Federal Contractor Misconduct and Government Procurement Fraud
The Federal Government of the United States is one of the biggest purchasers of goods and services in the world. The governments of individual states also have procurement budgets larger than many countries. Unfortunately, these trillions of dollars in procurements lead to ample opportunities for fraud.
There are a range of issues leading to government procurement fraud. Some arise out of the manufacturing of products, such as selling a defective product, failing to properly test, or failing to have a proper quality control system. Other cases involve failures to comply with government regulatory requirements, such as “Buy American” requirements, “Disadvantaged Business Enterprise” requirements, and prohibitions against conflicts of interest. Many other cases arise out of government accounting standards and pricing requirements. We work on cases involving all of these types of fraud.
Northrup-Grumman Settle For $134 Million
In one qui tam action, Northrop Grumman, a major defense contractor, settled a whistleblower False Claims Act suit by paying a total of $134 million. The whistleblower relator Rex Robinson worked on some of the most technically advanced projects in the United States, including Apollo lunar missions and various top-secret military programs. When, during the era of Ronald Reagan’s “evil empire” speech, the United States was developing state-of-the-art, top-secret “Stealth” technology, Rex was tapped to work on the project.
Rex was a test engineer for Northrop Grumman’s Defense Systems Division in Rolling Meadows, Illinois, when he began to suspect that the company was lying to the government on the B-2 “Stealth” bomber program. He overheard several conversations in which other engineers discussed fabricating test results for government projects and telling the government that the contracted projects were moving forward even though they were not. Rex notified his superiors about these conversations, but he was fired and blacklisted almost immediately after doing so. In 1989, Rex and fellow Northrop employee James H. Holzrichter filed a qui tam lawsuit against the company. When the federal government decided not to intervene, Rex, Jim, and their attorneys continued to investigate the case and eventually gathered enough evidence to change the government’s mind. Sadly, though, Rex passed away before the case finally settled in 2005, with Northrop paying $134 million. The case alleged fraud in military contracts for Northrop’s defense electronic systems, which are used in high-technology, state-of-the-art military aircraft.
How the Resulting False Claims Act Lawsuit Shaped Up
The Northrop false claims allegations fell into two categories. First, Northrop allegedly engaged in a fraudulent accounting scheme by routinely submitting false contract proposals and claims for progress payments based on improper accounting for materials and material costs. Northrop concealed its liability to account for inventory, scrap, and attrition. Its materials accounting systems lacked basic data integrity, but in order to do business with the government, Northrop routinely represented that it had an adequate accounting system. Relators alleged that these representations were false and that, as a result, Northrop submitted false bills and proposals for military contracts.
The second category of alleged fraud involved a radar jamming device for the B-2 “Stealth” Bomber, called the “ZSR-62.” Northrop allegedly lied to the government during a “Critical Design Review” regarding progress that it had made designing the device. As a result, the Air Force awarded Northrop a multi-million dollar contract to build it. After two additional years of funding, the Air Force cancelled the contract.