Sierra Nevada Corporation has agreed to pay the U.S. $14.9 million to resolve allegations that it violated the federal False Claims Act by knowingly misclassifying direct and manufacturing costs as research and development costs for NASA and U.S. Department of Defense contracts. The cost misclassifications resulted in the U.S. paying Sierra Nevada Corporation exaggerated overhead rates, the Department of Justice announced Wednesday.
Sierra Nevada Corp Misclassifies Direct and Manufacturing Costs – Boosts Overhead Rates
The Sparks, Nevada-headquartered corporation provides services to United States agencies through a number of contracts with NASA, the U.S. military and private spaceflight companies, recently taking on the construction of the NASA-funded “Dream Chaser” project. Sierra Nevada Corporation (“SNC”) supports nearly 3,000 scientists, engineers, software developers, and cyber experts at 34 locations across 19 U.S. states, Germany, England, and Turkey.
According to the Department of Justice, the U.S. contends that SNC misclassified certain direct contract costs and manufacturing and production engineering costs as Independent Research and Development (IR&D) costs between fiscal years (FY) 2007 and 2011. The U.S. also alleged SNC charged certain IR&D costs in the wrong cost accounting period. As a result, SNC charged inflated general and administrative overhead rates to its government contracts, including Department of Defense and NASA contracts, for FY 2007 through FY 2011.
Defense Contractors’ Inaccurate Cost Classifications Violate False Claims Act
A significant portion of the approximately $500 billion per year the U.S. spends on national security goes to defense contractors who manufacture weapons, ships, aircraft and provide engineering, information technology, cybersecurity and other services for the military and Department of Defense.
Defense contractors have a responsibility to truthfully and accurately classify contract costs in calculating overhead rates and work pay. When a defense contractor submits claims for payment based on inaccurate classification of contract costs, those claims become false claims in violation of the federal False Claims Act.
Defense contractor fraud accounts for approximately 12% of all U.S. government fraud settlements. In order to urge those with information on government fraud to come forward, the government offers whistleblowers who file qui tam lawsuits up to 30% of any amount recovered by the government. Each year, qui tam lawsuits aid in the recovery of millions of taxpayer dollars lost to defense contractor fraud. No whistleblower has been named by the Justice Department for this case.
“The integrity of our procurement systems is required by the American public, who demand that tax dollars are used responsibly,” said Chris Hendrickson, Special Agent in Charge with the Defense Criminal Investigative Service’s Western Field Office. “DCIS and our law enforcement partners are committed to protecting precious resources needed to support our soldiers, sailors, airmen, and Marines.”
U.S. Attorney Talbert: $14.9M Settlement Illustrates Commitment to Protect Fed Procurement Contracting Integrity
According to the settlement agreement, SNC reimbursed the U.S. $1,094,710 through downward adjustments to final G&A rates for fiscal years 2007 and 2008. SNC agreed to pay the United States the remaining $13,794,069 plus accrued interest at the rate of 3% per year for a total settlement sum of $14,888,779.
The settlement agreement is neither an admission of liability by SNC nor a concession by the U.S. that its claims are not well-founded.
“This settlement illustrates our commitment to protect the integrity of federal procurement contracting,” said U.S. Attorney Phillip A. Talbert. “We will hold federal contractors to the highest standards of accuracy to ensure that federal agencies are not overcharged for products and services.”