Fraudulent Defense Contractors Paid $1 Trillion
(Source: US Senator Bernie Sanders; issued Oct. 20, 2011)
Hundreds of defense contractors that defrauded the U.S. military received more than $1.1 trillion in Pentagon contracts during the past decade, according to a Department of Defense report prepared for Sen. Bernie Sanders. He called the report "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 $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 $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 $1 million, $398 billion of which was awarded after settlement or judgment for fraud.

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

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

Some of the nation's biggest defense contractors were involved.

For example, Lockheed Martin in 2008 paid $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 $30.2 billion in contracts in fiscal year 2009, more than ever before.

In another case, Northrop Grumman paid $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 $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.


Background

In this country, our national debt is almost $15 trillion, and we are consistently running deficits of over $1 trillion. Our Republican friends want to solve this problem by cutting programs that the most vulnerable in our society rely on, like Medicaid, Medicare, and Social Security. The fact of the matter, however, is that we will never get our debt under control without looking at the Department of Defense. Since 1997, our defense budget, including the wars in Iraq and Afghanistan has tripled from $254 billion to over $700 billion.

We've seen time and time again that much of this money is handed out to contractors that do not spend it efficiently and, in some cases, steal it. Why?

Part of the reason is that DOD awards more contracts than it has the capacity to oversee, and, as a result, it is unable to effectively manage its contractors.

The other part of the reason is that DOD is not careful about which companies it awards contracts to begin with.

The overall number from today's report: $1.1 trillion

As to the second point, I had DOD look at the amount of money it awards to contractors with a well-documented history of fraud. Specifically, I had DOD report on the amount it awards to companies that have been convicted, found liable of, or settled charges of fraud against DOD at some point in the last ten years.

Since 2001, DOD has awarded almost $1.1 trillion billion to these companies and their affiliates. To me, this is shocking. Once a company has ripped off DOD, and been caught for it, why would DOD then go back to that company with more taxpayer money?

Breakdown of the numbers

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

Over the past ten years, DOD awarded $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. To make matters worse, DOD awarded $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. Over the past ten years, DOD awarded $1,104,423,438,564.10 to entities affiliated with companies that have a history of fraud.

Examples: 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:
- $4.25 million in 2000
- $6.2 million in 2002
- $37.9 million in 2003 (to resolve allegations that it fraudulently inflated the cost of performing several Air Force contracts)
- $12.6 million in 2006
This is a total of $60.95 million in fraud judgments and settlements.

Despite this, we continued to work with Lockheed Martin and awarded the company more than $200 billion in taxpayer funded contracts in the last decade.

In 2008, Lockheed Martin paid $10.5 million to settle charges that it defrauded the government by submitting false invoices for payment on a multi-billion dollar contract connected to the Titan IV space launch vehicle program. But this didn't seem to sour any relationship between Lockheed and the Defense Department. The next fiscal year, in FY09, Lockheed received $30.2 billion in DOD contracts-more than it had ever received before.

The Boeing Company, the next largest contractor, paid at least the following amounts for defrauding the Pentagon over the last ten years:
- $54 million in 2000 (to settle charges that it placed defective gears in more than one hundred and forty Army helicopters)
- $651,663 in 2003
- $565 million in 2006
- $25 million in 2009
This is a total of $644.65 million in fraud judgments and settlements.

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

In 2000, the Boeing Company agreed to pay $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 $13.7 billion in DOD contracts, up 27% from the year before.

Northrop Grumman Corp., the third largest defense contractor, paid at least the following amounts for defrauding the Pentagon over the last ten years:
- $5.3 million in 2000
- $17.8 million in 2003
- $62 million in 2005
- $325 million in 2009
This is a total of $410 million in fraud judgments and settlements.

Despite this, we continued to work with Northrop Grumman and awarded the company more than $9 billion in taxpayer funded contracts in the last decade.

In 2005, Northrop Grumman paid $62 million 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 $12.7 billion in contracts the next year, a 16% increase over the year before.

DOD's response

DOD was also required to report on how it would improve the situation. The Pentagon said that although sanctions already are in place, "it is not clear . . . 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."


Click here for the full report (21 pages in PDF format) on Sen. Sanders’ website.


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