Companies pay millions to settle alleged false billings on GSA Schedule and DoD contracts

At year’s end, the Department of Justice (DOJ) announced multi-million dollar false claims settlements with a pair of large contractors in connection with billing practices on GSA Schedule contracts.

  • Iron Mountain Incorporated and Iron Mountain Information Management LLC (collectively Iron Mountain) has paid $44.5 million to resolve allegations under the False Claims Act that Iron Mountain overcharged federal agencies for record storage services , the DOJ announced Dec. 19, 2014.  Iron Mountain is a records storage company headquartered in Boston.
  • Lockheed Martin Integrated Systems (LMIS) agreed on Dec. 22, 2014 to repay the government $27.5 million to settle over-billing charges brought under the False Claims Act on a contract producing products and services for U.S. troops in Iraq and Afghanistan.

Justice Dept. seal“Protecting the federal procurement process from false claims is central to the mission of the Department of Justice,” Acting Assistant Attorney General Joyce Branda said. “We will continue to ensure that when federal monies are used to purchase commercial services the government receives the prices and services to which it is entitled.”

The settlement with Iron Mountain relates to contracts under which the firm provided record storage services to government entities from 2001 to 2014 through GSA’s Multiple Award Schedule (MAS) program.  The MAS program provides the government with a streamlined process for procurement of commonly used commercial goods and services.  The settlement resolves allegations that Iron Mountain failed to meet its contractual obligations to provide GSA with accurate information about its commercial sales practices during contract negotiations, and failed to comply with the price reduction clause of the GSA contracts by not extending lower prices to government customers during its performance of the contracts.  It also resolves an allegation that Iron Mountain charged the United States for storage meeting National Archives and Records Administration requirements when the storage provided did not meet such requirements.

“Contractors that knowingly bill the government in violation of contract terms will face serious consequences,” Branda said of the Lockheed Martin settlement. “The department will ensure that those who do business with the government, and seek taxpayer funds, do so fairly and in accordance with the applicable rules.”

LMIS is a subsidiary of Lockheed Martin Inc., which is headquartered in Bethesda, Maryland.  The alleged labor mischarging occurred on the Rapid Response (CR2) contract and the Strategic Services Sourcing (S3) contract, both issued by the U.S. Army Communication and Electronics Command (CECOM).  CECOM is located at Fort Monmouth, New Jersey, and at the Aberdeen Proving Group in Maryland.  The purpose of the CR2 and S3 contracts is to provide rapid access to products and services to be provided to the Army in Iraq and Afghanistan. Individual task orders then are separately negotiated, based on these contracts, to quickly meet the needs of CECOM.  LMIS allegedly violated the terms of the contracts by using under-qualified employees who were billed to the United States at the rates of more qualified employees.  The overbilling allegedly resulted in greater profit for LMIS.



Former security contractor CEO agrees to pay $4.5 million to settle civil claims

Keith Hedman, 55, of Arlington, Virginia, the former chief executive officer of a Virginia-based security contracting firm, Protection Strategies, Inc. has agreed to pay $4.5 million to settle civil claims relating to his involvement in a fraudulent scheme to create a front company to obtain contracts through the Small Business Administration’s Section 8(a) program.  The Section 8(a) program allows qualified small businesses to receive sole-source and competitive-bid contracts set aside for minority-owned and disadvantaged small businesses.

Dana J. Boente, U.S. Attorney for the Eastern District of Virginia, made the announcement after the settlement agreement was signed by both parties. “The civil settlement illustrates the importance of not stopping at a criminal resolution when a defendant has pled guilty to fraud against the government,” said U.S. Attorney Boente.

The settlement resolves civil claims against Hedman relating to the criminal plea entered by him in U.S. v. Hedman,1:13cr74. According to court records, in or about 2001 Hedman formed PSI, which was approved to participate in the 8(a) program based on the 8(a) eligibility of its listed president and CEO, an African-American female. When the listed president and CEO left PSI in 2003, Hedman became its sole owner, and the company was no longer 8(a)-eligible.

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Arbitration of False Claims Act cases may bind the U.S.

False Claims Act (FCA) qui tam fraud claims must be arbitrated as a result of arbitration agreements signed by relators who have brought FCA Justice Dept. sealfraud claims on the government’s behalf, author Dino L. LaVerghetta of Wilmer Cutler Pickering Hale and Dorr LLP says, following the holding of a little-noticed case.

What’s more, he explains, such binding arbitration should bar the U.S. from later re-litigating issues decided in arbitration.

If so, this is a factor that both defendants and the Justice Department must weigh in assessing the grounds for DOJ to intervene in a qui tam case.

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False Claims Act filing requirements trump shipping rule, whistleblower case reinstated

A federal appeals court has reinstated a whistleblower lawsuit brought in 2008 against shipping company DHL Express.

Kevin Grupp and Robert Moll alleged DHL improperly billed the federal government for jet fuel surcharges on ground shipments. DHL had won dismissal at the trial court, the federal court in Buffalo, but on Feb. 5 the U.S. Court of Appeals for the Second Circuit reversed that ruling.

Judge Ralph Winter authored the opinion for the Second Circuit. He wrote that a rule that requires challenges to shipping disputes to be brought within 180 days does not apply to False Claims Act cases.

“Application of the 180-day rule would completely nullify the tolling allowance as the Government is often unlikely to become award of fraud immediately following the violation,” Winter wrote.

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Audit planned in fraud case as Navy reinstates shipper

The Navy has quietly lifted the suspension of a shipping contractor under investigation for possible fraud, allowing the company to compete for new work. In exchange, the company has agreed to pay for an independent audit that could help the Justice Department determine how much it may have overcharged the government.

Records show that the Navy recently decided to reinstate Inchcape Shipping Services, a company based in Dubai in the United Arab Emirates. The move came after a federal judge questioned whether the service had presented enough evidence to justify the suspension.

Contracting experts said it was unusual for the government to turn to an outside auditor in this type of case, and some questioned whether an independent firm could do as thorough a job.

The auditing firm must be approved by the Justice Department, which is conducting a civil fraud inquiry into whether the company systematically overcharged the Navy in providing provisions and sewage-removal services for warships in the Middle East and Africa. Officials said the audit could help spur settlement talks between Inchcape and the Justice Department.

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Top contractor for background checks charged with fraud

The contractor that performed federal background checks on such headline personalities as National Security Agency leaker Edward Snowden and Navy Yard shooter Aaron Alexis has been accused of fraud by the Justice Department.

Falls Church, Va.,-based USIS, which had already been the subject of a False Claims Act suit filed by former employee Blake Percival, drew the intervention from Justice’s Civil Division because it “failed to perform quality control reviews in connection with its background investigations for the U.S. Office of Personnel Management,” Justice said in a complaint filed Wednesday.

Under the False Claims Act’s qui tam, or whistleblower provisions, a private party is eligible to sue on the government’s behalf and may receive a financial settlement. After a preliminary investigation of Percival’s claims, the department asked a U.S. District Court in Alabama to allow it to file its own complaint against USIS by Jan. 22, 2014.

“We will not tolerate shortcuts taken by companies that we have entrusted with vetting individuals to be given access to our country’s sensitive and secret information,” Assistant Attorney General Stuart Delery said in the complaint, which was prepared last fall. “The Justice Department will take action against those who charge the taxpayers for services they failed to provide, especially when their nonperformance could place our country’s security at risk.”

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United Technologies begins appeal of $664 million False Claims Act judgment

United Technologies has filed its appeal brief – albeit incorrectly – in a False Claims Act lawsuit brought by the United States that resulted in a $664 million judgment against the company.

The verdict, reached in June after a bench trial in federal court in Dayton, Ohio, was touted by the Department of Justice when it announced in December that Fiscal Year 2013 saw a record $3.8 billion recovered as a result of False Claims Act lawsuits.

The case against United Technologies was filed in 1999 and alleged it made false statements to the Air Force while negotiating a contract for fighter jet engines.

According to the appeal’s docket at the U.S. Court of Appeals for the Sixth Circuit, the brief is not available because of errors contained within it.

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See related article: DOJ says 2013 a record year for False Claims Act lawsuits

Navy Secretary Mabus expects bribery scandal to widen

Navy Secretary Ray Mabus said Friday that he bluntly told criminal investigators to pursue a widening bribery scandal “wherever it leads” and that he expects more people to get swept up in a case that has already tarred several senior officers and exposed an international, multimillion-dollar fraud scheme.

“I certainly don’t think we’ve seen the end of it,” Mabus told reporters at the Pentagon in his first public comments on the scandal since it came to light in September. “I would rather get bad headlines than let bad people get away.”

Mabus, the Navy’s top civilian official since 2009, spoke a day after he held an unusual video conference with the Navy’s fleet commanders and other admirals around the world to emphasize the need to uphold ethical standards and prevent contracting fraud. With the scandal showing no sign of abating, he also has ordered several reviews and an audit into how the Navy pays for port services.

The Navy has been tarnished by a succession of embarrassing revelations over the past three months about its relationship with a major foreign defense contractor, Singapore-based Glenn Defense Marine Asia, that has provided port services to U.S. ships and submarines in the Pacific for a quarter-century.

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False Claims Act overused, reform advocates say

The United States has come a long way since the Civil War era.

A once splintered nation torn apart by infighting is now whole, although an ideological split over hot-button political issues continues to keep the country divided.

Aside from an end to slavery and a patching up of our national identity, another thing to come out of the Civil War, at least on the legislative front, was the passage of the False Claims Act.

The measure was enacted with the goal of fighting profiteering by those who supplied the Union Army with things such as weapons and ammunition.

The measure, also referred to as “Lincoln’s Law,” allowed the government to hold contractors liable for bad faith dealings.

The False Claims Act came about during a time when contractors took advantage of wartime dependence to defraud the U.S. Government by dealing faulty ammunition and weaponry, sick live stock and tainted food rations, according to a summary of the statute on the website of the law firm Messa & Associates.

Today, however, court reform advocates maintain that the statute is being overused, and at times misused, by both the federal government and those who sue on behalf of the government.

The issue was touched upon this week in the nation’s capital during the 14th Annual Legal Reform Summit of the U.S. Chamber Institute for Legal Reform. (The ILR owns Legal Newsline.)

The ILR contends that while the statute was well intentioned, it has since been turned into a “lucrative money machine for plaintiffs’ lawyers and their clients,” while simultaneously hurting businesses and U.S. taxpayers.

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Vendor settles in case over Chinese-made supplies

When contractor Malcolm Wilson lost out in a competition to outfit four federal buildings in Illinois with lamps, he suspected the winning vendor of supplying products made in China, a violation of the Trade Agreements Act.

To find out, he filed a Freedom of Information Act with the U.S. Army Corps of Engineers, which oversaw the project, to learn the model of lamp the competitor was supplying, then sent an email to the lamp maker asking where the product as made.

China, the manufacturer responded.

One year after Wilson filed a False Claims Act lawsuit against the competitor, Supplies Now Inc., the company agreed to pay $270,000 to resolve the case, according to the General Services Administration’s Office of Inspector General, which announced the July 30 settlement Monday.

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