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Feds sue Milwaukee company over Navy contracts

By: Eric Heisig//October 16, 2014//

Feds sue Milwaukee company over Navy contracts

By: Eric Heisig//October 16, 2014//

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The federal government has filed suit against a military contractor that it claims bilked the Navy out of millions when it was hired to build airplanes.

The lawsuit, filed Tuesday in the Eastern District of Wisconsin, alleges that Sikorsky Aircraft Corp. entered into a cost-plus subcontract with two of its subsidiaries Sikorsky Support Services Inc. and the Milwaukee-based Derco Aerospace Inc., while it was under contract with the federal government to build three airplanes. Cost-plus contracts allow a party to collect a percentage of the contract’s cost as a profit, and federal contractors cannot use them since it would be advantageous to them inflate the contract for profit.

The case was first filed in 2011 by Mary Patzer, a former Derco employee who was fired after reporting the contracts and strategy to her superiors, according to court filings. U.S. Attorney Jim Santelle’s office took over the case under the False Claims Act.

The damages requested in the case are just below $50 million, potentially making it the largest False Claims Act case filed in Wisconsin, said attorney Nola Hitchcock Cross, who represents Patzer. If a judge rules in the government’s favor, it could recover three times that much, though, and up to $20 million in penalties.

An attorney for Sikorsky, John Chierichella of Sheppard Mullin Richter & Hampton LLP in Washington, D.C., said he could not comment on the case. A spokesman for Sikorsky, Paul Jackson, did not immediately return a message left Thursday afternoon.

According to the suit, officials with the three companies colluded with each other to mark up the cost of certain parts needed to construct the airplanes. The idea was discussed and agreed upon before the proposal was submitted to the government in 2005.

The suit alleges that at least one official knew “the use of Derco provided little if any benefit to the Navy and his real purpose was to use Derco in order to greatly increase the prices the Navy would pay for the cost reimbursable parts and materials … and thereby increase the profits to be made by [the companies].”

The companies did this by drawing up a contract that said “each firm fixed priced invoice shall specify the items billed and include the Derco agreed to markup of thirty-two percent added to the vendor cost.” A second contract was drawn up, though, that deleted that language, but the companies submitted invoices and public voichers with the marked-up costs.

The contract was executed in 2006. When the Defense Contract Management Agency inquired about Derco’s costs, an official with Sikorsky misled them and did not disclose that Derco is a sister company of Sikorsky, according to the complaint. The company also falsified its certified indirect cost rate proposals between 2006 and 2012.

Suits filed under the False Claims Act are a rarity in federal court. Cross said the federal government intervenes in about 20 percent of all cases filed.

If the federal government succeeds in a False Claims Act case, the original plaintiff is entitled to a portion of the collected damages.

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