Company allegedly gave government inflated cost and pricing data when negotiating no-bid contracts for drone-related military projects
Insitu, Inc., a subsidiary of aerospace and defense contractor Boeing, has agreed to pay $25 million to settle a False Claims Act lawsuit alleging it defrauded the government by passing off recycled and reconditioned drone parts and components as new under defense contracts with the U.S. Navy and the Special Operations Command (SOCOM). The former Insitu employee who filed the qui tam lawsuit and thereby exposed the fraud received a whistleblower reward of $4.6 million.
Inflated costs and noncompliant prices
The relator’s qui tam complaint—filed under the False Claims Act in federal court in Washington—alleged that Insitu cheated the government out of millions of dollars in connection with no-bid and fixed-price incentive contracts awarded it for drone-related military projects. Specifically, the company submitted inflated cost and pricing data during contract negotiations, proposing to provide new drone parts and components—when in fact it planned to, and ultimately did, supply less costly recycled, reconditioned, and reconfigured ones.
Insider whistleblower learned of defense contracting fraud
Notably, the False Claims Act whistleblower—who worked at Boeing for over 40 years before being dismissed after raising concerns about the legality of the pricing scheme—observed the alleged scheme firsthand. As manager of pricing, estimating, and procurement financial analysis, the whistleblower handled company’s compliance with the U.S. government’s procurement regulations, including:
- The Federal Acquisition Regulation (FAR), which contains the basic rules for government contractors.
- the Defense Federal Acquisition Regulation Supplement (DFAR), which sets forth the procurement requirements of the U.S. Department of Defense, and
- the Truth in Negotiations Act (TINA), which requires government contractors to provide cost and pricing data to support their proposals for certain contracts to prevent the government from paying inflated prices.
Corporate officials nevertheless would not allow the whistleblower access to the accounting records he needed to verify the pricing submitted to the government, leading him to refuse to sign the cost certifications submitted to the government because of his concerns about their accuracy. Instead, he contacted government officials, told them what he saw, and ultimately filed his qui tam complaint.
Government contracting and procurement fraud prevalent
The Institu matter is a classic instance of fraud in government contracting and procurement. The federal government spends more than $500 billion annually purchasing goods and services—mostly in the defense and healthcare sectors. With trillions more in federal spending now expected to fight the COVID-19 crisis, federal procurement activity is skyrocketing. As a result, the risks to the American taxpayer posed by contractors and vendors engaged in fraud have never been greater. The government urgently needs corporate insiders with unique visibility and insight into fraudulent conduct—like the whistleblower in the Insitu matter—to step forward and blow the whistle. Some of the most significant whistleblower cases—and qui tam rewards—in history have involved government contracting and procurement fraud.
Potential whistleblowers should be on the lookout for fraud
Government contracting and procurement fraud ordinarily involves two basic types of misconduct—(i) artificial inflation of claimed costs or (ii) delivery of noncompliant or substandard products or services. Notably, the Insitu case involved both. Potential whistleblowers should be on the lookout for a range of possible False Claims Act violations, including:
- Invoices that fraudulently overstate the quantity or type of goods or services, use inflated prices or billing rates, or comprise double-billing.
- Passing off products as compliant when in fact they are defective, below-grade, or do not satisfy testing, inspection, contractual, or regulatory requirements, standards or specifications.
- Inflating costs under “cost-plus”, “no-bid”, “sole-source”, or “single-source” contracts.
- Falsifying a contractor’s eligibility for the contract in question.
- Misrepresenting the training and credentials of employees or sub-contractors.
- Inflating reimbursable expenses or concealing the receipt of discounts or rebates that lower them.
- Conspiring with competitors to engage in bid-rigging, and,
- The payment of kickbacks, illegal gratuities, or bribes for government contracts.
Civil War era taxpayer protection statute
Originally enacted during the Civil War to combat fraud by suppliers of the Union Army, the False Claims Act imposes significant liability on parties that knowingly overcharge or underpay the federal government or its agencies. The False Claims Act’s whistleblower or qui tam provisions permit private individuals to sue on behalf of the government for false claims and share in the proceeds. Successful False Claims Act whistleblowers receive rewards of 15-30% of any recovery.
Contact an experienced whistleblower lawyer
If you are considering blowing the whistle on contracting or procurement fraud or other types of False Claims Act violations, reach out for a free and confidential consultation with experienced whistleblower attorney Mark A. Strauss.