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Defense Contractor Fraud

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Private contractors working with the U.S. Department of Defense (DOD) can face intense scrutiny in False Claims Act investigations. If your company is facing allegations of defense contractor fraud, you should discuss your situation with a federal defense attorney immediately.

Over the past several years, the United States’ defense budged has ballooned to nearly $700 billion per year, and it may soon exceed this threshold. The scope of the U.S. Department of Defense’s (DOD) military efforts has also expanded, with space and cyberspace both now being officially recognized as potential frontiers for warfare as well. 

All of this means that there are now more opportunities than ever for private companies to contract with the DOD. Currently, the DOD is focusing its spending in four critical areas:

  • “Investing in the emerging space and cyber warfighting domains;”
  • “Modernizing capabilities in the air, maritime, and land warfighting domains;”
  • “Innovating more rapidly to strengthen our competitive advantage; and”
  • “Sustaining our forces and building on our readiness gains.”

Over the next several years, the DOD will pay hundreds of billions of dollars to private companies that will play a central role in shaping the future of our country’s military domestically, internationally, and beyond sovereign borders. 

More DOD Spending Means Greater Scrutiny of Federal Defense Contractors

While this means companies that are able to win defense contracts stand to reap huge profits, it also means that the DOD, the U.S. Department of Justice (DOJ), and other federal agencies will be intensifying their oversight of defense contractors. With the enormous size of the United States’ defense budget, it is estimated that billions of taxpayer dollars are lost to fraud, waste, and abuse each year. The DOD, DOJ, and other agencies are constantly targeting defense contractors in audits and investigations, and those charged with fraud are facing substantial penalties under the False Claims Act and other federal statutes.

Fraud Involving Federal Defense Contracts: When Can Contractors Be Charged?

The primary statute used to prosecute defense contractors suspected of fraudulently charging the DOD is the False Claims Act. Under the False Claims Act, defense contractors and their owners and executives can face civil and criminal penalties for submitting “false or fraudulent claim[s] for payment or approval” by any agency of the federal government. The False Claims Act also penalizes the submission of falsified records in support of fraudulent claims, conspiring to submit a false or fraudulent claim, and various other related fraudulent acts. 

While the False Claims Act’s prohibitions are extremely broad, most federal investigations targeting defense contractors focus on a number of common allegations. These include:

1. Substituting Inferior Materials or Products

Material and product substitutions are among the most-common examples of defense contractor fraud; and, while they are easy to spot in theory, the sheer volume of DOD procurement means that issues will often fly under the radar for months or years, if not indefinitely. While some cases of inferior material and product substitution are undoubtedly intentional, ordering and delivery mistakes, misinterpretation of contract terms, and various other issues can lead to inadvertent substitutions as well.

2. Inflating the Cost of Materials, Products, or Labor

Cost inflation is another common allegation both with regard to products and labor. Falsifying vendor invoices, padding employees’ timecards, and billing for labor at an increased rate are three of the most-typical examples, but federal defense contractor fraud investigations can also target a broad range of other cost inflation-related allegations. 

3. Cross-Charging Between Fixed-Price and Cost-Plus Defense Contracts

Cross-charging is another example of a fraudulent practice that can be committed intentionally or accidentally. In a typical cross-charging investigation, the DOD will allege that the contractor billed services to a cost-plus contract that should have been billed to a separate fixed-price contract. 

4. Allocating Costs from Private Contracts to Defense Contracts

Some federal defense contractor fraud investigations involve allegations that the contractor billed the U.S. government for services that were provided to another business pursuant to a private contract (or potentially even to a foreign government pursuant to a foreign procurement contract). These scenarios are often not as straightforward as they initially seem, and in many cases defense contractors will have strong defenses to the DOD’s allegations. 

5. Violating the Truth-In-Negotiations Act

The Truth-in-Negotiations Act (TINA) requires defense contractors to negotiate pricing with the federal government in good faith when competitive pricing information is unavailable. Investigations under the TINA most often involve innovative and highly-customized defense technologies which are delivered according to spec and which a DOD officer subsequently alleges cost the government more than necessary. 

6. Rigging Defense Contract Bids with Competitors

Bid rigging allegations are common in all types of government procurement, and in certain segments of defense contracting in particular. In a typical bid-rigging investigation, the DOD will allege that the winning bidder on a defense contract unlawfully conspired with a supposed “competitor” in order to either (i) ensure that each company won a contract at a non-competitive price, or (ii) allow the winning bidder to secure a non-competitive contract and then hire the “loser” as a subcontractor.

7. Offering Bribes, Kickbacks and Other Unlawful Payments

Offering bribes, kickbacks, and other unlawful payments to DOD officials and other government personnel is a federal crime that carries the potential for up to 15 years of incarceration. Financial transactions between defense contractors, subcontractors, and other third parties (i.e. those that involve compensation for referrals or contract awards paid out of DOD funds) can violate the False Claims Act and various other federal statutes as well. 

8. Quality Control Testing Fraud

Since the DOD does not have the capacity to conduct thorough quality control testing for all products delivered under its defense contracts, it relies on contractors to do much of the quality control work on their own products and services. Falsifying quality control reports, selectively choosing test samples, intimidating third-party quality control inspectors, and other forms of fraud can all lead to costly federal allegations. 

9. Concealing Information or Falsifying Bid Responses

Submitting false information or concealing information in order to win a defense contract bid is a form of fraud that can have devastating consequences if it is uncovered once work on the contract is underway. Not only could the contract itself be in jeopardy, but the DOD could seek recoupments and stop payment on products and services already delivered, and the individuals responsible for submitting the falsified bid could be at risk for criminal prosecution. 

10. Concealing or Misrepresenting Information Related to Contracted Products and Services

Concealing information about issues such as failure to use disadvantaged business enterprise (DBE) subcontractors, environmental contamination, and other similar types of issues can lead to federal fraud allegations as well. Depending on the specific issue (or issues) at play, contractor personnel could also potentially face charges under a variety of other federal criminal laws. 

Why Choose Oberheiden, P.C. for DOD Contract Fraud Defense?

At Oberheiden, P.C., our federal defense team is comprised entirely of senior attorneys whose practices are devoted exclusively to federal matters. Several members of our team are former DOJ prosecutors, U.S. Attorneys, and Assistant U.S. Attorneys, and our lawyers have successfully represented clients in federal cases in more than 45 states nationwide. 

If your business is under investigation by the DOD or the DOJ for defense contract fraud, you need experienced legal representation. While you could be at risk for severe charges, you may also be able to avoid charges with a strategic and effective defense. When you engage our firm to represent your company:

  • Our attorneys will immediately intervene in the investigation to determine the scope and nature of the allegations against you. From this point forward, we will deal with the DOD and the DOJ on your behalf.
  • Our attorneys will use their experience in False Claims Act and Truth-In-Negotiation Act investigations to build and execute a custom-tailored defense strategy
  • Throughout the course of the investigation, you will have continuous and direct access to our team of senior attorneys. Unlike other firms, we do not employ paralegals or junior associates.
  • If you get charged or receive a federal grand jury subpoena, we will fight vigorously to prevent your case from going to trial.
  • Regardless of the circumstances of your case, our attorneys will serve as your unwavering advocates; and, if necessary, we will relentlessly pursue a favorable result through trial and all stages of appeal. 

Are You Facing a DOD or DOJ Investigation? If So, You Don’t Have Time to Waste

While defense contract fraud is undoubtedly a very real issue for the DOD, many defense contractor fraud investigations are misguided. Our attorneys can promptly assess the merits of the government’s case against your company, and we can deliver a strategic defense designed to protect you and your company to the greatest extent possible. If you are in the DOD’s or DOJ’s crosshairs, you do not have time to waste. Contact Oberheiden, P.C. now to get started with a free and confidential consultation.

Request a Free Initial Consultation with a Federal Defense Lawyer at Oberheiden, P.C.

To schedule a free initial consultation with a federal defense lawyer at Oberheiden, P.C., call us at 214-469-9009 or tell us how we can help online. Our attorneys are available 24/7, and we can take immediate action to protect you and your company if necessary. 

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