Why contractor pricing violations seem to go on forever

Tom Temin And you wrote that this is some kind of extensive problem. In 2023, I believe the DOJ filed 500 false claims cases under the Act. What’s happening?

Greg Williams Well, let me first point out that this is the second largest false claims recovery ever. And the false claims portion of this roughly $1 billion settlement is worth nearly half a billion dollars. I think it’s also worth pointing out to your listeners that, in case you weren’t aware, False Claims Act cases often don’t get to prosecution without the intervention of an individual whistleblower. This was the case in this case. So if you take this billion dollar agreement and realize that half of it would not have been implemented if the person had not put himself at risk and stepped forward, that essentially means that half the value of this agreement comes from someone with great courage, and that we cannot count on the government to catch all the culprits in such cases. The other piece of context I wanted to highlight is that these types of violations have been happening since 2009. So it took us 15 years to identify and solve these problems with Raytheon. So, imagine if you only got a speeding ticket 15 years after you drove on the highway, that doesn’t tell me that it’s some kind of airtight enforcement mechanism that will get you caught and that will immediately respond to the threat to be caught.

Tom Temin And given the number of laws and regulations under the FAR or the DFAR Supplement, existing defense acquisition rules at the federal level, what would motivate a company to not make sure that doesn’t happen? This is an exceptional case.

Greg Williams Yes, I think this is unusual, mainly due to the size of the defendant in this case, RTX. When I worked for a defense contractor, we had to have annual briefings that lasted several hours and told us the different ways we could potentially break the law. And it is not difficult to understand, as I already said, almost all management personnel went through these trainings. And so it is very difficult for me to believe that the persons involved in these crimes did not understand that they were breaking the law, and did not understand what very serious penalties were possible. Again, what I find unusual is that it is one of the five largest defense contractors in the United States. And there’s no way I can prove it, but it certainly raises the question of whether you’re big enough or whether you have some leeway in terms of what you can get away with if the government thinks you’re too big to fail. I think it’s also worth reviewing the DOJ press release about this settlement and seeing how RTX and Raytheon were actually given some leeway based on their cooperation with the investigation. This is despite the fact that in each case, the DOJ notes that, at least initially, they failed to provide reasonable documentation. Thus, even with this level of lack of cooperation, these fines are still significantly less than they could be.

Tom Temin We’re talking to Greg Williams. He is the director of the Project on Government Oversight’s Defense Information Center. That’s right, Raytheon agreed, well, they fired some people and put in place anti-fraud and compliance measures that I believe the DOJ said reduced potential penalties by 25% in some cases. So it doesn’t seem to have gotten through to the leaders, as far as we can tell it was something initiated by individuals.

Greg Williams Yeah. It does not appear that this is a case where the most senior people could have been aware of their behavior and held accountable.

Tom Temin And in general, the government overcharges for a variety of reasons, some of which are only legal because you can get away with it and you’ve followed through. But sometimes with certain types of contracts, you almost can’t avoid the False Claims Act at some point in your corporate history, especially in a reseller situation where someone somewhere might be getting a better price and therefore you’re in violation . So what, I guess, is your assessment of the state of the industry in terms of respect for the rules, laws, statutes and regulations under which it is required to operate?

Greg Williams Well, I think for me one of the important differences between defense contracting and what we do every day as consumers is that we have a powerful, individual, individual motivation to find the best deal available. And while I’ve certainly met many government buyers and contract administrators who are passionate about getting the best deal possible with the government as a whole, we don’t have a good set of mechanisms in place to ensure that every time we interact with the private sector, we’re making every effort , to ensure we get the best price possible, especially in the case of the Department of Defense, since we are a buyer of enormous market power. And I don’t believe we’re effectively using that power to set better prices. And a lot of that has to do with the extent to which we’ve allowed the defense industry to define what so-called commercial products are and radically reduce the number of situations in which they have to document or certify the costs of what they produce. sell to us.

Tom Temin Because in this case we were talking about Patriot missile systems.

Greg Williams Patriot missile systems, and then an entire defense installation.

Tom Temin Right. So there may be some commercial elements, but the bulk itself is unlikely to be commercial. And it all comes down to the problem, and we’ve seen it on platform after platform. What is a reasonable cost for this item that the department can afford? And yet it is a unique, one-of-a-kind platform.

Greg Williams Yeah. It’s not something they sell competitively to the private sector.

Tom Temin Right. So what is the government’s best option in this case?

Greg Williams Well, the best the government can do is require certified pricing information or certified cost information that they are entitled to, and then review it carefully. But when the seller deliberately hides this information from the beginning, particularly the cost of bribing government officials, you don’t get a clear picture of what’s going on.

Tom Temin Right. I think this was a violation of foreign military sales regulations, and the US government is actually purchasing it for export purposes. And in this case, it was Qatar that got this missile defense system and its maintenance. And Raytheon, I believe, paid Qatar to choose this system rather than the Norwegian or German system or something competitive.

Greg Williams Thus, the information available from the Department of Justice is somewhat vague on these issues. So I don’t know who the competitors or potential competitors might be. I think the press release only says that the official was paid a fee to give Raytheon some kind of advantage. The law is pretty clear that you can’t disguise this as an expedited payment, or the law is very good at avoiding any ambiguity about who you are and what you’re not allowed to pay someone for.

Tom Temin Everything is fine. So we have a settlement for almost a billion dollars, and the company was very cooperative when confronted with this. However, as you point out, it took many, many years for this to become known, as it often does.

Greg Williams And they were in no hurry to cooperate. Again, the DOJ notes that in each case they were initially very slow in preparing the documents.

Tom Temin So what lessons does the government learn here? What can we learn from this particular case other than that yes, it was a really important case.

Greg Williams Yeah. Just like you need to be vigilant every time you buy a car or a house, you can’t have a bad experience and then berate the salesperson and then just expect the next salesperson you meet to be cooperative. You need to carefully monitor each purchase and make sure you are getting the best deal. And you need to ensure that investigative agencies like the Defense Contract Audit Agency and the Defense Criminal Investigative Service, as well as the various inspectors general, are fully funded. It takes time and personnel to do your job well and constantly search for the best deal.

Tom Temin And does the government have the tools and personnel necessary to do this on a case-by-case basis?

Greg Williams Well, I guess if it takes them 15 years to do it, then that’s the answer. And if they can only do this with the help of extremely brave whistleblowers, then there is another answer. And if a company as successful as RTX, I remember when I was in training every year, they emphasized to us that you just don’t want to do something that could cost the company millions, tens of millions. potentially hundreds of millions of dollars. And I just can’t imagine that anyone with authority at Raytheon to be directly involved in these transactions wouldn’t have had that kind of training and wouldn’t know they were doing something illegal. And that leads me to believe that they didn’t think it was likely enough that they would get caught that they would be motivated to avoid this obviously illegal behavior.