJ) announced that Armorsource has agreed to pay $3 million to settle false claims act allegations related to helmet subcontract to FPI. The investigation found that ArmorSource had delivered Advanced Combat Helmets (ACH) that were manufactured and tested using methods that did not conform to contract requirements and that failed to meet contract performance standards.
The DoJ press release noted that the allegations of poor performance were brought by two whistleblowers who worked for FPI (prisoners, we presume) and that as a result of the settlement, received $450 thousand as Qui Tam relators.
You can read the full DoJ press release here.
Thursday, March 3, 2016
Big Payday for Whistleblowers
The Natural Resources Defense Council and several former employees of Lockheed Martin filed a lawsuit under the qui tam, or whistleblower, provision of the False Claims Act (FCA) alleging that Lockheed misrepresented its compliance with the Resource Conservation and Recovery Act (RCRA) to the Department of Energy and as a result, knowingly submitted false claims for payment under its contracts with DOE. The whistleblower provision of the FCA permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the Government's recovery. In this case, the Government recovered $5 million and the whistleblowers will collectively receive $920 thousand.
The lawsuit alleged that Lockheed violated the statute that establishes how hazardous wastes must be managed, by failing to identify and report hazardous waste produced and stored at the facility, and failing to properly handle and dispose of the waste.
Lockheed operated the Paducah Gaseous Diffusion Plant under contracts with DOE from 1984 to 1999. During that time, Lockheed was responsible for the facility's uranium enrichment operations and for environmental restoration, waste management, and custodial care at the site.
In announcing the settlement, the U.S. Attorney stated:
You can read the full DoJ press release on this case by clicking here.
The lawsuit alleged that Lockheed violated the statute that establishes how hazardous wastes must be managed, by failing to identify and report hazardous waste produced and stored at the facility, and failing to properly handle and dispose of the waste.
Lockheed operated the Paducah Gaseous Diffusion Plant under contracts with DOE from 1984 to 1999. During that time, Lockheed was responsible for the facility's uranium enrichment operations and for environmental restoration, waste management, and custodial care at the site.
In announcing the settlement, the U.S. Attorney stated:
Government contractors are required to follow the same federal laws that apply to everyone else. These companies do not get a pass on compliance, especially when their responsibilities include managing and disposing of hazardous waste. Today's settlement should serve as a reminder that ...the Department of Justice will pursue all credible allegations of false claims and of environmental regulatory violations.Whistleblowers provide a valuable service in ferreting out fraud, waste, and abuse. Whistleblowing is not the mother lode however. Relatively few whistleblower cases are enjoined by the Government (based on our anecdotal evidence) which means the whistleblower, if he/she wants to proceed, must go it alone. That cost money and many attorneys are unwilling to take such cases on contingencies and as a result, the law suits simply die.
You can read the full DoJ press release on this case by clicking here.
Thursday, October 15, 2015
Where Were the Auditors for Eight Years?
The Department of Justice sent out a press release yesterday announcing that Boeing had agreed to settle false claims allegations for $18 million. DoJ press releases announcing multi-million dollar settlements are not unusual. And, in this case, Boeing did not admit liability - it only paid to move some allegations behind it. What fascinated us with this case is that the practice that gave rise to the whistleblower allegations had gone on for eight years - eight years when DCAA (Defense Contract Audit Agency) and DCMA (Defense Contract Management Agency) had platoon-sized cadres scurrying around the plant making sure Boeing wasn't charging the Government too much money. What makes the situation more dismal is that it wasn't the auditors or the contracting officers that discovered the practice - it came from a Boeing insider - a whistleblower.
The essence of the allegation is that Boeing over-billed the Government for labor charged to maintenance contracts with the Air Force for the C-17 Globemaster. Employees came to work and left eight hours later and were paid for eight hours. The only problem was that withing the eight hours shifts, the employees enjoyed their lunch hour and took extended breaks. The Government did not receive eight hours of work from these employees but paid Boeing for eight hours of work.
One really has to wonder what the auditors were doing for those eight years?
Oh yes, the whistleblower received $3.2 million out of the $18 million settlement.
The essence of the allegation is that Boeing over-billed the Government for labor charged to maintenance contracts with the Air Force for the C-17 Globemaster. Employees came to work and left eight hours later and were paid for eight hours. The only problem was that withing the eight hours shifts, the employees enjoyed their lunch hour and took extended breaks. The Government did not receive eight hours of work from these employees but paid Boeing for eight hours of work.
One really has to wonder what the auditors were doing for those eight years?
Oh yes, the whistleblower received $3.2 million out of the $18 million settlement.
Tuesday, October 13, 2015
Whistleblower (and her attorney, of course) Have a $3.6 Million Payday
The Justice Department announced late last week that it had reached a settlement with a company and its former president in a case where the company misrepresented itself as a woman-owned small business. By misrepresenting its status, the company was awarded millions of dollars in subcontracts that were set aside for women-owned small businesses.
The former President went to great lengths to support its status as a woman-owned small business, even fooling DCMA's (Defense Contract Management Agency) Comprehensive Subcontracting Plan Group whose mission was to ensure that defense contractors and subcontractors meet all of the requirement for hiring small businesses, including WSOBs (Women-owned small businesses).
The fraud may never have come to light were it not for a former employee who blew the whistle on the scheme by filing a Qui Tam (or whistleblower) suit. The Government intervened in 2012 and settlement was just announced last week. The former company president agreed to a settlement of $20 million. For her part in the case, the whistleblower will receive $3.6 million - not a bad payday.
Through her attorney, the whistleblower said she was "pleased with the outcome." No doubt that is an understatement.
You can read more details of the Government's case by clicking here.
The former President went to great lengths to support its status as a woman-owned small business, even fooling DCMA's (Defense Contract Management Agency) Comprehensive Subcontracting Plan Group whose mission was to ensure that defense contractors and subcontractors meet all of the requirement for hiring small businesses, including WSOBs (Women-owned small businesses).
The fraud may never have come to light were it not for a former employee who blew the whistle on the scheme by filing a Qui Tam (or whistleblower) suit. The Government intervened in 2012 and settlement was just announced last week. The former company president agreed to a settlement of $20 million. For her part in the case, the whistleblower will receive $3.6 million - not a bad payday.
Through her attorney, the whistleblower said she was "pleased with the outcome." No doubt that is an understatement.
You can read more details of the Government's case by clicking here.
Friday, July 17, 2015
Whistleblowers Convicted of Participating in a Fraud, Cannot Recover Under Qui Tam Provisions
A few years ago, a DOE contractor was charged with timekeeping irregularities - it's employees were charging overtime for hours they did not work and these overtime hours were passed right along to the Government under a cost-reimbursable contract. You can read more details about this case here and here.
Sadly, the discovery of this fraud did not come from the many oversight agencies whose jobs were to prevent and detect such activities. The discovery of the fraud came from a whistleblower who himself, had engaged in the fraud. The question that has been rattling around the court system for awhile is whether that whistleblower, who participated in the fraud to an insignificant degree, can share in the Government's $18.5 million recovery under the Qui Tam provisions of the False Claims Act. The U.S. Court of Appeals just ruled that he could not share in the recovery:
You can read the entire Court decision here.
Sadly, the discovery of this fraud did not come from the many oversight agencies whose jobs were to prevent and detect such activities. The discovery of the fraud came from a whistleblower who himself, had engaged in the fraud. The question that has been rattling around the court system for awhile is whether that whistleblower, who participated in the fraud to an insignificant degree, can share in the Government's $18.5 million recovery under the Qui Tam provisions of the False Claims Act. The U.S. Court of Appeals just ruled that he could not share in the recovery:
"... the False Claims Act requires the dismissal of a qui tam relator convicted of the conduct giving rise to the fraud, even if the relator only played a minor role."The relator argued that applying the prohibition to minor fraud participants undermines the FCA's (False Claims Act's) purpose of encouraging qui tam plaintiffs to help uncover fraud. The supposition here is that if there is no chance of reward, fewer whistleblowers will come forward. The Court did not buy this argument.
You can read the entire Court decision here.
Wednesday, July 1, 2015
Contractors Repay $75 Million for Overcharging the Government
Here's something for contractors with GSA Multiple Award Contracts to consider. Every company that has ever received a GSA contract knows full-well that the prices offered the Government must be the best prices offered any commercial contractor. That requirement is well entrenched into the process. If you want to sell to the Government, fine, just don't try to gouge the Government because it has deep pockets, because you can get away with it, because the oversight is lax, or just because you can.
Under the Multiple Award Schedule (MAS) Program, prospective vendors agree to disclose commercial pricing policies and practices to the GSA in exchange for the opportunity to gain access to the broad federal marketplace and the ease of administration that comes from selling to any government purchaser under one central contract. GSA regulations require that, during contract negotiations with GSA, prospective vendors seeking an MAS contract make “current, accurate and complete” disclosures of the standard and non-standard discounts they offer to commercial customers. The GSA relies on the accuracy of these disclosures in order to negotiate fair pricing for government purchasers. Additionally, after the MAS contract is awarded, regulations require that MAS Program vendors disclose to the GSA changes in their commercial pricing practices, including improved discounts that are offered to commercial customers, after the MAS contract is in place.
The Department of Justice recently announced a settlement with two MAS contractors who agreed to pay back a staggering $75 million to resolve allegations that they violated the (Civil) False Claims Act by misrepresenting their commercial pricing practices thereby overcharging the Government (it would be interesting to see how the companies footnote these events in their audited financial statements).
Under the Multiple Award Schedule (MAS) Program, prospective vendors agree to disclose commercial pricing policies and practices to the GSA in exchange for the opportunity to gain access to the broad federal marketplace and the ease of administration that comes from selling to any government purchaser under one central contract. GSA regulations require that, during contract negotiations with GSA, prospective vendors seeking an MAS contract make “current, accurate and complete” disclosures of the standard and non-standard discounts they offer to commercial customers. The GSA relies on the accuracy of these disclosures in order to negotiate fair pricing for government purchasers. Additionally, after the MAS contract is awarded, regulations require that MAS Program vendors disclose to the GSA changes in their commercial pricing practices, including improved discounts that are offered to commercial customers, after the MAS contract is in place.
The Department of Justice recently announced a settlement with two MAS contractors who agreed to pay back a staggering $75 million to resolve allegations that they violated the (Civil) False Claims Act by misrepresenting their commercial pricing practices thereby overcharging the Government (it would be interesting to see how the companies footnote these events in their audited financial statements).
The settlement resolves allegations that the two companies made false statements to the government in connection with the sale of their products and services under MAS contracts. These false statements allegedly concealed the companies’ commercial pricing practices and enabled the companies to overcharge the government from 2007 through 2013.
The civil settlement resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery. Looks like a very good payday for the whistleblower (a former president of one of the companies). Although the Justice's press release did not disclose how much of the $75 million will go to the whistleblower, it will be sizable.
The claims resolved by the settlement are allegations only; there has been no determination of liability.
You can read the full press release here.
The claims resolved by the settlement are allegations only; there has been no determination of liability.
You can read the full press release here.
Thursday, March 12, 2015
Davis-Bacon Violations Cost Big Money
One contractor employee is $72 thousand richer today as a result of "blowing the whistle" on a practice of short-changing workers on a Government construction project.
Two Maryland companies agreed to pay a total of $400 thousand to settle False Claims Act allegations in connection with a contract to renovate a building being leased by the Government. This $400 thousand was a settlement only and there was no determination of civil liability.
The construction contract was awarded by GSA and subject to the requirements of the Davis-Bacon Act and the Contract Work Hours and Safety Standards Act (CWHSSA). The Davis-Bacon Act requires government contractors to pay the prevailing wage to workers as set by the Secretary of Labor for the corresponding class of laborers in the state in which they are employed. The CWHSSA requires time-and-a-half pay for hours in excess of 40 per week.
Lend Lease Construction was the prime on the job. Lend Lease hired Cindell Construction to to the drywall work. Cindell hired lower-tiered subcontractors to do the actual work. The lower-tiered subcontractors underpaid its workers (paid them less than prevailing wage) and did not compensate them for overtime. Then everybody, Lend Lease, Cindell, and the lower-tiered subcontractors, got together and submitted certified payrolls to the Government saying that they had complied with Davis-Bacon and CWHSSA.
These companies forgot to consider one thing. There was an insider lurking within one of the companies who knew what was going on and had the conscience to alert the authorities - well, conscience and the prospect of a big payday.
The U.S. Attorney stated concerning this case: "We encourage whistleblowers to come forward in instances where the government is a victim. This case exemplifies the important role whistleblowers can play in recovering money for the government." Maybe the Government was harmed in a round about way but it was really the underpaid workers that were harmed in this case. Perhaps the $400 thousand collected by the Department of Justice will be re-distributed to those workers.
You can read the DOJ press release on this case here.
Two Maryland companies agreed to pay a total of $400 thousand to settle False Claims Act allegations in connection with a contract to renovate a building being leased by the Government. This $400 thousand was a settlement only and there was no determination of civil liability.
The construction contract was awarded by GSA and subject to the requirements of the Davis-Bacon Act and the Contract Work Hours and Safety Standards Act (CWHSSA). The Davis-Bacon Act requires government contractors to pay the prevailing wage to workers as set by the Secretary of Labor for the corresponding class of laborers in the state in which they are employed. The CWHSSA requires time-and-a-half pay for hours in excess of 40 per week.
Lend Lease Construction was the prime on the job. Lend Lease hired Cindell Construction to to the drywall work. Cindell hired lower-tiered subcontractors to do the actual work. The lower-tiered subcontractors underpaid its workers (paid them less than prevailing wage) and did not compensate them for overtime. Then everybody, Lend Lease, Cindell, and the lower-tiered subcontractors, got together and submitted certified payrolls to the Government saying that they had complied with Davis-Bacon and CWHSSA.
These companies forgot to consider one thing. There was an insider lurking within one of the companies who knew what was going on and had the conscience to alert the authorities - well, conscience and the prospect of a big payday.
The U.S. Attorney stated concerning this case: "We encourage whistleblowers to come forward in instances where the government is a victim. This case exemplifies the important role whistleblowers can play in recovering money for the government." Maybe the Government was harmed in a round about way but it was really the underpaid workers that were harmed in this case. Perhaps the $400 thousand collected by the Department of Justice will be re-distributed to those workers.
You can read the DOJ press release on this case here.
Monday, October 13, 2014
Contractor Pays $23 million to Settle Allegations of Labor Mischarging
Last week, we reported on a settlement where a contractor had billed the Government for a certain skill level worker but used lesser-skilled individuals to perform the actual work. The contractor paid $13.5 million to settle the allegation. We have no idea of what it cost the Government to investigate - Government investigations do not come cheap and there were a lot of Agencies involved - U.S. Attorney's Office, DoJ Civil Office, DCAA, Army CID Major Procurement Fraud Unit and the Defense Criminal Investigative Service.
Now comes a report on another settlement involving labor costs. In this case, the contractor was Boeing and it agreed to pay $23 million to resolve allegations that it submitted false claims for labor charges on maintenance contracts with the Air Force for the C-17 cargo plane. It is noteworthy that the claims resolved by the settlement were only allegations and there was no determination of liability.
It is unclear from the Department of Justice (DoJ) press release as to the precise nature of the allegations. The only specific detail provided is that Boeing billed the Air Force for hours that it's mechanics spent at meetings not directly related to the contract. So, perhaps, the meetings related to administrative aspects of the job, or sensitivity training, or timekeeping practices, or whatever, and the time should have been charged to an indirect charge number rather than direct to the contract.
The interesting thing about this case however is that it arose, not from any Governmental agency oversight, but from internal whistleblowers. Four Boeing employees filed a false claims suit on behalf of the Government (referred to as Qui Tam actions). This allows them to share in the settlement. In this case, the four individuals received $3.9 million out of the $23 million settlement (well, that would be $3.9 million less attorney's contingency fees). Presumably, but we don't know for certain, these employees first tried to resolve the issues internally but were rebuffed by management. That procedures is often a prerequisite to sharing in any recoveries.
We have seen a number of Qui Tam cases in the past few years where company employees collected a share of the recoveries. This underscores the importance for contractors to have effective internal controls in place that include standards of conduct and ethical practices with oversight responsibilities and accountability. Employee concerns of wrong-doing should be investigated thoroughly and resolved timely. It takes only one disgruntled employee to make a contractor's life miserable.
Now comes a report on another settlement involving labor costs. In this case, the contractor was Boeing and it agreed to pay $23 million to resolve allegations that it submitted false claims for labor charges on maintenance contracts with the Air Force for the C-17 cargo plane. It is noteworthy that the claims resolved by the settlement were only allegations and there was no determination of liability.
It is unclear from the Department of Justice (DoJ) press release as to the precise nature of the allegations. The only specific detail provided is that Boeing billed the Air Force for hours that it's mechanics spent at meetings not directly related to the contract. So, perhaps, the meetings related to administrative aspects of the job, or sensitivity training, or timekeeping practices, or whatever, and the time should have been charged to an indirect charge number rather than direct to the contract.
The interesting thing about this case however is that it arose, not from any Governmental agency oversight, but from internal whistleblowers. Four Boeing employees filed a false claims suit on behalf of the Government (referred to as Qui Tam actions). This allows them to share in the settlement. In this case, the four individuals received $3.9 million out of the $23 million settlement (well, that would be $3.9 million less attorney's contingency fees). Presumably, but we don't know for certain, these employees first tried to resolve the issues internally but were rebuffed by management. That procedures is often a prerequisite to sharing in any recoveries.
We have seen a number of Qui Tam cases in the past few years where company employees collected a share of the recoveries. This underscores the importance for contractors to have effective internal controls in place that include standards of conduct and ethical practices with oversight responsibilities and accountability. Employee concerns of wrong-doing should be investigated thoroughly and resolved timely. It takes only one disgruntled employee to make a contractor's life miserable.
Friday, November 9, 2012
Whistleblower Action
The Justice Department announced in a press release yesterday that it has intervened in a whistleblower lawsuit against Fluor Corporation in the U.S. District Court for the Eastern District of Washington. The False Claims Act lawsuit was originally filed by a former employee of Fluor.
The whistleblower complaint alleges that, as a condition of receiving a Government contract, Fluor was required to certify that it would not use federal funds for lobbying activities. The complaint further alleges that between 2005 and 2008, Fluor ignored these restrictions and used Government funding to lobby Congress and executive branch officials for additional funding on an existing contract.
The complaint was filed under the False Claims Act, which authorizes private parties to sue on behalf of the United States and share in any recovery. The act authorizes the United States to intervene in such a suit and take over the responsibility for litigating it.
The claims asserted in this case are allegations only, and there has been no determination of liability. However, the Government, prior to intervening in the case, saw the evidence and based on that evidence, decided to join in the suit. Many times, the Government does not intervene in whistleblower suits because of there is not sufficient evidence to take the allegations forward.
There has been a marked increase in the number of whistleblower (qui tam) lawsuits in recent year. The potential of a big payday awaits those who persevere. The Justice Department reported that a record of 638 qui tam lawsuits were filed in 2011, after hovering between 300 and 400 a year for most of the prior ten years. Contractors are advised to ensure that their system of internal controls, codes of conduct, and ethical practices are implemented and operating effectively.
The whistleblower complaint alleges that, as a condition of receiving a Government contract, Fluor was required to certify that it would not use federal funds for lobbying activities. The complaint further alleges that between 2005 and 2008, Fluor ignored these restrictions and used Government funding to lobby Congress and executive branch officials for additional funding on an existing contract.
The complaint was filed under the False Claims Act, which authorizes private parties to sue on behalf of the United States and share in any recovery. The act authorizes the United States to intervene in such a suit and take over the responsibility for litigating it.
The claims asserted in this case are allegations only, and there has been no determination of liability. However, the Government, prior to intervening in the case, saw the evidence and based on that evidence, decided to join in the suit. Many times, the Government does not intervene in whistleblower suits because of there is not sufficient evidence to take the allegations forward.
There has been a marked increase in the number of whistleblower (qui tam) lawsuits in recent year. The potential of a big payday awaits those who persevere. The Justice Department reported that a record of 638 qui tam lawsuits were filed in 2011, after hovering between 300 and 400 a year for most of the prior ten years. Contractors are advised to ensure that their system of internal controls, codes of conduct, and ethical practices are implemented and operating effectively.
Tuesday, November 30, 2010
Labor Mischarging
The Department of Justice just issued another press release - this time about a settlement with a defense subcontractor who "allegedly" mischarged labor costs to Government contracts. The press release used the word "allegedly" because the subcontractor, by settling, did not admit any guilt. Nevertheless, the Government got back about $2 million, of which the whistleblower who initially raised the issue, received $361 thousand.
From 2001 to 2006, this subcontractor was systematically altering employee timecards thereby charging the prime contractor, and ultimately the Government, for hours not worked. One of the employees bacame cognizant of what was going on, didn't like it, and alerted authorities by filing a "qui tam" action under the False Claims Act. The evidence provide by the whistleblower was sufficient enough for the Government to intervene and ultimately settle and recover the $2 million. Although the press release doesn't state so, the initial estimates of the cost impact was probably much higher than $2 million. These cases are often settled for much lower than initial estimates.
Contractors that play around with timecard alterations or instructing their employees to charge something other than what they are actually working on are at higher risk from being outed by their own employees than they are though a Government audit. If an employee believes there can be a big payday in the future for blowing the whistle on unethical or fraudulent activity, that is sometimes all the incentive required. When there's a hotline poster and a 1-800 telephone number staring them in the face every day, they don't even have to look up the telephone number to report their suspicions.
From 2001 to 2006, this subcontractor was systematically altering employee timecards thereby charging the prime contractor, and ultimately the Government, for hours not worked. One of the employees bacame cognizant of what was going on, didn't like it, and alerted authorities by filing a "qui tam" action under the False Claims Act. The evidence provide by the whistleblower was sufficient enough for the Government to intervene and ultimately settle and recover the $2 million. Although the press release doesn't state so, the initial estimates of the cost impact was probably much higher than $2 million. These cases are often settled for much lower than initial estimates.
Contractors that play around with timecard alterations or instructing their employees to charge something other than what they are actually working on are at higher risk from being outed by their own employees than they are though a Government audit. If an employee believes there can be a big payday in the future for blowing the whistle on unethical or fraudulent activity, that is sometimes all the incentive required. When there's a hotline poster and a 1-800 telephone number staring them in the face every day, they don't even have to look up the telephone number to report their suspicions.
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