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Former CEO of “Flagrant 5” Firm Pleads Guilty to Fraud

The Department of Justice announced last week that Derish Wolff, former CEO of international construction and engineering firm Louis Berger Group, pleaded guilty to conspiring to defraud the U.S. Agency for International Development (USAID) on reconstruction contracts. Wolff, who was also charged with several counts of making false claims, will face sentencing in March 2015. He faces a maximum of 10 years in prison and a fine of at least $250,000; according to the terms of his plea agreement, the government will seek 12 months’ home detention and a $4.5 million fine.

Wolff admitted that, from 1990 to 2009, he defrauded USAID of tens of millions of dollars by directing employees to bill the agency for overhead and other indirect costs at falsely inflated rates and for work they never performed. In November 2010, two other former Louis Berger Group executives involved in the fraud scheme pleaded guilty as well, and the company paid the government more than $69 million in civil and criminal fines. Incredibly, despite having been tipped off to the overbilling scheme by a whistleblower back in July 2006, USAID continued awarding Louis Berger Group billions of dollars in contracts.

We blogged back in April that Louis Berger Group was awarded a sizable share of the $13.3 billion that USAID obligated for Afghanistan’s reconstruction from 2001 to 2013. We also noted the company won infamy as one of the “Flagrant Five”—five major reconstruction contractors former Wartime Contracting Commissioner Charles Tiefer singled out for their poor performance and checkered legal histories (the other four are KBRAgilityTamimi Global Company, and First Kuwaiti Trading & Contracting).

The fraud Wolff and others at Louis Berger Group committed occurred on cost-plus contracts, which are a risky contract type. The Congressional Research Service explains why:

In costs-plus contracts, contractor’s fees rise with contract costs. Increased costs means [sic] increased fees to the contractor. There is no incentive for the contractor to limit the government’s costs.

The most notorious cost-plus contract is the U.S. Army’s Logistics Civil Augmentation Program (LOGCAP) III support services contract, awarded to KBR in 2001. As with Louis Berger Group’s contracts with USAID, KBR faces multiple allegations of billing fraud on the LOGCAP III. It was even alleged that KBR’s motto in Iraq was "Don’t worry about price. It’s cost-plus."

Cost-plus contracts have long been criticized by government watchdogs like the Project On Government Oversight and waste-conscious lawmakers. Most recently, incoming Senate Armed Services Committee Chairman John McCain (R-AZ) bluntly stated that these contracts are “disgraceful” and should be banned.

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, Risky Contract Vehicles, Iraq & Afghanistan Reconstruction Contracts, Federal Contractor Misconduct

Authors: Neil Gordon

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