To understand why a contractor might charge costs from one contract to another, it is important to understand the kinds of government contracts that a contractor might have. Generally speaking, the government awards “fixed price” contracts and “cost-plus” contracts. Large contracts may be hybrids of these. In the fixed price contract, the government contractor receives a set price for goods and services no matter what the contractor’s ultimate cost of the goods or services. In a “cost-plus” contract, the government contractor is paid a set amount by the government, plus a negotiated percentage for actual costs as profit. Many defense contractors will have numerous contracts open with the government at any given time. Some of these may be fixed price contracts, others may be cost-plus contracts. Cross-charging may occur if the government contractor charges time and materials it spends working on a “fixed-price” contract to a “cost-plus” contract. In this kind of fraud, the government is harmed in both contracts because it did not get the fixed price it bargained for in one, and it got additional, unauthorized charges in the other.
Many defense contractors may also perform government contracts alongside contracts for private entities. When this happens there may be an incentive to shift more costs to the government contract, and away from private commercial contracts, to maximize the potential profits on each contract. Some costs are obviously allocated to one contract or the other. For example, the time spent by an employee designing and producing a propeller for a navy ship is properly charged to the government. However, overhead charges or shared expense for all the contractor’s contracts must be reasonably divided and apportioned amongst the respective contracts. Government contractors that intentionally shift a disproportionate share of those kinds of costs to the government by cross-charging from a private contract deprive the government of the benefit of its bargain and may be violating the False Claims Act.

If you believe someone has engaged in one of these kinds of schemes – or some other scheme to commit a fraud on the government, and you would like to learn more about or would like to bring a whistleblower lawsuit, the qui tam lawyers at Keller Grover LLP can help you. These whistleblower lawyers understand qui tam litigation, including the whistleblower protection provisions, and strive to achieve the best possible results for their clients.