Boeing’s drone unit to pay in fraud suit; tipster to get $4.6M
SEATTLE — Boeing’s drone subsidiary, Insitu, will pay $25 million to settle a federal lawsuit accusing it of fraudulently overcharging the government on no-bid military contracts by billing for new parts but using recycled ones.
The whistleblower who lodged the original case, D.R. O’Hara, who was fired by Boeing, will get $4.6 million as a share of that penalty for uncovering the fraud. Insitu also will have to pay O’Hara’s legal expenses.
The Department of Justice accused Insitu of “knowingly submitting materially false cost and pricing data” for contracts to supply surveillance drones to both the U.S. Special Operations Command and the Navy, according to a statement Tuesday.
Insitu does not admit any wrongdoing, and said in a statement that “our disclosures to the government at the time satisfied all requirements.”
The Justice Department alleged that between 2009 and 2017, Insitu entered into five noncompetitively bid contracts with the Navy and two contracts with Special Operations Command for drones at deliberately inflated prices using cost and pricing data for new parts and materials, while planning all along to use recycled parts.
“Taxpayers deserve to get what they paid for,” said U.S. Attorney for Western Washington Brian Moran. “Cases such as this one should be seen as a warning to defense contractors that false claims have no place in military purchasing.”
Bryan Denny, special agent in charge of the Defense Department’s Criminal Investigative Service, Western Field Office, said the litigation is an “example of our agents and law enforcement partners working together to uncover fraudulent activity and protect taxpayers’ dollars entrusted to the [Defense Department].”
The Justice Department took over investigation of the case after O’Hara filed an initial complaint in 2015 under the federal False Claims Act, which allows whistleblowers to initiate cases against parties who have defrauded the U.S. government.
Boeing acquired dronemaker Insitu in 2008 but has allowed it to operate as an independent subsidiary to preserve its innovative and agile culture.
In 2011, Boeing sent O’Hara, then a 37-year veteran of the company, to Insitu headquarters in Bingen, Wash., as director of estimating, pricing and procurement to help manage the complex compliance processes for government contracts.
According to the court filing, O’Hara was stymied as he tried to uncover pricing and other data needed to validate contracts, and when he pushed for answers his managers grew obstructive and hostile.
In fall 2014, he filed a complaint to the Boeing Ethics hotline, expressing his concern about Insitu’s deficient accounting practices.
Though the complaint should have been a protected communication, the hotline sent an email to Insitu’s human-resources department identifying him, he said.
“Within a few weeks, I was terminated,” O’Hara said Tuesday in a phone interview from his home just outside Bingen. “They made up some stuff, slanderous charges that had no basis in fact.”