Whistle-blower settles lawsuit

Centennial aerospace company allegedly defrauded government out of at least $90M.

A whistle-blower has settled a lawsuit filed against a Centennial aerospace company formed by Lockheed Martin and The Boeing Company that claimed the company defrauded the U.S. government out of at least $90 million by grossly overcharging for employee work hours.

Whistle-blower Joseph Scott filed the lawsuit on behalf of himself and the government against United Launch Alliance and United Launch Services, under the Federal Civil False Claims Act. Scott is a former ULA employee.

Under the terms of the settlement, ULA agreed to pay $432,826, of which Scott was to receive $82,237. The settlement says that ULA does not acknowledge wrongdoing.

“United Launch Alliance cooperated fully with the government to resolve this matter in its entirety and we remain committed to providing launch services for the nation’s most critical national security missions with an unwavering dedication to our customers and the highest ethical standards,” ULA spokeswoman Jessica Rye said in a statement.

The U.S. government contended that ULA excessively billed government agencies for labor costs, the settlement agreement says.

In accordance with the false claims act, Denver attorney Michael Gates filed the lawsuit under seal on Feb. 11, 2016. The lawsuit was unsealed Dec. 28 when Scott and ULA reached a settlement agreement.

Scott sought damages three times the actual fraud on government’s behalf. He also sought the maximum reward under the false claims act and double his lost wages after ULA fired him.

This wasn’t the first time ULA practices have come under scrutiny.

In December 2016, ULA paid the government $100,000 to settle allegations that a subcontractor paid its employees kickbacks in order to win contracts. As a result, the U.S. paid higher costs to subcontractor Apriori Technologies between 2011 and 2015, U.S. Attorney Robert Troyer has previously said.

Lockheed Martin and Boeing created ULA in a joint venture to bid on rocket launching projects with NASA, the U.S. Department of Defense and the U.S. Air Force. The company launches weather, telecommunications and national security satellites into space. It has delivered more than 95 satellites into orbit, the lawsuit says.

As ULA’s former senior cash manager, Scott managed the company’s treasury of about $1 billion in cash. In 2009, he transferred to

ULA’s “estimating group,” overseeing 25 employees. The group submitted cost proposals for government and private projects. Scott ensured the bids met federal pricing laws.

Unlike the commercial marketplace where prices of goods and services are determined by market forces including competition, sellers in the aerospace industry face little or no competition and contract pricing is based largely on a contractor’s estimated costs, the lawsuit says.

ULA charged the government tens of millions of dollars for work that was never performed and inflated the estimated labor hours including the time required to buy parts and materials from vendors, the lawsuit says.

ULA retaliated against Scott by forcing him out of the company after he revealed the alleged illegal activities. ULA officials placed a camera above his desk, monitored and questioned his cellphone and computer use, and suggested he violated the law or engaged in improper bidding practices himself, the lawsuit says.

ULA used a system called the Keith Crohn model that creates a grid using the cost of equipment to reach an employee cost. A labor value was placed on the grid for every item ordered through the company’s purchasing department.

For example, any item that cost between $1 and $1,000 would be assigned a labor value of eight hours. It didn’t matter what part it was, the lawsuit said. The U.S. bans arbitrary cost estimates when actual data is available that establishes the cost.

ULA took advantage of the government’s practice of not auditing smaller projects. On projects above $100 million, the government audits bids and can reduce the contract price if the Defense Contract Audit Agency discovers discrepancies, the lawsuit says.

In the first five to seven years of its existence, ULA often failed those audits. For larger audited launches, ULA began using historic data of actual prior labor costs, the lawsuit says.

But for smaller bids, ULA continued using its flawed estimates, knowing that it wouldn’t be audited, the lawsuit says. Although under federal rules, the model ULA used must undergo “independent calibration, validation, documentation and testing,” the company never sought independent oversight, the lawsuit says.

Even after ULA officials knew the Crohn model inflated costs, it continued using the system in contracts with NASA, the U.S. Air Force and other contractors, the lawsuit says.

“Indeed, the existence of price gouging was undeniable given the historical data (proposal vs. actuals) …,” the lawsuit says.

In 2013, Scott challenged a bid with upper management. He presented his findings to ULA’s director of business management, who was also vice president of the Delta and Atlas programs, but no corrective action was taken and ULA did not notify the U.S. Air Force, the lawsuit says. Scott later reviewed 36 bids and estimated on average the bids were 50 percent above actual costs, the lawsuit says.

Scott began circulating a paper to employees called “Within ULA: Protectionism, Stealing Work & Fraud.”

In response, ULA conducted two ethics investigations against Scott and reduced his work load to “nearly nothing,” the lawsuit says.

In mid-2013, Scott’s replacement told Scott he should get “his résumé ready.” Scott later refused to sign a comprehensive release of all claims against ULA.