Got a spare $472 Million? Fighter Engine Contractor Hit With Major Damages for Fraud

06/19/2013

On June 17, the U.S. District Court for the Southern District of Ohio awarded the Government over $472 Million in damages for fraud by a fighter engine contractor, United Technologies Corp. The case is U.S. v. United Technologies Corp., S.D. Ohio, No. 3:99-cv-093, Judge Thomas M. Rose. The contractor’s fraud was held to have directly resulted in the Government overpaying on the underlying contract, which had been issued to Pratt & Whitney, United’s predecessor in interest, to provide F-15 and F-16 fighter jet engines.

The fraud was detected in a Justice Department audit in the form of false statements in Pratt’s best and final offer. This decision was the latest in a series of decisions and remands in the case. The court declined to consider market value analysis for the engine charges because it held there was a limited market and so the “market prices” proposed were tainted by the fraud of Pratt’s pricing and the market entry price of the only other source provider.

The court therefore accepted Government testimony that it should adjust what the Government eventually paid by subtracting the amounts the Government paid as the result of the fraud, offset by any underestimated costs United could prove. United could not prove any underestimated costs, and the result was about $347 M in trebled False Claims Act damages found, plus more than $7 M in penalties and more that $108 M in common law damages and interest. Yes, I would say this case is further evidence of the FCA’s teeth, and warning for those thinking about pushing the procurement envelop with their proposals.

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