War Contracting Fraud/Defense Contractor Fraud

Stone & Magnanini represents whistleblowers who report fraud by contractors on the Department of Defense, including suppliers of weaponry and equipment to the Army, Navy, and Air Force. The Government spends billions of dollars each year on military defense contracts with these private companies for the provision of services, equipment, and/or facilities. This enormous spending on necessary items and services for the conduct of operations overseas has made the Government increasingly vulnerable to fraud by defense contractors. Defense contractor fraud has, therefore, become a major threat to the country’s financial stability, the strength of its military, and national security.

Over the last several years, billions of dollars have been recovered by the U.S. Government as a result of False Claims Act litigation initiated by whistleblowers. Whistleblowers have reported a broad range of fraudulent conduct by defense contractors that has resulted in a recovery for the Government, including:

  • Cross-Charging: In general, the federal government awards two types of contracts to defense contractors – “fixed-price” contracts and “cost-plus” contracts. Under a “fixed-price contract, the Government pays the defense contractor a set price for the provision of particular goods or services. For a “cost-plus” contract, on the other hand, the Government reimburses the contractor the costs of providing the goods or services, plus a percentage of its costs as profit. The defense contractor engages in cross-charging when it performs work or incurs costs on one contract and then shifts the work or costs to another contract. This is often accomplished by shifting labor and equipment costs from a “fixed-price” contract to a “cost-plus” contract, improperly earning the defense contractor more profits.
  • Improper Cost Allocation: In many cases, defense contractors will have both government contracts as well as private commercial contracts for similar work under which the contractor is required to accurately allocate the costs for the services being performed. Some defense contractors, however, use this system to illegally shift costs to the Government under a “cost-plus” contract, allowing them to not only drive up the costs to the Government but provide lower prices on goods or services to other private companies. The result is that the Government pays for costs that should be paid by these private entities.
  • Provision of Worthless Products or Services: Defense contractors sometimes provide the Government with substandard or worthless products or services that do not conform to contract specifications, or actually do not work at all. Where the defense contractor knew, or should have known, that the product did not work or that the services provided do not meet the requirements under the contract, the contractor may have violated the False Claims Act. Currently, Stone & Magnanini is lead counsel in a case against KBR (a subsidiary of Halliburton) for fraud in connection with the provision of water purification services to our troops in Iraq.
  • Violations of the Truth-In-Negotiations Act: Under the Truth-In-Negotiations Act (“TINA”), defense contractors are required to accurately disclose all relevant information regarding costs associated with single-source, no-bid contracts. Sometimes, however, in violation of the False Claims Act, defense contractors fail to make such accurate disclosures and inflate the costs associated with the work performed for the Government, assured that a competitor will not expose the fraud.

To learn more about reporting War Contracting Fraud or to request a free, confidential case evaluation contact Stone & Magnanini’s War Contracting Fraud Team.