COMMENTARY

Peter Burgess

Fraudulent Defense Contractors Paid $1 Trillion

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.

Read the Pentagon report » PDF format

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Read a summary of the report on contracting fraud »