Types of Defense Contractor Fraud

Government contractor fraud is the second-largest contributor to litigation in the False Claims Act arena. Bracker & Marcus LLC dedicates decades of collective experience to representing whistleblowers who expose government contractor fraud.

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Examples of government contractor fraud date back to the Civil War, when unscrupulous defense contractors sold faulty goods to the Union army. Today, fraud is rampant in defense contracting, especially since defense spending makes up a substantial portion of the government’s annual budget – around $716 billion in the 2019 fiscal year.

When contractor fraud occurs, a federal or Georgia state government fraud attorney is your best defense. Bracker & Marcus LLC is nationally-recognized and ready to fight against whistleblower retaliation.

Do you suspect government contractor fraud in your workplace? Contact us today, and learn more about the different types of government contractor fraud.

Violations of Contract Specifications

Government contractors commit fraud when they knowingly violate the government contract specifications and do not disclose the violations to the government. This may be either because the contractor simply fails to meet the contractual requirements or because it is trying to save money.

A common example of this is where a contractor uses “nonconforming materials.” The contract requires them to use a certain type or strength but the manufacturer substitutes a cheaper, weaker material. Another example is where the contractor cuts corners in the manufacturing process that the contract (or federal regulations) requires.

“Cross-Charging” and Improper Allocation of Costs

“Cross-charging” in a government fraud whistleblower case occurs when a contractor has its workers record that they worked on Project X when they actually worked on Project Y. This may be because they have already exceeded their budget for Project Y. It could also be that Project Y is a “fixed price” contract (meaning you get paid one amount no matter what) but Project X is a “fee-for-service” contract (meaning the more you bill, the more you get paid), or other reasons.

Similarly, contractors may allocate project costs to one project that should have been allocated for a different project. They do so solely to get the costs improperly reimbursed – another way to fraudulently extract money from the government.

Violations of the Truth in Negotiations Act (TINA)

The Truth in Negotiations Act applies to certain military contracts. TINA requires contractors in certain cases to provide the government with a current, good faith estimate of the cost to perform the services or supply the goods that are the subject of the contract. Those estimates, in turn, are used to set the price of the contract. Fraud occurs when contractors intentionally increase their estimates to get more money from the government.

Defective Pricing

This type of fraud occurs when contractors who want their products listed on the General Service Administration (GSA) schedules violate requirements that they accurately disclose their commercial customer pricing and discount information. Without accurate information, the government is unable to negotiate a fair price, and false claims may result.

Bid-rigging, Kickbacks, and Other Bribes

Whistleblowers, with the help of a federal government fraud law firm, are especially essential to rooting out this type of fraud. That is because it is usually only known to a limited group of people. Bid-rigging (or “antitrust” violations) happens when contractors agree amongst themselves how much each of them will bid on a project, thus “rigging” the highest and lowest bids without the government’s knowledge.

Contractors also give kickbacks to each other as incentives to purchase a particular product or service for a government contract, as opposed to the contractor making a merit-based decision. For example, a general contractor might offer to pay a subcontractor a more favorable rate on a government-funded project in exchange for the subcontractor agreeing to work on a private contract at a reduced price.

Violations of Domestic Preference Acts

The Buy American Act, Trade Agreements Act, and newly passed Buy America Act impose country of origin restrictions on products that the government is purchasing and/or the materials the contractors are using for their contracts. A contractor’s falsification of country of origin information can lead to False Claims Act liability. Misclassification of country of origin may also occur in a commercial setting to reduce tariffs, which is a form of customs fraud. Consult a government fraud attorney to learn more.

Falsifying Progress Reports

This fraud occurs when contractors falsify reports on the progress they have made on government contracts. This way, the contractors can get progress-based disbursements more quickly than the contract allows.

Violations of Wage Discrimination Laws

Government contracts must comply with Acts that protect employees from wage discrimination. Under these Acts, contractors must pay their employees no less than a minimum wage (called the “prevailing wage”) which is set by the Department of Labor.

The Davis-Bacon and related Acts apply to contractors and subcontractors executing federally-funded construction or repair contracts over $2,000. The McNamara-O’Hara Service Contract Act applies to government contractors who perform services under contracts exceeding $2,500. False claims may result when contractors certify that they complied with these acts but instead paid their employees less than the required prevailing wage.

Failure to Comply with Special Programs

In certain cases, government contracts require that contractors set aside a certain percentage of work for companies that are owned by minorities, women, veterans, or comply with affirmative action programs such as historically underutilized business zones (HUBZones). The government also requires that certain contracts be granted to small businesses or will provide subsidies to small businesses that fulfill them.

False Claims Act liability can result if contractors fail to comply with these requirements such as (1) by hiding the real size or ownership of their business through complex ownership structures, shell companies, and figurehead owners (such as by giving some ownership interest to a veteran who is not otherwise involved in the business); or (2) claiming to provide a certain percentage of subcontracts to minority or woman-owned subcontractors when they have not done so.

Improper Disposal of Hazardous Materials

Contractors must follow rules regarding the disposal of hazardous materials or pollutants. If a contractor falsely certifies that it followed these rules when it failed to do so, this could result in False Claims Act liability, for which a government fraud attorney should be obtained.

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