Pentagon has paid US$1 trillion to fraudulent defence contractors – report

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Over the past decade fraudulent defence contracts have received more than US$1.1 trillion worth of contracts from the Pentagon, according to a US Department of Defence report.

US Senator Bernie Sanders, whom the report was prepared for, described it as “shocking.” He said aggressive steps must be taken to ensure taxpayer dollars aren’t wasted. “The ugly truth is that virtually all of the major defense contractors in this country for years have been engaged in systemic fraudulent behavior, while receiving hundreds of billions of dollars of taxpayer money,” said Sanders. “With the country running a nearly US$15 trillion national debt, my goal is to provide as much transparency as possible about what is happening with taxpayer money.”

The report detailed how the Pentagon paid US$573.7 billion during the past 10 years to more than 300 contractors involved in civil fraud cases that resulted in judgments of more than US$1 million, US$398 billion of which was awarded after settlement or judgment for fraud.

When awards to “parent” companies are counted, the Pentagon paid more than US$1.1 trillion during the past 10 years just to the 37 top companies engaged in fraud.

Another US$255 million went to 54 contractors convicted of criminal fraud in the same period. Of that total, US$33 million was paid to companies after they were convicted of crimes.

Some of the United States’ biggest defense contractors were involved.

For example, Lockheed Martin in 2008 paid US$10.5 million to settle charges that it defrauded the government by submitting false invoices on a multi-billion dollar contract connected to the Titan IV space launch vehicle program. That didn’t seem to sour the relationship between Lockheed and the Defense Department, which gave Lockheed US$30.2 billion in contracts in fiscal year 2009, more than ever before, Sanders stated.

In another case, Northrop Grumman paid US$62 million in 2005 to settle charges that it “engaged in a fraud scheme by routinely submitting false contract proposals,” and “concealed basic problems in its handling of inventory, scrap and attrition.” Despite the serious charges of pervasive and repeated fraud, Northrop Grumman received US$12.9 billion in contracts the next year, 16 percent more than the year before.

A Sanders provision in a defense spending bill required the report and directed the Department of Defense to recommend ways to punish fraudulent contractors. The Pentagon said sanctions already are in place. “It is not clear, however, that these remedies are sufficient … to deter and punish fraud when it is detected.” That tone was different than what the Pentagon said in a preliminary report last January, which declared that “the department believes that existing remedies with respect to contractor wrongdoing are sufficient.”

Said Sanders: “It is clear that DOD’s current approach is not working and we need far more vigorous enforcement to protect taxpayers from massive fraud.”

Under another Sanders provision in a separate law, a government-wide federal contractor fraud database was opened to the public earlier this year. Access to the Federal Awardee Performance and Integrity Information System had been limited to federal acquisition officials and certain members of Congress. The DOD promises to ramp up monitoring of this database to ensure its contractors’ fraudulent actions are accurately and fully disclosed.

Over the past ten years, DOD awarded US$254,564,581 to companies that were convicted of a crime in connection with a DOD contract during that same period of time. DOD awarded US$33,079,743 of that to convicted companies after they had been convicted.

Over the past ten years, DOD awarded US$573,693,095,938 to companies that were found liable or settle charges of a civil wrong in connection with a DOD contract during that same period of time. DOD awarded US$398,081,775,397 of that to those companies after they settled the charges or were found liable.
“The numbers become increasingly shocking if you look at company affiliations,” Sanders said. Over the past ten years, DOD awarded US$1,104,423,438,564.10 to entities affiliated with companies that have a history of fraud.

The report references many examples of fraud, but here are some examples involving the largest contractors.

Lockheed Martin Corp., the largest defense contractor, paid at least the following amounts for defrauding the Pentagon over the last ten years:
– US$4.25 million in 2000
– US$6.2 million in 2002
– US$37.9 million in 2003 (to resolve allegations that it fraudulently inflated the cost of performing several Air Force contracts)
– US$12.6 million in 2006

This is a total of US$60.95 million in fraud judgments and settlements.

The Boeing Company, the next largest contractor, paid at least the following amounts for defrauding the Pentagon over the last ten years:
– US$54 million in 2000 (to settle charges that it placed defective gears in more than one hundred and forty Army helicopters)
– US$651,663 in 2003
– US$565 million in 2006
– US$25 million in 2009

This is a total of US$644.65 million in fraud judgments and settlements.

Despite this, we continued to work with Boeing and awarded the company more than US$21 billion in taxpayer funded contracts in the last decade.

In 2000, the Boeing Company agreed to pay US$54 million to settle charges that it placed defective gears in more than one hundred and forty CH-47D “Chinook” helicopters and then sold these defective helicopters to the United States Army. When one of the gears failed in flight, it caused a helicopter to crash and burn while on a mission in Honduras, and five servicemen aboard were killed. Again, this fraud and the resulting tragedy do not seem to have affected Boeing’s ability to secure DOD contracts. In FY01, the following year, Boeing received US$13.7 billion in DOD contracts, up 27% from the year before, Sanders notes.

Northrop Grumman Corp., the third largest defense contractor, paid at least the following amounts for defrauding the Pentagon over the last ten years:
– US$5.3 million in 2000
– US$17.8 million in 2003
– US$62 million in 2005
– US$325 million in 2009

This is a total of US$410 million in fraud judgments and settlements.

Northrop Grumman has been awarded more than US$9 billion in taxpayer funded contracts in the last decade.