What is Defense Contractor Fraud?

Common Types of Defense Contractor Fraud

Defense contracts with the DoD are entered to provide goods and services that support the Government in national security or military operations that it conducts. These contracts are vulnerable to various types of fraud that threaten the Government and waste taxpayer dollars. The most common types of defense contractor fraud are:

Inflating expenses or overcharging

This form of fraud is by far the most common and involves companies illegally billing the Government more than what is owed in order to increase revenue. This can be through misrepresentation of costs of labor, materials used, billing services that never occurred, doubling billing, and other practices that have the end result of overcharging the Government.

Bid Rigging

Bid rigging is a type of collusion where contractors conspire to deceive the Government by submitting non-competitive bids. Specifically, contractors engaged in bid rigging collude to determine amongst themselves, in advance of bid submissions, who will win the contract by setting the price and compensating other bidders in various ways, including cash payments. This ultimately allows bid rigging contractors to control the price the Government will pay because there is limited competition, and they are able to inflate prices to their benefit. This hurts the taxpayers since the Government is using more of their money to meet an unfair market price to obtain its products and services.

Cross-Charging

Cross-charging fraud occurs when a contractor wrongfully shifts the expenses from one of their Government contracts and adds them to a different Government contract. This inflates the costs of the contractor’s products and services to the Government.

There are fixed-price and cost-plus contracts. Fixed-price contracts have a set price that cannot be changed, whereas cost-plus contracts cover the contractor’s actual costs plus an additional amount for profit. This allows the price to increase due to extra work or unforeseen expenses, which defense contractors may exploit by shifting their fixed contract expenses to the cost-plus contract (if they hold both).

Kickbacks

Kickbacks are another form of fraud where contractors illegally offer a bribe or payment in order to secure an advantage or a contract. This weakens the concept of fair competition and negatively affects the procurement process.

Non-compliance with the Contract Terms

This fraud occurs when contractors fail to meet the terms and conditions outlined in their contracts. This could include delivering products or services late, neglecting specific compliance procedures in the production process, failing to meet the Buy American Act or DoD specifications, or providing false certifications of compliance.

Poor-quality products and services

The Government relies on contractors to provide high quality products and services, but there are cases when contractors will use cheaper materials or avoid certain procedures to cut costs. In these cases, contractors may sell substandard products and services to the DoD or falsify tests that misrepresent the quality or safety of their work.

Violating TINA

The Truthful Cost or Pricing Data Act (formerly known as the “Truthful Cost or Pricing Data Act”) is intended to prevent contractors from inflating their prices and costs when there is little to no competition or additional bidders. In markets where competition is absent, contractors may inflate prices of their products and services. Accordingly, the Act seeks to prevent such practices by making sure that cost and price estimates are accurate and reasonable. Contractors are often found in violation of TINA for misrepresenting the true costs.

Notable Defense Contract Fraud Cases

Lockheed Martin Corporation

Lockheed Martin Corporation (“LMC” or “Lockheed”) has recently faced defense contractor fraud allegations under the False Claims Act (FCA). The Government claimed that LMC had inflated pricing proposals when they bid for the defense contracts, and these cost estimates were submitted to the DoD’s F-35 Joint Program Office (JPO) to secure contracts for their F-35 fighter jet program. The Government stated that this was done knowingly and was in violation of TINA for failing to provide accurate, complete, and current costs and pricing data. On February 6th, 2025, the Government announced that Lockheed Martin reached a settlement of $29.74 million to resolve these allegations.

Raytheon

Raytheon has faced multiple claims that totaled $950 million in settlements. These claims are a result of Government fraud for defective pricing, violations of the Foreign Corrupt Practices Act (FCPA), the Arms Export Control Act (AECA), and the International Traffic in Arms Regulations (ITAR).

The FCA allegations against Raytheon pertain to purportedly fraudulent representations made to the DoD during contract negotiations between the 2012 and 2018 period. The company had 2 separate contracts with the U.S. Government, one that concerned purchasing Patriot missile systems and the other for a radar surveillance system. Raytheon was accused of inflating their costs by over $111 million and was ordered to pay $146, 787, 972 in criminal monetary penalties and $111, 203, 009 in victim compensation.

The Boeing Company

The Boeing Company had faced allegations of military fraud from 2007 through 2018 for their contracts with the U.S. Navy to manufacture the V-22 Osprey. According to the Government, Boeing failed to conduct mandatory monthly testing on autoclaves and failed to comply with additional requirements with the testing. Contractors are required to follow the guidelines and specifications that are set in the contracts in order to make sure that the Government receives the quality products for which it paid. Boeing eventually agreed to pay $8,100,000 to resolve the claims brought against them.

Northrop Grumman Systems Corporation (NGSC)

Northrop Grumman Systems Corporation faced similar allegations for violations of the FCA. According to the Government, Northrop Grumman overstated the hours its employees worked on two of its battlefield communications contracts with the U.S. Air Force. Contractors that engage in inflating their costs to the Government will be penalized significantly for defrauding the Government and trying to profit at the expense of American taxpayers. Northrop Grumman ended up settling the FCA allegations for $27.45 million.