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Defense Contractor Fraud

The federal government spends billions of dollars each year in national defense, with a large percentage of that spending going to the procurement of weapons, facilities, equipment, supplies, and defense contractor services. The significant portion of national defense goods and service are provided through government contracts with private businesses, domestically and throughout the world.

Types of Government Contractor Fraud

Not only do defense contractors need to comply with federal procurement laws, but they also need to comply with various laws that are specific to defense contracts. Unfortunately, defense contractors are highly susceptible to fraud. Some of the most common types of defense contractor fraud include:

    • Cross-Charging. The government typically awards defense contracts as a fixed-price contract (in which the government pays a set price for the delivery of goods or services regardless of what the contractor provides) or a cost-plus contract (in which the government pays a set price for goods or services plus a percentage of the contractor’s costs). If a defense contractor shifts costs from a fixed-price contract to a cost-plus contract to boost profits, illegal cost-charging is likely involved and a False Claims Act violation may arise.

    • Improper Product Substitution: Defense contractors are required to provide the specific product that they contract to provide. Any improper substitutions – regardless of whether the substituted product is inferior or not – can result in a violation of the False Claims Act. Providing substandard products is particularly dangerous because it can put the lives of military personnel at risk.

    • Inflation of Costs and Charges: If a defense contractor inflates their costs under a cost-plus contract through inflated time records, equipment costs, or material costs, it could be in violation of the False Claims Act.

    • Violations of the Truth In Negotiations Act: Because the government relies on highly specialized weapons and equipment for national defense, it often uses a single supplier for these items. In order to ensure that the government is getting a fair price from the single-supplier, the Truth In Negotiations Act requires that defense contractors disclose all relevant cost information. Any misrepresentations could amount to a violation of the Truth In Negotiations Act, as well as the False Claims Act if the misrepresentations resulted in inflated prices.  

Defense Contractor Fraud Example

In U.S. ex rel. Ponzio, et al. v. Rabintex Industries Ltd., et al., Case No. 1:10-CV-588 (E.D. Tex.), the United States alleged that ArmorSource LLC had failed to produce Advanced Combat Helmets (ACHs) according the product quality standards set forth in the contract between the United States Army and ArmorSource. The Army contracted ArmorSource to create ACHs with Kevlar and ballistic protection. ArmorSource designed the helmets, but subcontracted the manufacturing process of the helmets to Federal Prison Industries Inc. (FPI).

After several of the helmets failed ballistic tests, the Army began recalling the helmets. Two former employees of FPI came forward with information regarding the faulty helmets, and filed a False Claims Act lawsuit that was recently resolved by ArmorSource's agreement to pay $3 million.

The role of whistleblowers in reporting defense contractor fraud is essential to ensure the safety and effectiveness of equipment provided to the U.S. armed forces. In Ponzio v. Rabintex Industries, FPI employees Melessa Ponzio and Sharon Clubb alerted authorities and the armed forces when they observed wrongdoing. Whether a contractor misrepresents prices, overcharges, or fails to meet any provisions of a government contract, a False Claims Act claim may exist. In these situations, it is often whistleblowers who alert the government that something is amiss, and because whistleblowers provide crucial information to stop fraud, they are afforded protections and compensation under the law. In Ponzio v. Rabintex Industries, the whistleblowers successfully stopped ArmorSource's dangerous practices that not only wasted government funds but that also potentially threatened the safety of American armed forces. Ponzio and Clubb qualified to receive a portion of the settlement and are expected to be awarded $450,000 for their assistance in reporting ArmorSource's wrongdoing.

Defense contractor fraud attorneys

The whistleblower attorneys at Goldberg Kohn represent whistleblowers in a wide variety of False Claims Act cases, including those involving defense contractor fraud, procurement fraud, and customs fraud. If you suspect defense contractor fraud, or would like to discuss a possible False Claims Act case, contact us online to schedule a free, confidential appointment with one of our whistleblower attorneys.

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