Fraud in Government Contracts

The United States spends billions of dollars every year for the procurement of new weapons systems, facilities, equipment, supplies and services to be used by the military and other branches of government. The vast majority of this procurement is done by way of contracts with private businesses. The sheer amount of contracts and money involved in the procurement process with the government makes it an extremely ripe area for fraudulent claims to be made.

Below are two common methods in which defense contractors have tried to defraud the federal government:

Cross Charging:

Cross charging involves the shifting of costs and expenses from one defense contract to another in order to boost its profits. Cross charging primarily occurs when a defense contractor has both “fixed-price” contracts (where the amount paid by the government for the product or service is set) and “cost-plus” contracts (where the government pays a set amount for the product or service plus a percentage of costs to produce the product or service) and moves charges from the “fixed-price” contract to the “cost-plus” contract in order to maximize its recovery.

Product Substitution Fraud:

Product Substitution Fraud involves the substitution of a particular part the government specified in its contract with the contractor with an inferior and/or disapproved part. Some contractors have been known to “switch” out the required parts for cheaper parts in order to maximize their profits.

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