Defense contractor fraud has existed since America’s earliest years. During the Civil War, some military suppliers defrauded the government and put soldiers’ lives at risk by selling boots made from cardboard, clothing made from dry rotted cloth, blind and decrepit horses, and rotted ships’ hulls painted to look like new. Some scammers even sold bullets filled with sawdust instead of gunpowder.
In response, Congress enacted the False Claims Act in 1863. The FCA allows the government – and whistleblowers acting on the government’s behalf – to sue defense contractors for improper billing practices. The FCA provides for financial penalties for improper billing, and it provides financial incentives for whistleblowers.
Reckless or unscrupulous defense contractors can mislead the government about the cost and quality of equipment or, in some instances, about the equipment’s compliance with various federal laws. For example, “new” and vital parts supplied to a nuclear submarine may actually be refurbished parts that are substandard. These substandard parts could jeopardize the lives of our sailors and others.
What is defense contractor fraud?
Misrepresentations about a wide range of information related to a defense contract can trigger FCA liability. When we talk about “defense contractor fraud”, we are referring both to outright fraud and a wide range of other illegal billing and contracting practices. Overbilling practices that are reckless but not necessarily intentional can violate the FCA without technically constituting fraud.
What are some common types of defense contractor fraud?
A vast range of conduct can trigger FCA liability. Two of the most common categories of false claims are (1) overcharging and (2) false statements that induce the government to pay or overpay for goods or services.1
Shortchanging the government in terms of either quantity or measurable quality is an FCA violation. A wide variety of overcharging schemes are also covered. For example, contractors who conspire with one another to rig bids violate the FCA.2 A contractor negotiating price or other contractual terms with the government violates the FCA if it bolsters its negotiating position by presenting the government with false information relating to the price or quality of supplies or equipment.3
What are some examples of defense contractor fraud?
Examples of defense contractor fraud that have come to light in recent years include:
- In May 2021, a major defense contractor paid $50 million to resolve an FCA lawsuit based on allegations that it created fake invoices for supposed past sales of vehicle parts and presented those to the government in contract negotiations to build mine-resistant ambush protected vehicles (“MRAPs”).4 MRAPs are used to transport troops in combat zones where improvised explosive devices may be planted. The whistleblower who initiated the litigation, a contracts manager for the contractor, was awarded $11.1 million for his role in the litigation.
- In 2018 and 2019, three defense contractors agreed to pay a total of $12.7 billion to resolve an FCA lawsuit based on allegations that they rigged bids for oil-delivery services.5 The whistleblower, the brother-in-law of an executive at one of the companies, was awarded $27.1 million for his role in the litigation.
- In July 2018, 3M Company agreed to pay the federal government $9.1 million to resolve an FCA lawsuit related to its Combat Arms Earplugs used by military servicemembers.6 The whistleblower, a company that made competing earplugs, had alleged that a 3M subsidiary had provided the government false data on the earplugs’ ability to block noise from gunfire and other aspects of combat. It was awarded $1.9 million for its role in the litigation. In separate litigation, the Law Offices of James Scott Farrin and dozens of other law firms are representing veterans who sustained hearing damage while using the earplugs.
Who are the largest defense contractors in the United States?
The U.S. defense contracting sector is immense. It includes thousands of companies, large and small, publicly traded and privately held. Eight of the largest are:7
|Annual revenue (bb)||Employees||Example product|
|Lockheed Martin||$65.4||114,000||Sikorsky helicopters|
|Boeing||$58.2||141,000||F-15 fighter aircraft|
|Raytheon Techs.||$56.6||181,000||AN/AQS-20 minehunting sonar system|
|General Dynamics||$37.9||100,700||MK19/MK47 grenade launchers|
|Northrop Grumman||$36.8||97,000||B-2 Stealth Bomber|
|L3Harris Techs.||$18.2||48,000||Secure GPS systems|
|Huntington Ingalls Indus.||$9.4||42,000||Ford-class aircraft carriers|
Defense contractors with especially large presences in North Carolina include Lockheed Martin, General Dynamics, Ingersoll Rand, Lord Corporation, Booz|Allen|Hamilton, and Academi/Constellis.8
Is defense contractor fraud a felony?
It can be. The FCA has both civil and criminal provisions. Federal attorneys prosecute suspected criminal violations, which are punishable by up to five years in prison.9 Like all crimes, a felony FCA violation must be proved beyond a reasonable doubt.10
Civil violations of the FCA are believed to be more common, and successful FCA cases are certainly more common on the civil side. An FCA plaintiff must prove the case by a “preponderance of the evidence” – in other words, that it is more likely than not that the defendant knowingly overcharged the government.
What can I do to stop defense contractor fraud?
A whistleblower can sue on the government’s behalf in a “qui tam” lawsuit. Lawsuits brought by whistleblowers (also known as “relators”) accounted for 88.5 percent of the $24.8 billion in FCA judgments and settlements between 2011 and 2020.11 The whistleblower can be anyone who has non-public knowledge about the fraud or other improper contracting practices. The law entitles the whistleblower to 15% to 30% of the settlement or court judgment.
Do I need a whistleblower attorney if I suspect defense contractor fraud?
If you suspect or know of defense contracting fraud or other improper contracting practices, you should contact an experienced whistleblower attorney. A whistleblower attorney can help try to persuade federal lawyers to bring in the government as an active party, which increases its chance of success.
An experienced qui tam attorney can help you investigate the fraud so that an FCA lawsuit you file contains the right type of information and gives proper notice to the Defense Department, steps that are crucial to trying to ensure that you are compensated for your efforts and the risk you take by speaking up. Navigating the FCA’s complexities and litigating a case is a daunting task for a whistleblower without an attorney.
What laws prohibit defense contractors from retaliating against whistleblowers?
The FCA itself protects whistleblowers from retaliation, including the following:
- post-termination retaliation such as blacklisting12
An employer or contractor who proves they suffered retaliation for reporting defense contractor fraud is entitled to “all relief necessary” to make him or her whole.13 This includes reinstatement in the job, double the amount of back pay lost as a result of termination, and attorney fees. A terminated employee or other person who suffers retaliation can be entitled to this compensation even without proving that the employer/contractor made false claims for payment.14 These protections are available to whistleblowers in all industries.
Additionally, the National Defense Authorization Act of 2013 expanded protections for employees of federal contractors and grantees.15 An employee who is fired or suffers other retaliation for reporting misconduct can file a complaint with the Inspector General of the relevant government agency, the agency can order back pay based on the inspector general’s findings, and the employee can sue the contractor directly if the agency fails to act. Protected conduct now includes reporting of “gross mismanagement” of a defense contract with the government and is not limited to false claims made in connection with a contract.