In a remarkable legal settlement, Sikorsky Support Services Inc. (SSSI) and Derco Aerospace Inc. (Derco) have agreed to pay $70 million. The settlement aims to address allegations of overcharging the U.S. Navy. The allegations involve essential spare parts and materials needed for the repair and maintenance of aircraft. These aircraft are used specifically to train naval aviators. This settlement addresses claims under the False Claims Act, a vital statute aimed at combating fraud against the federal government.
Allegations of Fraudulent Practices by Sikorsky Support Services Inc.
The Justice Department’s lawsuit, filed in the U.S. District Court for the Eastern District of Wisconsin, accused Sikorsky Support Services Inc. and Derco of engaging in an improper cost-plus-percentage-of-cost (CPPC) subcontract. According to the allegations, SSSI agreed to buy parts from Derco at the cost Derco paid suppliers, with an added 32% markup. SSSI then submitted these inflated costs to the Navy for reimbursement.
This CPPC contracting is prohibited under federal law because it incentivizes contractors to increase costs, ultimately burdening the government and taxpayers. The district court found that Derco’s markup violated the federal statute barring CPPC contracting and breached the terms of the prime contracts between Sikorsky Support Services Inc. and the Navy.
Government’s Stance on Compliance and Fraud Prevention
Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division, emphasized the importance of legal compliance in government contracting. The law and contractual obligations must be complied with in subcontracting arrangements by government contractors, Boynton stated.He highlighted that the settlement demonstrates the Justice Department’s commitment to preventing self-dealing and protecting taxpayer dollars from inflated charges.
U.S. Attorney Gregory J. Haanstad for the Eastern District of Wisconsin echoed this sentiment, highlighting the role of the U.S. Attorney’s Office in combating fraud and safeguarding public funds. Compliance with the law must be put ahead of profits by government contractors, Haanstad declared. He stressed that the settlement serves to make the United States whole for the inflated costs and deters future violations.
Investigative Efforts Involving Sikorsky Support Services, Inc.
The investigation was part of a broader initiative by the Defense Criminal Investigative Service (DCIS) and its partners to scrutinize and address defective pricing and cost mischarging schemes in defense procurement. Special Agent in Charge Darrin K. Jones of DCIS’s Southeast Field Office remarked, “Today’s settlement agreement should serve as a strong deterrent for those who seek to exploit the Department of Defense’s procurement process.”
Additionally, Greg Gross, Special Agent in Charge of the Naval Criminal Investigative Service (NCIS) Economic Crimes Field Office, highlighted the negative effects of inflated costs on naval air training and taxpayer interests. He reaffirmed NCIS’s commitment to maintaining the integrity of the defense acquisition process.
Whistleblower Lawsuit Against Sikorsky Support Services Inc.
The case was initiated under the qui tam, or whistleblower, provision of the False Claims Act by Mary Patzer, a former Derco employee. This provision allows private individuals to sue on behalf of the government for false claims and share in any recovery. The U.S. government decided to intervene and assume control of the litigation, resulting in a substantial settlement.
Coordinated Legal Effort to Address Sikorsky Support Services Inc. Allegations
The resolution of this case resulted from a coordinated effort between the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section, and the U.S. Attorney’s Office for the Eastern District of Wisconsin. Trial Attorneys Alan Gale, Nelson Wagner, and Gary Newkirk, along with Assistant U.S. Attorney Michael Carter played pivotal roles in handling the matter.
Conclusion
While the claims resolved by the settlement are allegations without a determination of liability, the $70 million settlement highlights the serious consequences of violating federal contracting laws. It highlights the government’s vigilance in ensuring compliance and protecting public funds from fraudulent practices. The case involving Sikorsky Support Services Inc. serves as a potent reminder to government contractors of the critical importance of adhering to legal and contractual obligations, thereby safeguarding the integrity of the defense procurement process and taxpayer interests.
