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Defense Contractor Hit with Ginormous Fraud Judgment

F-16

United Technologies Corporation was accused of overbilling the U.S. Air Force for engines for F-16s like these stationed in South Korea.

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An Ohio federal court this week ordered contractor United Technologies Corporation (UTC) to pay the government hundreds of millions of dollars in damages in a 14-year-old False Claims Act lawsuit.

In March 1999, the Department of Justice filed a lawsuit accusing UTC’s Pratt & Whitney division of overbilling the U.S. Air Force for F-15 and F-16 jet engines. The government alleged that Pratt knowingly inflated and falsely certified its estimated costs for engine parts between 1985 and 1991. Over those years, the Air Force paid Pratt more than $3 billion for the engines.

The case was heard by the U.S. District Court in Dayton, Ohio, in a bench trial lasting from October 2004 until April 2005. Three years later, the court issued its ruling, finding that Pratt had defrauded the Air Force, causing it to overpay by $228 million. However, the court awarded the government only $7 million in damages. Both sides appealed.

In November 2010, the U.S. Court of Appeals for the Sixth Circuit affirmed the fraud determination but remanded the case, ordering the District Court to reconsider damages. The District Court did as the Sixth Circuit instructed, and on Monday it issued its decision: UTC now owes the federal government $473 million, plus millions more in interest accruing since the 1980s (see page 16 of the ruling for a breakdown of the damages). Using an online interest calculator, I determined that UTC could be on the hook for approximately $963 million. We’ll find out the exact amount when the Court enters the final judgment on July 1.

That said, it could be a while before Uncle Sam sees a single penny of damages. A UTC spokesman told the Project On Government Oversight that the company strongly disagrees with the decision and will file an appeal.

UTC was the sixth largest federal contractor in fiscal year 2012. Most of its $8.3 billion in contracts (see fiscal year 2012 spreadsheet under “Top 100 Contractors Report”) that year were with the Pentagon. POGO’s Federal Contractor Misconduct Database shows UTC has 17 resolved misconduct instances and $931.8 million in misconduct penalties since 1995. Its most recent high-profile misconduct incident occurred last year when UTC and two of its subsidiaries, including Pratt & Whitney Canada (PWC), paid more than $75 million to settle charges of illegally exporting military software to China. PWC also pleaded guilty to violating export law and making false statements.

Image from the Department of Defense.

By: Neil Gordon
Investigator, POGO

Neil Gordon, Investigator Neil Gordon is an investigator for the Project On Government Oversight. Neil investigates and maintains POGO's Federal Contractor Misconduct Database.

Topics: Contract Oversight

Related Content: Contractor Accountability, F-16, Federal Contractor Misconduct, Wasteful Defense Spending

Authors: Neil Gordon

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