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DOJ CATCH OF THE WEEK — Sikorsky/Derco Aerospace

Posted  June 28, 2024

This Department of Justice (DOJ) Catch of the Week goes to Lockheed Martin subsidiaries Sikorsky Support Services and Derco Aerospace. On June 21, DOJ announced the two defense contractors agreed to pay $70 million to resolve charges they violated the False Claims Act by overcharging the Navy for spare parts and materials for the primary aircraft used to train naval aviators. 

According to the government, Sikorsky and Derco entered a subcontract under which Sikorsky purchased parts from Derco at the cost Derco paid other suppliers for those parts plus a fixed 32% markup. Sikorsky then billed the Navy for the amounts it paid Derco. The government charged the companies with violating the False Claims Act by failing to disclose this type of cost-plus-percentage-of-cost (CPPC) subcontract between the affiliated companies. The district court also ruled that Derko’s 32% markup violated a federal statute which bars this kind of CPPC contracting because it gives suppliers incentive to drive up government costs.  

The False Claims Act was enacted during the Civil War to go after this very type of fraud. Then, it was targeted against war profiteers trying to defraud the Union Army by selling lame mules and empty munitions. In the more than 150 years since, it has become the government’s primary fraud-fighting tool which continues to address government contracting fraud along with healthcare fraud, financial fraud, and every other type of fraud directed towards the government fisc. 

In announcing the settlement, the government stressed its commitment to continue using the False Claims Act to go after government contracting fraud. DOJ Civil Chief Brian Boynton said “today’s settlement demonstrates that the Justice Department will ensure that government contractors do not skirt the law and engage in self-dealing that may artificially inflate their charges at the expense of the American taxpayers.” And Defense Department OIG Special Agent Darrin Jones added that the settlement “should serve as a strong deterrent for those who seek to exploit the Department of Defense’s procurement process.” 

Like most False Claims Act cases, this one was initiated by a whistleblower under the qui tam provisions of the False Claims Act which authorize private parties to bring these cases on the government’s behalf. In return, these whistleblowers can share up to 30% of the government’s recovery. The whistleblower here was former Derco employee Mary Patzer, who will receive a yet-to-be-determined whistleblower award from the settlement amount. 

If you would like to learn more about the False Claims Act and what it means to be a whistleblower, please don’t hesitate to contact us and we will connect you with an experienced member of our whistleblower team.