Illegal Billing and Cost-Shifting
Illegal Billing and Cost-Shifting
Unscrupulous Government contractors use a wide variety of schemes to boost their profits under contracts with the United States. These methods include charging costs that are not authorized under the contract, billing for work and material that were unnecessary or never performed, and shifting costs between contracts in a manner that enriches the contractor and disadvantages the U.S.
“Parties that contract with the government or its agencies must be held to the terms of their contract. The U.S. Attorney’s office remains committed to recovering funds lost when a contractor departs from its contractual obligations.” — Nancy Harr, U.S. Attorney for the Eastern District of Tennessee
Unallowable Costs and Cost-Padding
There are numerous examples of contractors violating the False Claims Act (FCA) by including claims for reimbursement under Government contracts that the Government has not agreed to pay. For example, major communications providers have been prosecuted under the FCA and obliged to repay the Government over allegations that the providers had billed the U.S. for unallowable costs. The providers were required by federal law to upgrade their equipment in order to obtain future contracts, but prohibited from billing the Government for the costs of those upgrades. The Government alleged, however, that the providers had nonetheless illegally billed those upgrade costs to the United States.
Contractors also submit fraudulent claims to the Government when they inflate the actual cost of supplies or services that they incur during performance. This occurred recently, when a technology contractor admitted to reporting inflated labor costs when installing a computer network in a Government facility.
“It is unacceptable for companies that do business with the federal government to inflate their costs.” – Channing D. Phillips, U.S. Attorney for the District of Columbia
At times, the structure of Government contracts may create an incentive for contractors to shift costs among contracts or line items, resulting in the United States paying more than contemplated by the contract or paying for the same goods and services twice. For example, some contracts include both “cost reimbursable” and “cost plus” components. In the former type of contract, a contractor is simply reimbursed the costs it incurs; in the latter, the contractor receives a “bonus,” generally in the form of a percentage of the total costs. This bonus payment is typically designed to cover the “indirect” or “overhead” costs of the contractor in performing under the contract. Manifestly, in this scenario, it is in the interest of a contractor to attempt to shift cost items into the “cost plus” category. In other scenarios, a contractor may seek reimbursement for a category of cost both as a direct cost, and a second time as part of its “overhead” costs.
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