• Increase font size
  • Default font size
  • Decrease font size
Welcome to Apogee Consulting, Inc.

Working Under an Implied-in-Fact Contract

E-mail Print PDF

Most of the people reading this blog work in the field of government contracting, in one capacity or another. Some of you are finance/accounting folks, some are contracting folks, some are buyers. Some are program managers. Some of you work for the government and some of you work for contractors. But the single thread that unites the majority of readers is that you all work with contracts—government contracts.

Accordingly, you are used to having a contract to deal with. Most of the time, there is a Request for Proposals (RFP) and a proposal in response to that RFP, and then there is a negotiation and award of a contract. An actual written-and-signed-in-blue-or-black-ink contract. There’s even a Uniform Contract Format that is used by the Federal government, just to make sure the standard contract follows a standard structure that the parties both understand.

But what happens if there is no contract?

What happens if there are two parties working together without a written agreement?

Can that even be a thing in government contracting?

Yes. Yes, it can.

It’s certainly not a best practice. Or even a recommended practice. In fact, we strongly advise against working without a written agreement.

We teach the acronym RTFC: “Read the Foolish Contract,” because so few actually do. But if you don’t have a written agreement then there’s nothing to read, so it’s supremely difficult to determine the contracting parties’ mutual rights and responsibilities. For example, how do you bill for services rendered without any sort of billing instructions? How do the parties know when the agreed-upon scope of work has been completed? (How do the parties even confirm what the agreed-upon scope of work actually is?) Working without a written agreement is, to put it mildly, a very poor practice that is likely to end in one or more disputes, and possibly in litigation.

Still, it happens. And it happened to one contractor named Network Documentation & Implementation, Inc. (NDI), who alleged it performed more than $2 million worth of services for the Defense Information Systems Agency (DISA) without a written agreement. Unsurprisingly, the parties found themselves before the Armed Services Board of Contract Appeals (ASBCA), with a dispute under contract number “000000-00-0-0000.”

Before the ASBCA was the government’s motion to dismiss. One of the bases for DISA’s motion to dismiss that that NDI failed to allege the elements of an “implied-in-fact” contract. To be clear, the Board can hear appeals involving implied-in-fact contracts. Because they can exist and are a thing in government contracting.

What are the elements of an “implied-in-fact” contract?

According to Judge Witwer, writing for the Board—

An implied-in-fact contract is ‘founded upon a meeting of the minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding.’ The elements of an implied-in-fact contract are: ‘(1) mutuality of intent; (2) consideration; (3) an unambiguous offer and acceptance; and (4) ‘actual authority’ on the part of the government’s representative to bind the government in contract.’

(Internal citations omitted.)

The dispute involved additional services that NDI alleged were ordered by DISA’s Chief Information Officer for Operations. According to NDI, the CIO—who had negotiated prior contracts with which NDI has been involved and who thus had actual or apparent authority to bind the government—requested the NDI perform additional services under a “separate agreement” from the one in which it was currently operating as a subcontractor. According to the complaint, the CIO represented that DISA would compensate NDI for the additional work “at NDI’s standard hourly rates.”

Right there we have at least two problems.

  1. Was NDI’s prime contractor aware that its customer had requested its subcontractor to provide additional services not associated with the prime contract? Seems awful close to a conflict of interest to us, but obviously we don’t have the subcontract in front of us.

  2. What does the phrase “standard hourly rates” even mean? Was the CIO not aware that many contracts are competed and prices are set by contractors based on competitive pressures? Alternatively, what about negotiations? Has no contractor ever in the history of DISA ever offered lower hourly rates in order to secure the contract award? It seems to us that the DISA CIO would have understood those concepts, because (allegedly) he negotiated the prime contract under which NDI had been a subcontractor. So … what did he mean when he (allegedly) said to NDI that it would be compensated at its “standard hourly rates”?

Also, the use of the phrase “standard hourly rates” implies either a labor-hour or T&M contract. Okay. Not our favorite contract type, but okay. Now … what about travel expenses and other ODCs? Was DISA going to reimburse NDI for those non-labor expenses? If so, at what rates? Could NDI rent a limousine to transport its employees to and from the DISA site, and then bill DISA for the limo? If not, why not? What contract term would prevent it? Remember, there was no written agreement, just an alleged implied-in-fact contract.

No matter, because NDI “submitted a copy of its hourly rates” to DISA, which was allegedly reviewed and accepted.

However, one thing NDI did not do was submit any invoices to DISA as the work progressed. Because how could it? It had no contract to reference, no ACRNs to reference, no billing instructions to reference. There was nothing in DFAS’ payment systems that would let a billing clerk process payment, even if such a payment request somehow made its way to that clerk’s desk. Nope. NDI didn’t bill and the unbilled costs kept mounting up.

According to NDI, DISA promised to pay “in full” when the work had been completed. (As noted above, we wonder how the parties would know when the work had been completed, but let’s assume they would.)

After nearly two years, NDI allegedly completed its work and then submitted an invoice to DISA, an invoice that DISA did not pay.

Another five years passed. No, we don’t know why.

Nearly five years after submitting its invoice for services provided under its alleged implied-in-fact contract, NDI finally got around to filing a claim for $2.036 million. A DISA contracting officer quickly denied the claim and NDI appealed to the ASBCA. DISA moved to dismiss, arguing, among other things, that there was no agreement.

Judge Witwer denied the motion, writing –

To survive a motion to dismiss for failure to state a claim, the complaint must allege facts plausibly suggesting, not merely consistent with, a showing of entitlement to relief. Here, NDI alleges that a government official with implied actual authority represented that DISA would pay NDI’s costs in return for NDI’s provision of the additional artificial intelligence services. In particular, NDI alleges that Mr. Norwood, who had previously negotiated the terms of NDI’s subcontract on the TEIS II contract and who repeatedly authorized the issuance of Common Access Cards to NDI employees, stated that DISA would compensate NDI at its ‘standard hourly rates’ for the additional services. NDI relied on that promise and provided the requested services. The government accepted and benefited from NDI’s performance. These allegations describe the elements of an implied-in-fact contract. Thus, we reject DISA’s argument that the appeal must be dismissed because the complaint does not allege sufficient facts to suggest that an implied-in-fact contract was formed.

Because NDI has satisfied both the jurisdictional claim requirements of the CDA and the minimum pleading requirements for the pursuit of a claim before this Board, we deny the government’s motion to dismiss. Whether a contract was actually formed relates to the merits of the appeal and is not before us at this time

(Internal citations omitted.)

Let’s wrap this up with four last points.

If a contractor chooses to accept direction from a person who is not a government contracting officer, then there should be assurance that the individual providing direction has authority to bind the government.

If a contractor chooses to work without a written agreement, then there should be assurance that it will be paid for its services.

If a contractor chooses to work for years without being paid, then there should be assurances that it will be paid in full as soon as the work is completed.

If a contractor chooses to wait five years before asserting its right to payment via a claim, we think that contractor should not accept any more government contracts. If you aren’t getting paid and you think you are entitled to payment, you should file a claim quickly—certainly within a few months.

 

DCMA and COVID-19

E-mail Print PDF

This is going to be one of those blog posts that gets me into trouble. I could feel it before I sat down and began typing. And yet, I can’t seem to find another way to discuss what may turn out to be the scandal of the COVID-19 pandemic: DCMA’s lack of leadership.

The Defense Contract Management Agency is responsible for administering contracts for the Department of Defense and other authorized federal agencies. In the agency’s own words:

The Defense Contract Management Agency is, first and foremost, a product delivery organization. Our nation’s warfighters expect our defense industry to produce and deliver the equipment they need to fight, survive and win. DCMA’s integrated team of acquisition and support professionals makes this happen.

The Agency provides contract administration services for the Department of Defense, other federal organizations and international partners, and is an essential part of the acquisition process from pre-award to sustainment. Around 12,000 employees, mostly civilians, work at offices and contractor facilities around the world, divided among three continental U.S. commands, one international command and other specialized offices.

Together, the Agency manages 300,000 contracts, valued at more than $7 trillion, at 15,000 contractor locations worldwide. DCMA makes sure DoD, other federal agencies, and partner nation customers get the equipment they need, delivered on time, at projected cost, and meeting all performance requirements.

Every business day, DCMA receives nearly 1,000 new contracts and authorizes more than $700 million in payments to contractors. Most importantly, every day our team delivers more than a million and a half items – from fighter jets to fasteners – to our warfighters.

Right now, our nation’s warfighters need DCMA to help the defense industrial base overcome the myriad challenges posed by the COVID-19 pandemic. The nation’s warfighters need DCMA contracting officers to make critical decisions, decisions whose consequences will impact the thousands of suppliers who deliver to the warfighters more than a million and a half items every day.

And the contracting officers are failing to make those decisions.

They are not making decisions because DCMA leadership hasn’t told them what to do.

Readers may recall that we’ve posted several articles about the Department of Defense’s response to COVID-19. We’ve written about the CARES Act, especially Section 3610, and how that impacts defense contractors. We’ve posted links to DOD guidance about Section 3610. The DOD guidance is very nice but it’s not yet complete. Defense contractors keep waiting for the rest of the guidance to be issued. It’s been promised several times, and each time the promised deadline has been missed.

The final DOD guidance may be available by the time this article is published. But right now, it’s missing in action. What we have is some top-level guidance that—critically—gives discretion to individual contracting officers without giving them any direction. Contracting officers are expected to make decisions in a policy vacuum, knowing that they will be second-guessed and criticized for any “mistakes” they make. As a result, most of them are doing nothing, leaving contractors in limbo—not knowing whether their COVID-19 costs made allowable by CARES Act Section 3610 will be reimbursed.

The situation doesn’t help anybody. It doesn’t help the defense supply chain and it doesn’t help the warfighters. All it does is perpetuate a relatively unfortunate status quo.

We’d like to encourage those DCMA contracting officers to take the initiative, to make bold decisions to implement the rather clear Congressional intent in advance of receiving guidance from Fort Lee. We’d like to do that, but we cannot.

We cannot advise DCMA contracting officers to take bold and decisive action because their recent leadership has an unfortunate history of throwing those same contracting officers under the bus at every opportunity.

This blog has documented several “audit reports” issued by the DOD Inspector General that were critical of DCMA contracting officers.

  • For example: this January, 2020, audit report criticizing DCMA contracting officers for failing to adequately document why they disagreed with DCAA audit findings

  • Or this February, 2019, audit report criticizing DCMA contracting officers for paying a contractor too much profit, even though they followed the FAR and DFARS requirements to the letter

  • Or this November, 2018, audit report, criticizing DCMA contracting officers for daring to negotiate contracts when DCAA said the contractors’ proposals were inadequate

We could go on and on. That wasn’t even two years’ worth of blog posts, and the blog stretches back to 2010. But we believe we’ve made the point. The DOD Office of Inspector General seemingly takes every opportunity to criticize DCMA contracting officers for any decisions whose result the OIG auditors do not like. And what happens then?

Does the Director, DCMA, support their team?

Does the Director, DCMA, defend their contracting officers?

Oh, hell no. The Director, DCMA, either (a) says nothing and lets somebody else agree with the OIG, or (b) agrees with OIG and promises better training, or more clear policies, or an investigation into what went wrong. Even if, technically, nothing did go wrong.

Thus, we cannot fault DCMA contracting officers for taking no action, pending receipt of prescriptive direction from Headquarters. It’s the only way to avoid the almost inevitable criticisms that will be coming from DOD OIG. Criticisms that their leadership will to nothing to mitigate.

So here we are. All of us in the defense industrial base. Waiting for clear DOD guidance, which will (hopefully) translate into clear DCMA guidance that can be implemented at the individual contract level.

Meanwhile, the intelligence agencies have already moved forward briskly with their contractors. The Navy’s SUPSHIPs have already moved forward with their shipbuilding contractors. It’s just the rest of the supply base—the thousands of contractors that deliver, daily, more than a million and a half products to our nation’s warfighters—that are stuck in limbo, waiting for direction and fearing the inevitable Monday-morning quarterbacking from those who have the luxury of not having to make critical decisions.

*****

Where does this lead? We strongly suspect it leads to court.

We believe that, a year or two from now, there is going to be a tsunami of appeals of Contracting Officer Final Decisions. Many contractors have incurred COVID-19 related costs in the belief that their DOD customers will reimburse them. If the contracting officers deny claims for reimbursement, we predict quick appeals. There’s just too much money at stake, and it’s already been going on too long, to change course now and abandon the thought of reimbursement.

Had DCMA been more agile, able to issue guidance more quickly, then perhaps some of the upcoming issues may have been avoided. Unfortunately, such was not the case. And so here we are … and we think we know where we are going.

See you in court.

Last Updated on Monday, 29 June 2020 17:10
 

Suspension is not Debarment

E-mail Print PDF

Suspension and debarment are discussed in FAR Subpart 9.4. Both are very, very serious actions that, when taken, prevent a contractor from receiving future government contract awards. But they are not the same thing.

Suspension is a serious action to be imposed on the basis of adequate evidence, pending the completion of investigation or legal proceedings, when it has been determined that immediate action is necessary to protect the Government’s interest. … Suspension shall be for a temporary period pending the completion of investigation and any ensuing legal proceedings, unless sooner terminated by the suspending official or as provided in this subsection. If legal proceedings are not initiated within 12 months after the date of the suspension notice, the suspension shall be terminated unless an Assistant Attorney General requests its extension, in which case it may be extended for an additional 6 months. In no event may a suspension extend beyond 18 months, unless legal proceedings have been initiated within that period.

While suspension is temporary and should not exceed a period of 18 months (unless legal proceedings have been initiated), a debarment lasts much longer.

Debarment shall be for a period commensurate with the seriousness of the cause(s). Generally, debarment should not exceed 3 years … The debarring official may extend the debarment for an additional period, if that official determines that an extension is necessary to protect the Government’s interest.

Government contractor KST Data, Inc. was suspended by NASA in September, 2015 based on allegations of serious misconduct. The suspension was lifted in November 2015. However, after the suspension was lifted, NASA continued to consider that KST was not a “presently responsible” contractor as that term was defined in FAR Part 9. KST considered that it had been “cleared” of the allegations of wrongdoing.

Before, during, and after the NASA suspension, KST was performing under a “Corporate Award” with Northrop Grumman. The Corporate Award was not a government contract or subcontract; instead, it was a contract to fulfill Northrop’s internal needs for IT equipment such as computers and related products. KST had performed under that Corporate Award since 2010, and had met its responsibilities. One of those responsibilities was to maintain, at all times, “inventory equal to the amount of products in Northrop’s quarterly forecast, plus an additional 25%.” In other words, KST received a quarterly forecast from Northrop and had to have on hand the required amount of inventory to fulfill Northrop’s needs.

Even though the Corporate Award expressly prohibited KST from subcontracting with other firms to meet the needs of the Award without Northrop’s consent, KST entered into a supplier agreement with Synnex, who actually held the inventory until KST called for it, which would happen when Northrop issued an order to KST.

Anyway, KST was performing its duties under the Corporate Award and by all accounts Northrop was satisfied with KST’s performance.

And then KST was suspended.

KST notified Northrop of its suspension. It was clear that the suspension applied only to government procurement contracts, and was not applicable to the Corporate Award between KST and Northrop. However, upon learning of the suspension, Northrop entered KST into an internal tracking system, which prohibited all of Northrop’s operating elements from purchasing any products from KST under the Corporate Award (or any other contract).

The Corporate Award had termination provisions, but Northrop did not exercise them. It was doubtful that the suspension was sufficient to justify a termination in any case, if only because the suspension did not apply to the Corporate Award. Instead, soon after learning about the suspension, Northrop decided to “pause” placing orders under the Corporate Award pending resolution of KST’s Suspension. As a result of its decision, by October, 2015, Northrop had made a “final decision” to stop purchasing from KST (pending resolution of the suspension) but did not inform KST of that fact. At that time, Northrop decided to solicit a bid from another supplier for all of the units of computer equipment Northrop needed from its latest forecasts to KST. Not only did Northrop did not inform KST of that fact, but instead continued to tell KST that it would resume purchasing once the suspension had been resolved.

Northrop continued is “pause” until the Corporate Award expired in 2016, leaving KST Data with unsold inventory it had acquired (or contracted to acquire) pursuant to the last quarterly forecast it had received from Northrop Grumman.

KST Data sued Northrop Grumman for breach of contract.

In the Central District of California, Judge Fitzgerald found for KST Data. Judge Fitzgerald wrote—

Quite simply, the Corporate Award did not expressly cover KST’s legal situation in the Fall of 2015 – where KST does not violate the law, but was under investigation for doing so, such that Northrop did not want to continue doing business with KST. Northrop may have wished, in hindsight, that such a situation would allow it to terminate the Corporate Award for cause, but that is not how the Corporate Award was written. Instead, the Corporate Award designated several scenarios (none of which apply here) when the Corporate Award could be terminated for cause, otherwise the Corporate Award had to be terminated for convenience, which subjected Northrop to Section 6.4’s requirement of purchasing up to 4,500 units it forecasted. Northrop cleverly tried to avoid the requirements of Section 6.4 by arguing that there never was a termination, just a “pause.” Of course, this argument would read Section 6.4 entirely out of the contract. Under this reading, Northrop would always choose to “pause” the Corporate Award and avoid paying KST for the forecasted units at any time and for any reason, and such a reading is not plausible in light of the extensive negotiation regarding Section 6.4 specifically, and Section 6.4’s importance to KST. And despite Northrop’s arguments that it intended to order from KST as soon as the Suspension was lifted, its actions suggest otherwise.

Judge Fitzgerald found for KST Data and awarded the company $3.6 million in damages. We do not know whether Northrop plans to appeal the decision.

This story is interesting in several ways.

First, notice how Northrop’s purchasing system was not set up to clearly distinguish between its government subcontracts/purchases and its corporate agreements. Had the system been more robust, Northrop could have excluded KST from any government-funded purchases while continuing to use corporate funds. (Yes, you could argue that Northrop’s indirect purchases were funded with government funds, but that’s not how privity works.)

Second, notice how a government suspension became a de facto debarment in Northrop’s system. NASA suspended KST while an investigation was being conducted, but Northrop decided to take it a step further and effectively debar KST. We don’t know the rationale for that decision because it was covered by attorney-client privilege. (Which tells us that legal counsel was involved in that decision.) Under oath, Northrop employees mentioned concerns about "reputational risk." Hey Northop, how's your reputation now?

Third, notice how Northrop “cleverly” got around the financial implications of terminating the Corporate Award with KST by simply deciding to stop ordering—while telling KST that future orders were just around the corner. In essence, Northrop executed a constructive termination for convenience but didn’t want to admit it had done so. Nor did it want to pay the price for having done so.

Based on the facts related in the case, we think Judge Fitzgerald got this one right.

Last Updated on Monday, 22 June 2020 16:07
 

Ethics in Steel Production

E-mail Print PDF

In 2008—which let us note is 12 years ago—a company called Bradken acquired a foundry in Tacoma, Washington. Bradken, described as a “foundry holding company” is a wholly owned subsidiary of Bradken Ltd., a company based in Newcastle, Australia. Bradken Ltd. is in turn a wholly owned subsidiary of Hitachi Construction Machinery.

This subsidiary of a subsidiary is reportedly “the U.S. Navy’s leading supplier of high-yield steel for naval submarines. Bradken’s Tacoma foundry produces castings that prime contractors use to fabricate submarine hulls.” Right. Made in America; owned by Japan. Not dramatically different than Honda, which makes its cars in Ohio; and not dramatically different than BMW, which makes its cars in South Carolina. In other words, the fact that the Navy’s leading supplier of submarine hull steel is owned by a foreign company is not considered to be an issue.

What is considered to be an issue is the fact that Bradken allegedly produced castings that had failed lab tests and did not meet the Navy’s standards for 30 years. In other words, the Tacoma foundry allegedly1 had been falsifying test records and shipping defective steel to Navy prime contractors for nearly two decades before the acquisition by Bradken and for more than a decade after the acquisition.

As one might guess, the U.S. Government wasn’t pleased when it found out about the situation, and initiated proceedings under the civil False Claims Act. Bradken was on the hook for a really big dollar value, as perhaps it should have been. In addition, the government initiated criminal proceedings against the company, charging Bradken with Major Fraud Against the United States.

That’s not good.

With respect to the civil False Claims Act allegations, the government alleged that—

… some of the castings Bradken produced did not conform to the Navy’s specifications. In addition to the allegations concerning the altered test results, the United States contended that Bradken invoiced shipbuilders for the parts as if they were made to the demanding military specification when they were not, causing the shipbuilders to invoice the Navy for parts that did not meet specifications.

Bradken was able to reach a settlement with the Department of Justice that addressed the civil False Claims Act allegations. The settlement was announced here. The settlement cost the company $10.8 million. As part of the settlement, the government agreed to give Bradken a deferred prosecution agreement with respect to the criminal charges. So that part of the case was resolved.

But how did this alleged fraud get perpetrated for 30 years?

According to the Department of Justice, “Elaine Thomas, as Director of Metallurgy, falsified test results to hide the fact that the steel had failed the tests. Thomas falsified results for over 200 productions of steel, which represent a substantial percentage of the castings Bradken produced for the Navy.” Allegedly, Ms. Thomas altered “test cards” and other records that would have shown the steel did not meet specifications. According to the Department of Justice, Bradken’s management was unaware of the actions of its Director of Metallurgy until 2017, when “a lab employee discovered that test cards had been altered and that other discrepancies existed in Bradken’s records.” At that point, Bradken notified the Navy—as it was required to do under contract clause 52.203-13 (“Contractor Code of Business Ethics and Conduct”). However, in its disclosure the company “made misleading statements suggesting that the discrepancies were not the result of fraud.” As part of its deferred prosecution agreement, Bradken admitted that “these misleading statements hindered the Navy’s investigation and its efforts to remediate the risks presented by Bradken’s fraud.”

The deferred prosecution agreement required Bradken to make significant changes to its operations. Bradken was required to:

  • Make changes to the Tacoma foundry management team

  • Create new positions focused on lab testing oversight and tracking

  • Enter into a compliance agreement with the Navy

  • Create an audit and risk committee to oversee the compliance issues

  • Implement a new lab information system with anti-fraud controls

Bradken also agreed to publish a detailed account of its missteps in the Casteel Reporter, a trade publication, to educate other government contractors.

If Bradken successfully implements the above steps, then the government will dismiss the criminal charges against the company after three years.

In the words of the U.S. Attorney:

The Navy has taken extensive steps to ensure the safe operation of the affected submarines. Those measures will result in increased costs and maintenance. Our agreement with the company is aimed at ensuring they improve their procedures and inform their peer companies about how their systems failed to detect the fraud. We hope such steps will improve the military procurement system.

What about Ms. Thomas?

First, she is now described as a “former employee” of Bradken. But that’s not her real problem. She is still facing criminal charges. She has been charged with Major Fraud against the United States. Major Fraud against the United States is a criminal charge under Title 18 of the United States Code. Ms. Thomas will make her initial appearance in federal court in Tacoma on June 30, 2020. If convicted, she is facing up to 10 years in prison (per count) and a fine of up to $10 million.

1 Note that Bradken admitted to the allegations as part of its civil settlement and DPA with the government. On the other hand, the individual involved is still facing criminal charges. We acknowledge that, with respect to the upcoming criminal proceedings, those accused are presumed innocent until proven guilty.

 

Expensive Wire Fraud

E-mail Print PDF

It seems as if this is public contracting corruption week. Here’s another story, made remarkable by the sheer size of the legal settlement. The DOJ press release is here.

One sentence summarizes the situation:

SK Engineering & Construction Co. Ltd. (SK), one of the largest engineering firms in the Republic of Korea, pleaded guilty today to one count of wire fraud, in connection with a fraudulent scheme to obtain U.S. Army contracts through payments to a U.S. Department of Defense contracting official and the submission of false claims to the U.S. government.

Well there you go.

  • “Payments” to a DOD contracting official. (Read: bribes.)

  • Submission of false claims

  • Wire fraud

And SK pleaded guilty to one count of wire fraud, thus avoiding the messiness of other charges. Nice job, attorneys!

But SK didn’t skate away. The company agreed to:

  • Pay $60,578,847.08 in criminal fines, the largest fine ever imposed against a criminal defendant in the Western District of Tennessee

  • Pay $2,601,883.86 in restitution to the U.S. Army

  • Serve three years of probation, during which time SK agreed not to pursue U.S. federal government contracts

  • Separately, SK entered into a False Claims Act settlement with the United States, under which it paid $5.2 million in civil penalties (which the DOJ graciously credited against SK’s criminal fine)

So yeah, it was a bit painful for the company.

What’s the story behind the fines and penalties?

According to plea documents, SK obtained a large U.S. Army construction contract at Camp Humphreys, South Korea in 2008 worth hundreds of millions of dollars. SK paid millions of dollars to a fake Korean construction company named S&Teoul, which subsequently paid that money to a contracting official with the U.S. Army Corps of Engineers. In order to cover approximately $2.6 million in payments to S&Teoul, and ultimately to the contracting official, SK submitted false documents to the U.S. Army.

SK also admitted that its employees obstructed and attempted to obstruct federal criminal investigations of the fraud and bribery scheme. SK admitted that, in April 2015, its employees burned large numbers of documents related to U.S. Army contracts, in order to hamper U.S. and Korean investigators. Further, SK admitted that, in the fall of 2017, its employees obstructed a federal criminal proceeding by attempting to persuade an individual not to cooperate with U.S. authorities.

Readers may recall the prior blog post, about AIS and its relatively favorable resolution with the DOJ. As noted in that article, the DOJ was favorably disposed towards AIS because of its cooperation and willingness to implement corrective actions to reduce the likelihood that similar misconduct would recur. In contrast to its discussion of AIS’s conduct, here the DOJ noted that

… SK frustrated the United States’ investigation by withholding requested documents and information, destroying documents relevant to a pending federal investigation, and attempting to persuade a potential witness not to cooperate with the investigation. In addition, SK did not discipline any employees responsible for the misconduct, either through direct participation or failure in oversight, or those with supervisory authority over the area in which the criminal activity occurred, and failed to retain business records and otherwise failed to prohibit the improper destruction and deletion of business records.

Thus, while AIS paid a total of $1.26 million and received a Non-Prosecution Agreement, SK will pay $62.6 million and will be barred from the Federal marketplace for three years (in addition to the three years that the company has already been suspended). Learn from those differences!

What about the individuals involved?

According to the DOJ, “two SK employees, Hyeong-won Lee and Dong-Guel Lee, were indicted by a federal grand jury in the Western District of Tennessee on charges of conspiracy, major fraud against the United States, wire fraud, money laundering conspiracy, and obstruction of justice for their alleged roles in the scheme.”

The two individuals named above “are currently fugitives of justice.”

 

Who's Online

We have 68 guests online

Newsflash

Effective January 1, 2019, Nick Sanders has been named as Editor of two reference books published by LexisNexis. The first book is Matthew Bender’s Accounting for Government Contracts: The Federal Acquisition Regulation. The second book is Matthew Bender’s Accounting for Government Contracts: The Cost Accounting Standards. Nick replaces Darrell Oyer, who has edited those books for many years.