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Defense Contractor Fraud

One of the biggest areas for False Claims Act litigation involves defense contractors. A company may be guilty of a combination of schemes. The most common fraudulent schemes perpetrated by defense contractors include:

  • Cross-Charging/Improper Cost Allocation
  • Failure to Meet Contract Specifications/Product Substitution
  • Bid-rigging/Kick-backs
  • Overcharging
  • Violations of the Truth in Negotiations Act
  • Falsified Progress Reports


Cross-Charging and Improper Cost Allocation

Cross charging is one of the most common types of procurement fraud.  “Cross-charging” occurs when a company instructs employees to write down on their time cards that they worked on one project when they were actually working on another project.  The company does this because the project the employees are billing to is more lucrative than the one they are actually working on, either because of the hourly rate or because of the structure of the contract (for example, companies will often tell employees to bill to a cost-plus project when they were actually working on a fixed-price contract).  Improper cost allocation is a similar fraud, in which companies charge the costs of supplies or outsourced labor to one project, but use those materials or labor for a different project.

Failure to Meet Contract Specifications/Product Substitution

Fraud also occurs when a company provides a part or parts not manufactured in accordance with specifications, or uses materials not permitted by the project specifications, or otherwise takes short-cuts to lower its costs, in violation of the project’s specifications.


Bid-rigging and Kick-backs are a particularly insidious type of fraud, because they are usually unknown to all but a few individuals.  “Bid-rigging” occurs when a group of companies decide together how each of them will bid on a project or a group of projects.  Kick-backs occur when companies provide incentives to one another to purchase their products or services for use in a government project.  For example, a sub-contractor may agree to perform work on a private contract for free or at a reduced price, in exchange for the general contractor paying him or her a more favorable rate
on a government-funded project.


Another common type of fraud is the overcharging of materials or hours.  Contractors that participate in this scheme will charge the government a higher cost for supplies or labor than they charge in the private marketplace, keeping the extra money for themselves.

Violations of the Truth in Negotiations Act

Military contracts are often subject to the Truth In Negotiations Act.  That Act provides that, in certain cases, a contractor or subcontractor must provide the government with a current, good faith estimate of the cost to perform the services or supply the goods that are the subject of the contract.  Those estimates, in turn, are used to set the price of the contract.  Some contractors deliberately inflate their estimates in order to acquire more funds from the government – this is fraud.

Falsified Progress Reports

Many government contracts disburse payments based on progress.  In order to receive payments sooner, contractors sometimes falsify reports regarding the progress they have made.


If you have specific information related to the above-mentioned wrongdoings or similar fraud, contact us and we will analyze your case and provide step-by-step assistance with filing a whistleblower claim to stop the fraud.

Learn more on how to file a whistleblower suit.


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