The U.S. government spends over $600 billion annually on national defense. This money pays for a multitude of goods and services that are vital for our fighting men and women at home and abroad. But the government can’t do its job alone, so it relies on private contractors to help. Unfortunately, with these sums of money being spent, the temptation to commit fraud is extraordinary.
Defense contractor fraud is a serious problem that wastes taxpayer money and puts the lives of our armed forces at risk. Fortunately, those who know about such fraud can expose it and be rewarded for their actions. If you have knowledge about defense contractor fraud, a whistleblower attorney can build your case and maximize the amount of your reward. That’s where the dedicated team at Newman & Shapiro comes in.
The Role Of Defense Contractors
Many of the goods and services used by the military are obtained through contracts with private companies. These companies – also known as defense or military contractors – manufacture ships, tanks, aircraft, equipment, supplies, and much more. Defense contractors also repair and upgrade existing goods, and provide numerous services ranging from logistics and intelligence to training and engineering.
Some of the biggest contractors, like Boeing and Lockheed Martin, are household names. Contractors provide critical support across all branches of the armed forces, both in the United States and overseas. They are heavily relied upon, but as their use has expanded so have opportunities for fraud.
Examples Of Defense Contractor Fraud
Scammers are always looking for ways to rip off taxpayers, and that’s no less true with respect to the nation’s defense. The process by which defense goods and services are purchased by the government is known as procurement. Multiple steps are involved in procurement, and fraud can occur at any one of them:
- Cross-charging. There are two types of contracts that the government may award during the procurement process: fixed-price contract and cost-plus contract. With a fixed-price contract, the government pays a set price for a good or service, no matter how much it costs to produce or provide it. In a cost-plus contract, the government pays a set price for the good or service, along with a percentage of the contractor’s production costs. Cross-charging happens when a contractor illegally shifts costs and expenses from a fixed-price to a cost-plus contract to increase its profits.
- Improper product substitution. Defense contracts often require contractors to use a particular grade, type, or quality of parts or materials. Those parts and materials must also be new and made in the United States. However, unscrupulous contractors often substitute cheaper materials to save on costs and maximize their profits.
- Improper cost allocation. Contractors often do business with other governments and private companies outside of the United States. For a contractor to win a deal like this, it must convince the government or business that it can deliver a product or service for less money than a competitor. But instead of actually being able to do this, some contractors merely shift the costs of those contracts onto the cost-plus contracts they have with the United States. Instead of the foreign government or business paying these expenses, the American taxpayer does.
- Substandard products or services. The government relies on defense contractors to provide goods that perform as promised in the contract. With the volume of goods that the government purchases, and the complexity of many of them, it’s not possible to perform a quality check on everything procured. Contractors know this, and some of them exploit the government’s trust by knowingly selling substandard products and services.
- Inflation of costs and charges. This common form of fraud involves simply misstating costs and charges to improperly increase the contractor’s revenue. It occurs on cost-plus contracts and takes the form of inflated materials costs, fake purchase orders, and more.
- Violations of the Truth-In-Negotiations Act (TINA). Sometimes, a particular good (such as a weapons system) is so complex or highly specialized that only one company makes it. When just one company makes something, it’s known as a single-source supplier. The problem with a single-source supplier is that it is difficult to determine whether the government is paying a fair price for it. TINA attempts to mitigate this by requiring single-source defense contractors to honestly disclose all relevant information about costs to the government. Companies who know that no one else is bidding, due to the nature of the good, may violate TINA by inflating costs and expenses.
How To Report Defense Contractor Fraud
The False Claims Act (FCA) is a federal law that serves as the primary vehicle for whistleblowers to alert the government to taxpayer fraud and abuse. The FCA therefore provides the proper channel by which to report misconduct involving defense contractors. This is done by way of a qui tam lawsuit.
Qui tam lawsuits are not like ordinary lawsuits. There are numerous procedural and technical rules that must be followed to successfully report the fraud. One of those is the first-to-file status: the first person to file a qui tam lawsuit will get to claim a whistleblower reward. Failure to strictly follow the rules will jeopardize your lawsuit.
The government can reward qualified whistleblowers 15% to 30% of funds recovered from the wrongful party. Whistleblowers are also protected from retaliatory actions by their employers. Rewards have to be negotiated, and the actual amount will depend on numerous factors. Having an experienced whistleblower attorney is essential to correctly filing a qui tam lawsuit and pursuing the maximum reward possible.
Contact A Defense Contractor Fraud Whistleblower Attorney Today
Jeffrey Newman understands defense contractor fraud, and he is knowledgeable in the unique practice area surrounding qui tam lawsuits. If you know about misconduct involving defense contracts, we want to hear from you. Newman & Shapiro has what it takes to successfully pursue FCA claims and the fair reward that whistleblowers deserve. Contact us today to get started on your case.