Contractor Settles Overpayment Allegations for (an additional) $6.4 Million

The Air Force awarded CH2M Hill Inc two A&E (Architectural and Engineering) contracts to support construction efforts at multiple Air Force installations across the continental United States. These were T&M (Time and Material) contracts where labor costs are billed as work progresses at pre-determined billing rates. As is the nature of T&M contracts, individuals billed for various labor categories must meet minimum educational and/or experience requirements for the position being billed.

In 2014, DCAA (Defense Contract Audit Agency) conducted an audit of CH2M Hill's 2008 billings on these contracts and found that at least eight engineering employees did not meet labor qualification requirements. That prompted CH2M Hill to conduct its own internal audit where they discovered the problem was much more significant than just eight employees. Internal audit discovered more than 300 instances of unqualified labor billed against the two contracts.

In 2015, CH2M Hill notified the Defense Department through a mandatory contractor disclosure program that an external review of its billing system identified weaknesses in validating their employee's qualification requirements when billing the Air Force for work performed. An investigation ensued and ultimately, CH2M Hill voluntarily repaid $10.5 million (of which $2.2 represented interest) to the Air Force.

That wasn't the end of the story. The Justice Department kept the case open because CH2M Hill failed to notify the Government of the billing issue when it first became aware of them.

The issue was finally settled last week when CH2M Hill agreed to pay an additional $6.4 million to settle the issue once and for all. According to the Justice Department press release, CH2M Hill knew of the overpayment as early as 2011, but attempted to keep the information secret by claiming that an audit of its labor practices was privileged information. That argument didn't hold up well. While CH2M Hill did not admit to any wrongdoing , it did agree to pay the additional $6.4 million to resolve all Government claims.

Contractors are reminded that they have a contractual obligation to timely disclose to the Government in connection with the award, performance, or closeout of a Government contract or subcontract, credible evidence of a violation of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations or violations of the False Claims Act and remit any significant overpayment amount.

Mandatory Disclosure Program Nets the Government $1 Million

Back in 2008, FAR was amended to require contractors to disclose credible evidence of fraud and overpayments on contracts. This requirement is commonly referred to as the mandatory disclosure requirement and applies to contracts (and subcontracts) of more than $5 million and a performance period greater than 120 days. See "Mandatory Disclosure Requirements - A Reminder" for more details on the regulation.

Yesterday, the Department of Justice (DOJ) issued a press release announcing the resolution of just such a disclosure.

DRS Technical Services, Inc., was performing an internal compliance audit when it discovered that some of its employees working in Kuwait on Government contracts were directed to record more hours on their time sheets than they actually worked. As a result of this discovery, DRS took immediate corrective action and made a timely disclosure to the U.S. Government under the Contractor Business Ethics Compliance Program and Disclosure Rule (a.k.a. the Mandatory Disclosure Rule).

DRS calculated the mischarging resulted in overcharges of $544 thousand. Following an investigation by the Government, DRS agreed to pay $1 million to settle the case.

Incidentally, DRS was the defense contractor we reported on earlier who paid $13.7 million last October to settle another labor mischarging false claims allegation. See "Defense Contractor Pays $13.7 Million to Settle False Claims Allegation". That case was uncovered by a routine DCAA (Defense Contract Audit Agency) audit and not a voluntary disclosure.

The full DOJ press release can be viewed here.