More Defense Contracting Fraud on the Horizon?

Since 9/11, defense spending has been at its highest points in U.S. history.  The Washington Post reports that since 2001 the U.S. defense budget has risen from $287 billion to $530 billion.  Incredibly, in 2011, the U.S. spent one fifth ($718 billion) of the entire federal budget on defense-related programs – more than was spent on Medicare that year.  See Brad Plumer, America’s staggering defense budget, in charts, Washington Post (Jan. 7, 2013).

However, these historically high levels of defense spending are not expected to continue.  With looming sequester cuts, the reducement in the number of active military, and the winding down of the wars in Iraq and Afghanistan, government defense contractors are looking at an immediate future with much fewer government contracts.   Defense contractors and branches of the military are already bracing for the effects of the sequester as hundreds of Air Force and Army procurement programs could be affected.  See Sandra I. Erwin, Air Force Weapons Buyers Brace for Lean Times, National Defense (Nov. 5, 2013); Sandra I. Erwin, Army Begins Procurement Holiday That Could Last Five Years, National Defense (Oct. 23, 2013).

Although the defense industry has been eclipsed by the healthcare industry with regard to the number of qui tam cases brought pursuant to the False Claims Act (FCA) involving its members, the defense industry has a long history with the FCA.  Defense contracting fraud during the Civil War led to the initial passage of the False Claims Act in 1863.  In the 1980s, pervasive fraud in the defense industry gave rise to the call for reform and the 1986 amendments to the FCA which are largely responsible for the Act as we know it today.  Since the passage of the 1986 amendments, defense contractors have been the subject of thousands of FCA lawsuits.

The importance of government spending for the companies that do business with the Department of Defense cannot be understated.  For many of these defense contractors, the government is their sole customer.  For others, such as many construction companies who contract with the Department of Defense, government work constitutes a huge portion of their overrall work.  With a smaller pie for these contractors to compete over, it is not unreasonable to think that we will see an increase in cheating to obtain government contracts and fraud once contracts are awarded.  For example, with added pressure to win jobs, some defense contractors may be tempted to engage in fraudulent practices such as bid-rigging and making false estimates in bids in order to win contracts.  Further, having gotten use to the bloated defense spending levels of the last twelve years, some defense contractors may engage in nefarious practices to drive up the costs of contracts already awarded or cut corners in order to bilk the government and the taxpayer.

The good news is that the FCA provides an effective means for combating fraud and punishing fraudulent defense contractors.  In 2012, FCA actions brought by whistleblowers under the FCA’s “qui tam” provisions, returned over $164 million to the U.S. from fraudulent defense contractors.  Since the passage of the 1986 amendments to the FCA, whistleblowers have helped the U.S. recover over $2.6 billion for defense-related fraud.  While members of the defense industry will continue to defraud the federal government – as they have for the last 150 years – and may do so at a higher rate in the near future, it is a certainty that whistleblowers aided by the powerful provisions of the FCA will continue to help make fraudster defense contractors accountable and return wrongfully obtained funds back to the U.S. government.


If you believe you have a defense contracting fraud case, please contact the Rabon Law Firm for a free consultation.

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