What is Cross Charging Fraud?
Far too often, defense contractors attempt to defraud the federal government by way of product substitution. This may occur when the government specifies a quantity of products and a contractor attempts to make a greater profit by changing the quantity or quality of the product. In general, the substitute products are of inferior quality. If a contractor doesn't receive authorization from the government to substitute a substandard product, they may be in breach of the False Claims Act, a violation that constitutes fraud.
One of the most commonly employed government scams is known as cross-charging. This dishonest scheme involves a defense contractor switching costs allocation between two contracts. To fully comprehend how this type of fraud works, one must become more familiar with the basic forms of defense contracts. You have contracts based on a "fixed price", where the contractor receives a set price for creating a specific item, regardless of what it costs to produce the item. You also have cost-plus contracts in which a contractor may be reimbursed for their costs used to create a specific item and is given an additional as profit. A deceptive contractor may attempt to switch the costs incurred while operating on a fixed price to that of a cost-plus contract to be reimbursed in full by the government. Various methods are implemented to commit cross-charging fraud. For example, an employee of the defense contractor may be instructed to falsely certify that they worked on a cost-plus contract when they actually operated for a fixed price.
A more simplistic variation of cross-charging fraud involves improper costs allocation. In this scenario, a contractor may attempt to increase their profits by allocating the costs from a commercial contract to a government contract. For instance, the contractor may have specific overhead costs associated with the commercial contract but attempt to charge those fees to a government contract. This scheme is often attempted when the contract is based on a cost-plus contract in which the government is entitled to reimburse the contractor for overhead prices with an additional amount for their profits. This bold move enables the defense contractor to make a lower bid on the commercial contract, knowing that it will be fraudulently charged to the government.
Specifications of Government Contracts
Almost always, government issued contracts contain comprehensive specifications on the quality of the product to be produced, how it will be produced and the tolerances it must endure and withstand. Defense contractors are urged to follow these specifications as violations are punishable by federal law. Following the set protocol is very essential as the lives of soldiers may be lost if produced items such as military aircrafts or the blades of a helicopter fail to meet specifications. A criminal minded contractor attempting to reduce costs and turn a profit are literally putting all of our lives in jeopardy.
If you have ties to defense contractors and are aware of this type of malicious practice, you may be able to offer assistance in a government lawsuit under the False Claims Act.