Lockheed Martin Corporation Agrees To Settle False Claims Act Allegations Of Defective Pricing

The U.S. Justice Department released the below information:

Lockheed Martin Corporation (LMC) has agreed to pay $29.74 million to resolve False Claims Act allegations of defective pricing on contracts for F-35 military aircraft. This payment is in addition to $11.3 million that LMC previously paid to the Department of Defense (DOD) for the same undisclosed cost and pricing data on some of the same contracts. LMC, headquartered in Bethesda, Maryland, is one of the world’s largest defense contractors.

According to court documents, between 2013 and 2015, LMC inflated pricing proposals it submitted to obtain contracts for the F-35 by failing to provide to DOD’s F-35 Joint Program Office (JPO) accurate, complete, and current cost and pricing data during the negotiations leading to the award of five contracts for the production or sustainment of the F-35. The United States alleged that LMC had knowledge of suppliers’ cost or pricing data that it did not disclose to the JPO in violation of the Truth in Negotiations Act (TINA). Congress enacted TINA in 1962 to help level the playing field in sole source contracts — where there is no price competition — by making sure that government negotiators have access to the cost or pricing data that the offeror used when developing its proposal. The United States alleged that had LMC provided accurate, complete, and current cost and pricing data, JPO would have awarded the contracts in lower amounts.

“Those who do business with the government must do so fairly and honestly,” said Acting Assistant Attorney General Brett A. Shumate of the Justice Department’s Civil Division. “We will pursue contractors that knowingly misuse taxpayer funds.”

“The United States relies on contractors such as Lockheed Martin to provide accurate, complete, and current information, including pricing data, when negotiating contracts with the government,” said Acting U.S. Attorney Abe McGlothin, Jr, for the Eastern District of Texas. “If a contractor fails to do so, and that failure affects the value of its contract with the government, the Eastern District of Texas will take steps to ensure that the contractor is held accountable.”

“The F-35 program is at the heart of our nation’s defense,” said Air Force Lt. Gen. Mike Schmidt, Director and Program Executive Officer, F-35 Joint Program Office. “The F-35 Joint Program Office will continue to insist on integrity and honesty in all business transactions. We demand 100% accountability for every dollar spent on this program on behalf of U.S. taxpayers and international customers and taxpayers.”

“The Department of Defense Office of Inspector General’s Defense Criminal Investigative Service (DCIS) will methodically pursue all alleged violations of the False Claims Act and Truth in Negotiations Act,” said Principal Deputy Director James R. Ives of DCIS. “Today’s outcome reflects the unwavering commitment of DCIS and our investigative partners to hold accountable those who bilk the American taxpayer by perpetrating fraud against the DOD.”

“Overinflation of production and sustainment costs for an aircraft critical to our national defense undermines operational readiness and erodes the trust placed in the Department of Defense by the American people,” said Special Agent in Charge Greg Gross of the Naval Criminal Investigative Service (NCIS) Economic Crimes Field Office. “NCIS and our investigative partners remain steadfast in our commitment to investigating entities that compromise the integrity of government contracts.”

The settlement derives from allegations originally brought in a lawsuit filed in the Eastern District of Texas by a whistleblower under the qui tam provisions of the False Claims Act, which allow private parties, known as relators, to bring suit on behalf of the government and to share in any recovery. The qui tam case is captioned U.S. ex rel. Patrick Girard v. Lockheed Martin Corp., No. 4:17-CV-147 (EDTX). The relator’s share of the settlement has not yet been determined.

This settlement was the result of a coordinated effort between the Civil Division, Commercial Litigation Branch, Fraud Section of the Department of Justice, and the U.S. Attorney’s Office for the Eastern District of Texas with assistance from JPO, DCIS, NCIS, and the Defense Contract Audit Agency.

Trial Attorney Arnold M. Auerhan of the Justice Department’s Civil Division and Assistant U.S. Attorney James Gillingham for the Eastern District of Texas handled the matter.

The claims resolved by the settlement are allegations only, and there has been no determination of liability 

Navmar Applied Sciences Corporation Agrees To Pay $4.4 Million To Resolve Claims Of Double-Billing And Cost-Shifting Under U.S. Navy Contracts

The US Attorney’s Office in Philadelphia released the below information:

PHILADELPHIA – United States Attorney Jacqueline C. Romero announced today that Navmar Applied Sciences Corporation (NASC), headquartered in Warminster, Pennsylvania, has agreed to pay $4.4 million to resolve allegations that NASC violated the False Claims Act by knowingly and improperly double-billing and shifting certain labor and material costs under a series of contracts with the U.S. Department of the Navy. Separately, NASC has also agreed to resolve administrative claims arising out of an audit by the Defense Contract Audit Agency of NASC’s incurred cost proposals for Fiscal Years 2011, 2012, and 2013.

The United States’ allegations under the False Claims Act arise from a series of contracts, awarded by the Navy to NASC between 2010 and 2012, for enhanced intelligence, surveillance, and reconnaissance systems, hardware, maintenance technical support services, and the development and rapid deployment of various advanced sensors and Unmanned Aerial Systems.

The United States alleged that under those government contracts, NASC knowingly and improperly billed the Navy for certain labor and material costs on one contract, and then billed the same costs on another contract, and was improperly paid twice. The United States further alleged that in multiple instances, NASC knowingly and improperly shifted the costs of materials from one contract to another, to avoid cost ceilings and maximize payments from the government to which NASC was not entitled.

“This settlement demonstrates the Justice Department’s commitment to take appropriate action when it determines that taxpayer dollars have been doubled-billed and improperly accounted for,” said U.S. Attorney Romero. “Cases such as this one should be seen as a warning to defense contractors that false claims have no place in military purchasing.”

“Investigating allegations of cost mischarging on Department of Defense (DoD) contracts is a top priority for the Defense Criminal Investigative Service (DCIS), the law enforcement arm of the DoD Office of Inspector General,” stated Special Agent in Charge Patrick J. Hegarty, DCIS Northeast Field Office. “The DCIS is committed to working with the Naval Criminal Investigative Service and the Department of Justice to protect the integrity of the DoD procurement process. The Defense Contract Audit Agency’s Operations Investigative Support Division provided valuable expertise during this investigation.”

“Procurement fraud threatens military readiness and therefore poses a significant threat to our national security,” said Special Agent in Charge Gregory Gross of the NCIS Economic Crime Field Office. “NCIS remains committed to ensuring the good stewardship of U.S. taxpayer dollars by thoroughly investigating all allegations of fraud that damage the integrity of the Department of the Navy procurement process.”

The resolution obtained in this matter was the result of a coordinated effort between the United States Attorney’s Office for the Eastern District of Pennsylvania, the U.S. Department of Justice Civil Division, Commercial Litigation Branch, Fraud Section, with investigative assistance from the Defense Criminal Investigative Service, the Naval Criminal Investigative Service, the Defense Contract Audit Agency, and the Defense Contract Management Agency.

The matter is being handled in the U.S. Attorney’s Office by Assistant U.S. Attorneys Landon Y. Jones and Mark J. Sherer, and Auditor Dawn Wiggins.

Note: For a good number of years, I did security work for a Defense Department command in Philadelphia that oversaw contractors like Navmar for the U.S. Navy and the other military buying commands. 

As I noted in my Counterterrorism magazine piece on the Philadelphia Quartermaster bribery and procurement fraud case, I was involved in several investigations of contractor fraud and other crimes. 

You can read about the Quartermaster case via the below link:    

Paul Davis On Crime: A Look Back At The Multi-Million Dollar Defense Contract Fraud and Bribery Case At The Philadelphia Quartermaster

Lancaster, PA Company Agrees To Pay $820,000 For Improper Billing Of Defense Intelligence Agency

PHILADELPHIA, PA – United States Attorney Jennifer Arbittier Williams announced that Reveal Global Consulting, LLC (“Reveal”) has agreed to pay $820,000 to the federal government to resolve allegations that it violated the False Claims Act by improperly billing time and expenses in its performance of a contract with the Defense Intelligence Agency (“DIA”). 

In 2017, Reveal entered into a Spearheading CIO Applied Research and Leading Edge Technologies (“SCARLET”) contract with DIA. The contract was a time-and-materials contract under which Reveal could bill the United States only for time it actually expended and materials it required to fulfill its contractual obligations. Instead, Reveal allegedly billed the DIA for one twelfth of the total contract even for months in which less than one twelfth of the total required effort was devoted to the contract; devoted fewer than the promised employees for multiple months; submitted inflated and misstated bills for work by subcontractors; and invoiced the DIA for work supposedly performed by Reveal employees who had already left the company. Throughout the contract, Reveal allegedly failed to establish and maintain an adequate, effective timekeeping system.

“There is no excuse for invoicing the United States for work that was not done,” said U.S. Attorney Williams. “Companies that work for the United States have a moral and legal obligation to ensure that the United States receives the goods and services for which it is paying, and the United States Attorney’s Office is ready to investigate and punish contractors who flout this fundamental rule.”

“This case is a result of the stalwart, dedicated and collaborative work of investigators, DIA Office of the Inspector General (OIG), DOD OIG, Defense Criminal Investigations Services, the DCAA, and DOJ. The Office of the Inspector General, DIA, will continue to root out fraud, waste, and abuse in DIA processes while improving government funds stewardship from our civilian and contractor workforce,” said William Borden, Assistant Inspector General for Investigations, DIA.

“Investigating allegations of cost mischarging on Department of Defense (DoD) contracts is a top priority for the DoD Office of Inspector General's Defense Criminal Investigative Service (DCIS),” stated Special Agent in Charge Patrick J. Hegarty, DCIS Northeast Field Office. “The settlement agreement announced today is the result of a joint investigative effort with the Defense Intelligence Agency Office of the Inspector General and demonstrates the DCIS’ ongoing commitment to protect the integrity of DoD procurement.”

This investigation was conducted as part of the United States Attorney’s Office for the Eastern District of Pennsylvania’s Affirmative Civil Enforcement Strike Force with investigators from the Defense Intelligence Agency Office of Inspector General and DCIS, with assistance the Department of Commerce Office of Inspector General and Department of Health and Human Services Office of Inspector General. Assistant U.S. Attorney Paul W. Kaufman handled the investigation and settlement.

The claims resolved by the settlement are allegations only; there has been no determination of liability. 

Tennessee and New York-Based Defense Contractors Agree To Pay $8 Million To Settle False Claims Act Allegations Involving Defective Countermeasure Flares Sold to the U.S. Army

The U.S. Justice Department released the below information:

The Department of Justice announced today that Kilgore Flares Company and one of its subcontractors, ESM Group Inc., have agreed to pay a total of $8 million to resolve allegations that they violated the False Claims Act by selling or conspiring to sell defective infrared countermeasure flares to the U.S. Army and, in the case of ESM, knowingly evading customs duties owed to the United States.  Tennessee-based Kilgore Flares manufactures and sells electronics and energetic products, such as flares, to the U.S. military.  ESM Group, located in New York, manufactures magnesium powder supplied to the chemical, welding and pyrotechnics industries.  ESM imported magnesium powder used in the flares from the People’s Republic of China (PRC), which it sold to Kilgore Flares. 

“The Department of Justice is committed to ensuring that contractors do not cut corners in manufacturing critical items sold to the U.S. military,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “These settlements also show that the department will aggressively pursue those who avoid paying duties to gain an unfair business advantage over competitors who abide by the rules.”   

The U.S. military uses infrared countermeasure flares to divert enemy heat-seeking missiles away from U.S. military aircraft.  A primary component of these flares is ultrafine magnesium powder, which combined with other materials, provides ignition and enables the flares to burn at high temperatures and at rates that mimic an aircraft’s engine.  Kilgore’s contracts with the army prohibited the use of magnesium powder from foreign countries (except Canada) in order to maintain domestic manufacturing capability in the interest of national defense. 

The United States alleged that from July 2003 through May 2005, ESM knowingly misrepresented the content of ultrafine magnesium powder imported from the PRC in order to avoid paying antidumping duties owed to the United States.  Antidumping duties protect against foreign companies “dumping” products on the U.S. market at prices below cost.  The U.S. Department of Commerce assesses and U.S. Customs and Border Protection (CBP) collects these duties to protect U.S. businesses and level the playing field for domestic products.  At the time of the imports alleged in this case, ultrafine magnesium powder from the PRC was subject to a 305 percent antidumping duty. 

The government further alleged that from March 2005 through August 2006, Kilgore used the illegally imported Chinese magnesium powder purchased from ESM in the countermeasure flares it sold to the U.S. Army.  The Chinese magnesium powder allegedly violated both the requirement for domestically produced powder and engineering specifications required by the contracts.  

Kilgore and ESM agreed to pay $6 million and $2 million, respectively, to resolve the government’s allegations. 

“Our warfighters– along with everyone who relies upon them, including their families – need to know that the equipment they use is of the highest quality and dependability,” said U.S. Attorney William J. Hochul Jr. of the Western District of New York. “In this case, the magnesium flares made by Kilgore were literally the last line of defense for our brave aviators. Because of today’s resolution, Kilgore will now ensure that similar incidents do not happen in the future.”

Prior to the civil settlements with Kilgore and ESM, five former employees and agents of ESM pleaded guilty to criminal offenses related to the magnesium importation scheme, including ESM’s former president, Charles Wright.  The criminal defendants were ordered to pay more than $14 million in restitution.

“These civil settlements demonstrate the continued commitment of the Defense Criminal Investigative Service (DCIS) and our partner agencies to pro-actively identify individuals and groups intent on providing substandard, substituted products to the U.S. military in exchange for unwarranted exorbitant profits,” said Special Agent in Charge Craig W. Rupert of the U.S. Department of Defense Inspector General, DCIS.  “Such schemes, perpetrated by dishonest contractors and individuals, place the American Warfighter in danger, erode public confidence and undermine the mission of our military services. The DCIS and its law enforcement partners will continue to tirelessly pursue and investigate procurement fraud allegations in order to safeguard our military members and to shield America’s investment in national defense.”

“The components of U.S. military equipment are held to rigorous standards to ensure our military superiority and the safety of our warfighters,” said Special Agent in Charge James Spero of Homeland Security Investigations (HSI) Buffalo. “When short cuts are taken, lives are put at risk. This settlement ensures that the companies involved are held responsible for their actions and further emphasizes HSI’s commitment to ensuring that the sale and distribution of products used by our military is done with integrity.”

The settlement with ESM resolved a lawsuit filed under the whistleblower provisions of the False Claims Act.  The act permits private parties to sue on behalf of the United States those who falsely claim federal funds or, as in this case, those who avoid paying funds owed to the government.  The lawsuit was filed by Reade Manufacturing Company, a domestic manufacturer of magnesium powder.  The act also allows the whistleblower to receive a share of any funds recovered through the lawsuit.  Reade Manufacturing received $400,000 as part of the settlement with ESM.  

The settlements with Kilgore and ESM were the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Western District of New York, U.S. Army Criminal Investigation Command, Defense Contract Audit Agency, DCIS, U.S. Immigration and Customs Enforcement’s HSI Buffalo and U.S. Customs and Border Protection.  Additional technical support was provided by the Army Sustainment Command at Rock Island Arsenal, Ill. and the Army Research, Development and Engineering Command at Picatinny Arsenal, New Jersey.      

The lawsuit against ESM is captioned United States ex rel. Reade Manufacturing Co. v. ESM Group, Inc., Civ. No. 10 - CV - 504-S (W.D.N.Y.).  The claims resolved by these settlements are allegations only; there has been no determination of liability except as admitted by the individual defendants in the criminal proceedings.