Federal Government Examines Helicopter Manufacturer Sikorsky Amid Allegations of Fraud

Aside from healthcare fraud, defense contractor fraud remains one of the top forms of waste and abuse addressed by the False Claims Act. Too often, big-budget defense contracts serve as fodder for dishonest companies to inflate and exaggerate costs, resulting in unnecessary spending of an already-strained defense budget.

In one recent defense contractor case, the federal government has begun a probe of Sikorsky Aircraft, a defense contractor having previously provided helicopters to the U.S. Navy under a 2006 contractual agreement. The investigation is pursuant to a False Claims Act lawsuit filed last year against Sikorsky’s parent company, United Technologies Corp., which was revealed in the latest filings required by the SEC for purposes of alerting investors as to potential liability and issues.

Details of the pending lawsuit against Sikorsky, et al.

The government’s Complaint in Intervention against Sikorsky was filed in October 2014, in the United States District Court for the Eastern District of Wisconsin (Milwaukee). The case stems from a whistleblower lawsuit filed by a former employee of Sikorsky’s subsidiary Derco Aerospace, Inc., which is also implicated in the litigation.

According to the allegations, the government contends that Sikorsky approved an “illegal cost-plus-a-percentage-of-cost subcontract” between itself and Derco in violation of contract terms with the U.S. Navy for the provision of T-34 and T-44 turboprop training planes.[1. “UTC: Feds probing Sikorsky on claims of overbilling.” July 24, 2015. http://www.rep-am.com/business/doc55b2473236791348305617.txt] In this type of agreement, both parties are unsure of the actual cost of performance prior to beginning the work but come to an initial agreement regarding the cost.

Once the work is complete, a percentage of the actual cost of performance is then included in the payment. This type of agreement is expressly forbidden by government contracts as it artificially inflates costs and gives contractors no incentive to actually control the costs of the project. In fact, the arrangement actually incentivizes parties to reach a higher performance cost.

As a result, the government contends that Sikorsky and Derco relied on this illegal method to overbill the government for parts, overhead, and labor associated with the maintenance and repair of the training planes.

The government is seeking $148 million in damages as a result of the alleged scheme. Earlier this month, Sikorsky’s parent company approved its sale to Lockheed Martin, citing the fact that its significant reliance on government contracts limits profitability.

Government’s comments

The Justice Department’s civil division said in a statement, “Those who contract with the federal government and accept taxpayer dollars, must follow the rules….[this] complaint demonstrates, once again, that the Department of Justice will not tolerate contractors who engage in schemes to defraud the armed forces or any other agency of the United States.”[2. “United States Files Complaint in False Claims Act Lawsuit Alleging Defense Contractors Knowingly Overcharged the Navy on Aircraft Maintenance Contract.” Department of Justic Press Release, October 16, 2014. http://www.justice.gov/opa/pr/united-states-files-complaint-false-claims-act-lawsuit-alleging-defense-contractors-knowingly]

The U.S. Attorney’s Office similarly commented, stating, “The claims in the civil complaint that we have filed reflect our focused and purposeful investigative work in identifying and seeking remedies for false claims in government contracting….Under the authority of the False Claims Act, we pursue fraud of this sort to ensure that taxpayer dollars are spent lawfully and that overcharges and other types of contracting misconduct are addressed.”

Contact Berger Montague today

If you are aware of fraudulent misspending under a government contract, please do not hesitate to contact Berger Montague today.