False Claims Act and Defense Contractor Fraud


Below, False Claims Act attorney Tony Munter answers questions about defense contractor fraud-related false claims cases. To learn more about filing a defense fraud related claim, read more here.

What are the provisions for defense contractor fraud in the U.S. Code?

Tony Munter: There are a whole lot of federal regulations that pertain to defense contracting, such as the Federal Acquisitions Regulations, commonly known as the “FAR”. There is also the DFAR, the Defense Federal Acquisitions Regulations, which set out parameters for proper procedures with regard to defense contracting. In addition, it’s illegal and actionable for contractors to commit fraud. That all falls under a possible False Claims Act violation, which would be 31 U.S.C. 3729, and the sections that would apply are the sections regarding a party making a false claim, causing somebody else to make a false claim, or creating a false record. Those are the primary areas that I would look at to determine if a defense contractor is liable. Given that defense contracting is an international issue, the Foreign Corrupt Practices Act might come into play to some extent. We’ve seen that in respect to a recent Navy scandal, and it seems some other scandals involved that dealt with foreign contracts. There are inferences of using bribery to get business, so that could also raise the question of the Corrupt Practices Act. Generally, of course it’s the False Claims Act that’s involved.

What types of defense fraud cases have you handled?

Tony Munter: Defense fraud usually involves rather large contracts. You see a lot of cases with respect to double billing for services. I had a case once where the contractor was billing lots of time to his defense contracting jobs, but the people were actually working on private sector projects. They were accused of financing a private sector project and private sector business by effectively billing time to defense contracting that they had. There are a lot of cases like that because the amount of people involved is large and very difficult to keep track of, so it’s easier to pad the bill. There are also cases involving defective products being sold to the defense industry. Sometimes the defense industry will have very strict specifications with respect to the type of product that’s supposed to be built. It’s supposed to be built to certain qualifications to do certain kinds of things. For example, if a contractor is knowingly substituting inferior metal for what is required in an airplane, and that were to make the airplane unsafe to fly, that would be a type of a false claim. Those are the kinds of fraud you see the most often; knowing about defects in the product that’s produced and essentially padding the bill, as in charging for additional time, services, or materials that either are not produced or are not needed.

How could falsifying records be an example of defense contractor fraud?

Tony Munter: You see a lot of those cases with respect to the quality of something that is being built. To take the example of an airplane again, if an airplane engine is supposed to do “X”, or be up to some kind of standard, all that’s going to have to be confirmed through inspections. Somebody has to look at the metal and x-ray the metal and sign off on it’s being up to specifications. Sometimes those documents get faked, and that can be a difficult case to prove because you have to show that everybody knew that it wasn’t up to specifications. You have to have somebody on the inside who knows they were faking the specifications, or faking the inspection of those specifications. As another example, if you are submitting a time card and you know the time card doesn’t accurately reflect the hours worked, that is considered a false record. A false record violation then leads you to exploring a potential false claim case, looking at what the damages are, and how much the government ended up paying that it should not have paid. There are great defense contractors that do honest and good work for the government, but those are the type of frauds that you do see every once in a while in respect to this industry.

What should an individual do if they witness defense contractor fraud and they want to bring a civil case?

Tony Munter: The first thing they should do is get counsel. There has been a big push by the people who represent big business to say that individuals should report it internally. Before anyone takes any action like that, since it’s a potentially career-threatening action, they should talk to an attorney about what their rights are. I recently received a call from a fellow attorney who was distraught because his client acted before talking to an attorney and told the government about a serious fraud, but didn’t file anything. The government filed a case, so the government is going to collect money, and that client doesn’t have a way to share in the recovery. It is a very common pattern for somebody to report internally about defense fraud, or any kind of fraud, only to get fired or be retaliated against in some way. The first thing someone should do is talk to an attorney. They can help them and advise them as to what their rights are under myriad different laws that might protect them if they want to report. Or they may be able to make a report to the government under a whistleblower reward law. People should not go this alone. The pressure and the stress associated with going through something like this without legal advice is difficult. Most lawyers will talk to someone, at least for some initial advice, without charging much.