>“I discovered that our commercial and international practices were very unprofitable,” she said. “And in order to keep the company profitable, they were passing those costs onto the U.S. government contracts.”
>At that moment, Feinberg told NBC News, “I realized that this was a very intentional setup. And it wasn’t just that there was the potential to overcharge the government; the rates were built to overcharge the government. If we should have been charging $100 to the government for an hour of work, we were charging $120 for that hour of work, so that that $20 could go to subsidize the international business.”
How is this fraud? In that line of work, it’s common to not charge customers the same price. Each contract is individually negotiated. And work for the US government is not necessarily even comparable to work for another entity. US government contracts are notoriously complex and fraught with red tape and legal risks.
Without knowing more, I’m kind of sympathetic to Booz Allen here. Settlement doesn’t mean admission of guilt. It just means they thought there was a risk of losing + risk of reputational loss + cost of litigation that it was worth paying $377 million to avoid.
>Under government contracting rules, there must be a nexus between the costs charged to a government contract and the objective of the contract. Thus, a contractor may charge to a government contract costs directly related to that contract, as well as indirect costs that benefit multiple contracts including the government contract. A contractor may not charge costs to a government contract, however, that have no relationship to that contract. This prohibition prevents government contractors from using taxpayer funds to subsidize non-government related work.
If I charge more from client A than client B, I’m not necessarily subsidizing B with A. My price for doing the same work for the government is higher than the same work for a private party. It literally costs more and has higher risk. This honestly feels like this lady went digging around looking for things that would be arguable under vague accounting standards.
The way that these contracts work is that they get paid for their costs, plus a percentage. They were just fraudulently reporting costs incurred from other contracts on this contract to inflate their profits.
Cost-plus accounting is a horrible way to do business, it's basically designed to facilitate this kind of fraud.
If I'm understanding what she reported, Booz was losing $XX on commercial contracts and billing $XX excess on government contracts. There was a direct link between the two, which is prohibited.
And her case was strong enough that the government decided to pursue it. That doesn't always happen - whistleblowers sometimes have to pursue these cases on their own (crazy as that sounds to me).
The government is just not "a client". There are special rules if you want to sell anything to them, because you're playing with taxpayers' money. This is one such rule.
I’m not an expert, but in the world of government contracting margins are often fixed. It’s common to contract on a “cost plus” basis where the contractor discloses its costs and is paid an agreed margin on top. For a diversified business like BAH (well not that diversified but I digress), they’d need to allocate sg&a in some way to those cost plus contracts. My guess is they were doing it in a way that was, shall we say, “advantageous.”
Charging $20 extra, to US tax payers, to support products that do not benefit US tax payers.
Additionally, these aren’t abstract users at the receiving of the practice - it’s US service members who just want their booze products to “work,” under a very tight budget environment.
US contractors have had the US military over a barrel for so long because of variations on these themes, and it actively hinders Soldiers in harms way, even if way down the supply chain. This is the reason Palantir, Anduril, etc are cleaning up now, to hugely summarize those companies.
>At that moment, Feinberg told NBC News, “I realized that this was a very intentional setup. And it wasn’t just that there was the potential to overcharge the government; the rates were built to overcharge the government. If we should have been charging $100 to the government for an hour of work, we were charging $120 for that hour of work, so that that $20 could go to subsidize the international business.”
How is this fraud? In that line of work, it’s common to not charge customers the same price. Each contract is individually negotiated. And work for the US government is not necessarily even comparable to work for another entity. US government contracts are notoriously complex and fraught with red tape and legal risks.
Without knowing more, I’m kind of sympathetic to Booz Allen here. Settlement doesn’t mean admission of guilt. It just means they thought there was a risk of losing + risk of reputational loss + cost of litigation that it was worth paying $377 million to avoid.