Department of Defense


The United States’ spending on national defense hovers around $500 billion per year, and a large portion of that goes towards goods and equipment that our service men and women need to do their jobs. This money is spent both on new weapons systems, equipment, and facilities, and to upgrade and repair those already in use. The vast majority of work on these defense contracts is performed by private businesses both in the U.S. and abroad.


Examples of Defense Contractor Fraud


Fraud by defense contractors can take many forms, including the following:


  • Cross-charging (where the contractor allocates time spent working on a “fixed-price” contract to a “cost-plus” contract, where it gets reimbursed for its costs plus a profit);
  • Improper cost allocation, which is similar to cross-charging;
  • Product substitution (substituting lower quality, less expensive, or foreign-made materials in violation of the terms of a government contract);
  • Failure to comply with contract specifications;
  • Violations of the Truth-in-Negotiations Act, which is intended to level the playing field by requiring disclosure all relevant information about a contractor’s costs.


The most insidious form of defense contractor fraud is that which puts our service men and women at risk. Often, contracts will specify that the contractor must use a certain grade, type, or quality of product or parts. However, unscrupulous contractors will attempt to maximize their profits by substituting cheaper and lower-quality products. Due the volume and complexity of the products that the government buys, the government cannot test every product that comes in. When contractors knowingly ship substandard products, it can be devastating to our service men and women, and it can subject the contractor to False Claims Act liability.


For example, in February 2012 ATK Launch Systems, Inc. agreed to pay $37 million to resolve allegations that it had that supplied dangerous and defective flares to the United States Army and Air Force. The flares were used for nighttime combat and in search and rescue operations in Iraq and Afghanistan. The government alleged that ATK had delivered flares which could not withstand a 10-foot drop test without exploding or igniting, in violation of the terms of the contract.


Other times, contractors defraud the government by simply overcharging for services, or billing for services that were not actually provided. For example, in 2012 Maersk Line Limited, a U.S. company that provides ship management and technical support, agreed to pay $31.9 to resolve claims filed by a FCA whistleblower. The suit alleged that Maersk inflated invoices by billing more than the agreed-to rate for services; billing for bogus late fees; and billed for GPS-tracking and security services that were not actually provided, among other things.


If you think you are aware of fraud involving the Department of Defense, please contact one of our experienced attorneys at (248) 539-7420.