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Violating Federal Contract Terms

Violating Federal Contract Terms

Violating federal contract terms is a type of defense fraud that occurs when a contractor does not comply with the terms of their agreement with the government. A contractor that fails to do so, may supply a substandard good or service to the federal authorities. These unlawful schemes increase the price that is paid by the U.S. Government and decreases the value of the arrangement. The end result is that the taxpayers do not receivethe best value for the money spent.

Why the U.S. Government relies on contractors?

The government often lacks adequate production capabilities and must rely on civilian industry to manufacture machinery and provide personnel services. The federal authorities contract with private companies on a range of services from military equipment production to providing other services, such as food and janitorial assistance.

This high demand of good and services often presents opportunities to support thousands of American businesses. Even when the government is only contracting with one major corporation, that company will often then employ multiple subcontractors. One of the largest contractors, Lockheed Martin, has over 40,000 suppliers. These companies include small American businesses that specialize in manufacturing specialty parts, and they rely on the subcontracting work to stay in business.

Government Contract Terms

image of female navy officer

After the government has selected a bid on a project, a contract will be formed. This agreement contains terms that dictate if and who the contractor can subcontract to, the quality of the requested service or product, and more. When the whole process is finalized, the authorities receives the good or service in an ideal condition and at the best value.

Commitment terms allow the government to clearly define what they want from the company and any limitations on the contractor. In addition to ensuring it gets the best deal on services, these terms are also used to promote policy objectives such as supporting veteran and minority-owned businesses.

Contract terms often increase the cost for the contractor to complete the job. In cases of fraud, an unscrupulous company will sometimes make decisions to increase their profits by choosing cheaper methods to complete the assignment. This can lead to the finished service or product not meeting the terms they have agreed on.

Federal Contracts Require Companies to Meet Certain Criteria

The terms of the agreement often require the company meet certain criteria as a business. The government does this to promote businesses that provide jobs for U.S. citizens, encourage competition, is owned by a veteran or employs veterans, or for any other public policy reasons. Businesses that meet any of the criteria may get preferential treatment in the contract procurement process. Corrupt corporations will sometimes lie about or hide their status in order to secure a contract. The lie deprives other legit companies that are eligible from receiving the contract, and prevents the authorities from promoting certain businesses.

The Harm Caused by Violating a Federal Contract:

When a contractor violates the terms of the contract it is usually to benefit themselves at the cost of the taxpayers. This form of fraud may result in an inferior good or service that is not worth the value of the agreement. This has an effect of increasing the overall costs leading to an inflated military budget that the American citizens pays for.

Between 2001 and 2011 it was estimated that $60 billion was wasted for projects related to rebuild Iraq and Afghanistan because of fraud. This amounted to about $1 wasted for every $3.50 spent. This kind of fraud also leads to substandard services for the military or faulty equipment that the army relies on.

Faulty equipment can cause accidents to occur or increase the danger for military personnel. In July 2010, US Army Specialist Sean McMahon was testing a new M-2 machine gun in Afghanistan. The gun jammed at first, but then fired a round that exploded in the chamber. The soldier suffered shrapnel wounds in his leg and returned to the United States for medical treatment. An investigation found that the likely cause of the explosion was an improperly manufactured bolt. McMahon’s injury is one example of hundreds of instances where a manufacturer’s decision to cut corners resulted in injuries to army personnel.


Types of Federal Contract Violations

Subcontracting work to reduce cost

or substitute a necessary material for one that is cheaper. The terms in some defense contracts define that a company must subcontract to small American businesses that need to be supported, or businesses that hire or are owned by veterans. Adhering to these terms is often not be the cheapest option available, however, and to save costs and maximize profits, dishonest contractor might subcontract to an unqualified company. This is a violation of the terms of the contract, and the corporation may be liable under the False Claims Act.

Substituting Parts to Reduce Costs

This can result in an inferior or defective product. Usually the substituted part is not the same value as the original one. Examples of this are using a component made of a different, lower quality material, or using older components when new ones are required. The result of the substitution can be a faulty or inferior product that may breakdown at a higher rate or not meet the required performance standards in the original deal.

Notorious Examples

Northrop Grumman satellites fraud

On April 2009 Northrop Grumman settled a false claims case after a whistleblower revealed that the company was using faulty components in military satellites. The corporation continued to use the parts after they were warned of the risk. The employee who blew the whistle received around $48 million for alerting the government.

The Tuckers Defense Fraud

On July 27, 2015, Shaun Tucker and Joanne Tucker pleaded guilty to defrauding the government. The Tuckers made false representations to the government regarding the eligibility of Quantell and Intaset. The couple and a co-conspirator manipulated information to make the companies appear to be a small business, a veteran owned business, and other preferential criteria.

The fraudulent activities included:

  • Manipulating past revenue to be smaller than it actually was.
  • Having a business registered under a veteran when that individual actually had no control at all.
  • Creating businesses to meet the special criteria, but then having their companies that did not meet it do all the work and receive all the money.
  • Assuming false identities to communicate with the government to portray the business as something else than it actually was.

The Tuckers’ lies led to the awarding of contracts involving Camp Lejeune, Andrews Air Force Base, Langley Air Force Base and more. The total of the commitment awarded to the couple was over $30 million. They used their deceit to leverage higher prices for the contracts, and then they used their ill-gained profits to buy sports cars, luxury boats, and make house payments.

Detecting and Reporting Federal Contract Violations:

If you suspect that an ongoing defense fraud is being committed, you can become a whistleblower by reporting it to our attorneys. Evidence that a commitment’s terms may have been violated  can appear in billing irregularities or the delivery of a product or service that is suspected to be of inferior quality.
Other evidence that a defense contractor may be violating its contract terms are:

  • Frequent complaints by users of the supplies or services.
  • A pattern of malfunctions in new equipment.
  • The use of un-calibrated or improper testing equipment or the lack of adequate testing.
  • Development of physical signs of wear and aging appear earlier than expected.
  • Sudden change in packaging of materials.
  • Maintenance rates are higher than expected.
  • The bid for the contract was significantly lower than other bids for the same job.
  • Charges for work the contractor never did.

If you want to report a potential violation of federal contract terms, you may do so by calling our toll‐free number at (800) 689-8552, or filling out our form. Our lawyers will immediately call you back to provide you free legal assistance, and protect your anonymity.

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