Defense Contractor Must Face Overbilling Claims

WASHINGTON (CN) – DynCorp International must face claims that it turned a blind eye as one of its partners overcharged the State Department on a contract to train Iraqi police, a federal judge ruled.

Saying that DynCorp knew about the discrepancy, the government contends that the contractor tried to keep this information quiet to protect its relationship with its subcontractor and “strategic partner.”

Dyncorp claimed that the government lacks evidence that the company’s rates were unreasonable, but U.S. District Judge Ellen Segal Huvelle found the allegations sufficient Friday to survive its motion to dismiss.

“DynCorp is wrong,” Huvelle wrote, citing internal DynCorp emails, including one written by its senior vice president, that called the hotel rates “outrageous.”

“The government has alleged that high-level DynCorp employees stated that the hotel rates were ‘outrageous’ and that the labor rates were not competitive with the market,” the 37-page ruling states.

By alleging that DynCorp “withheld information about its noncompliance with contractual or regulatory requirements,” the government satisfied the requirements to prove falsity, Huvelle found.

Huvelle also said the court could infer that DynCorp knew the rates were unreasonable, which the government would consider in its payment decisions, and either knowingly violated the contract or acted with reckless disregard.

“First, it is common sense that the government would not pay claims if it knew that they were outrageously excessive,” the ruling states. “Second, the regulatory provisions for the government to refuse to pay unreasonable charges confirm that reasonableness is material to payment,” it continues.

DynCorp told the court that it relied on historical data from Corporate Bank Financial Services to determine the contract’s labor rates, which it claimed it had to inflate to derive a profit.

But Huvelle credited the government’s point that it accepted labor pricing it would have otherwise have rejected based on DynCorp’s false statements.

“Taking all inferences in favor of the government at this stage,” she wrote, “the term ‘historical data’ could be understood to mean that the proposed prices were consistent with historical costs, while the government’s allegations support an inference that this was not the case.”

Huvelle dismissed the government’s payment-by-mistake and unjust enrichment claims against DynCorp because it did not allege fraudulent inducement  of cost-reimbursable charges.

The Department of Justice declined to comment on the ruling. DynCorp did not respond to an email seeking comment.

 

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