On June 21, the U.S. Department of Justice announced that Sikorsky Support Services Inc. and Derco Aerospace Inc. agreed to pay $70 million to settle False Claims Act accusations. The government alleges that both corporations overcharged the Navy for spare parts and materials required to repair and maintain the primary aircraft for training naval aviators.
According to the government, Sikorsky Support Services Inc. and Derco Aeropspace Inc. have “knowingly entered into an improper cost-plus-percentage-of-cost (CPPC) subcontract. Under that contract, SSSI agreed to purchase parts from Derco at the cost that Derco paid other suppliers for those parts, plus a fixed 32% markup. SSSI, in turn, submitted cost vouchers to the Navy for reimbursement of the amounts it paid to Derco.”
The government alleges that “by failing to disclose that the costs claimed by SSSI were the product of an illegal CPPC subcontract between SSSI and Derco, SSSI and Derco knowingly presented false and fraudulent cost vouchers to the Navy.” The district court ruled that Derco’s markup breached a federal statute prohibiting Cost-Plus-a-Percentage-of-Cost (CPPC) contracting. Congress banned CPPC contracts because they incentivize suppliers to increase government expenses. Additionally, Derco’s actions violated the terms of the prime contracts between SSSI and the Navy.
“Government contractors must ensure their subcontracting arrangements comply with the law and with their contractual obligations,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “Today’s settlement demonstrates that the Justice Department will ensure that government contractors do not skirt the law and engage in self-dealing that may artificially inflate their charges at the expense of the American taxpayers.”
The settlement stems from a qui tam whistleblower suit filed by Mary Patzer, a former employee of Derco.
The False Claims Act’s qui tam provisions enable private citizens and private parties to file lawsuits on behalf of the government if they know of an individual or company defrauding the government. Qui tam whistleblowers are eligible to receive between 15 and 30% of the government’s recovery.
On July 25, a bipartisan group of senators introduced the False Claims Amendments Act of 2023, which address a few technical loopholes undermining the success of the FCA. The bill is widely supported by whistleblower advocates.
National Whistleblower Center (NWC) has issued an Action Alert calling on Congress to pass the bill.
Join NWC in Taking Action:
Demand that Congress strengthen the False Claims Act
Further Reading:
Bipartisan Legislation Unveiled to Strengthen False Claims Act