A recent ruling by the United States District Court for the Southern District of Ohio has resulted in the largest recovery ever obtained against a defense contractor by the government under the federal False Claims Act. On June 20, United Technologies Corporation (UTC) was ordered to pay $473 million in damages and penalties for its overpricing military parts in a lucrative defense fraud scheme. According to its defense contract with the government, UTC was commissioned to provide the United States military with engines for F-15 and F-16 fighter aircrafts between 1985 and 1990, making this False Claims Act lawsuit 14 years old.
Allegations of Defense Fraud
UTC is based in Connecticut and develops a number of high-technology products to both the aerospace and building systems industries. The company’s aerospace subsidiaries are Sikorsky aircraft and UTC Propulsion and Aerospace Systems, which includes Pratt & Whitney aircraft engines.
According to authorities, UTC entered into a defense contract, promising to manufacture and deliver the jet engines to the Air Force. The company then charged the government for the engines, submitting prices that were false and deceptive. As a result, the government paid millions of dollars more than it should have to purchase the jet fighter engines. Specifically, the government alleged that UTC failed to include the massive discounts it received from suppliers in the price proposal. Instead, the military contractor used outdated information to come up with its price proposal, conveniently leaving out the discounts they had been granted.
The Long Road to Justice
The original False Claims Act lawsuit against UTC was filed in March 1999, when the government accused UTC’s Pratt and Whitney division of overbilling the military for jet engines. According to the allegations contained within the lawsuit, Pratt knowingly and fraudulently overpriced the engines and falsely certified its overall cost for engine parts. This billing scheme went on from 1985 through 1991. By the time the False Claims Act suit was filed, the Air Force had already paid Pratt and Whitney over $3 billion for the engines. The Justice Department asked for $75 million in overcharges, plus other damages and penalties.
In October 2004, the military contractor fraud case was finally heard before a judge in the United States District Court in Dayton, Ohio. The trial lasted six months and, three years later, the court issued its ruling. According to official documentation, the court found that Pratt and Whitney had, indeed, defrauded the government. In fact, according to estimates provided by the court, the overbilling scheme had caused the Air Force to overpay Pratt and Whitney approximately $228 million. Even though it was clear just how much money the UTC subsidiary had fraudulently obtained from the United States military, the court only awarded $7 million in damages and dismissed the common law claims. Needless to say, the government ultimately appealed the ruling.
Two years later, the U.S. Court of Appeals for the Sixth Circuit heard the case. In November 2010, the court reaffirmed the initial defense fraud determination. It also chose to remand the case, ordering the District Court to reconsider the monetary damages award. The case then went back to the District Court for re-evaluation of damages.
By June 2013, the District Court was ready to issue its decision. After reconsidering the total damages inflicted as a result of UTC’s False Claims Act violations, the court ruled that the company owed the government $473 million. The award includes the monetary difference between what the government actually paid Pratt and Whitney for the jet engines and what it should have paid between 1985 and 1991, along with a False Claims Act violation penalty from the appeals court. In addition, UTC will be responsible for paying millions of dollars in interest that has built up since the 1980’s. Some experts believe the defense contractor could be facing a total penalty of approximately $960 million.
“The department will relentlessly pursue justice against those who knowingly submit false claims to the government and abuse the public contracting process,” said Stuart Delery, Acting Assistant Attorney General for the Civil Division. “It is vital that companies who do business with the government provide full and accurate information, and if they do not, they will pay the consequences.”