What is Cross Charging Defense Contractor Fraud?

Cross charging is a widespread type of procurement fraud. It happens when a defense contractor illegally shifts expenses from one contract to another to increase the contractor’s profits.

Here is how cross charging defense contractor fraud tends to work. Say that a contractor has two contracts. One is a fixed-price contract, and one is a cost-plus contract.

In a fixed-price contract, the contractor is paid a set fee for products and services rendered regardless of the costs the contractor incurred. Fixed-price contracts are common in the private sector.

A cost-plus contract is different. It allows the contractor to collect an additional fee or profit percentage.

Fraudsters that have both types of contracts unlawfully boost profits by including the cost of performing their fixed-price contract into the costs they report to the government under their cost-plus contract. By convincing the government that the cost was higher than it really was, the defense contractor gets a higher fee for performing the cost-plus contract.

Potential Red Flags

Government contract fraud is unfortunately common with defense contractors. The federal government contracts so much of its work to the private sector and that is virtually impossible for it to monitor everything. Here are some red flags to look for:

  • High rates of errors or corrections on invoices and other documents
  • Contract personnel who are billed to more than one contract at the same time
  • Unusually low contractor costs on a fixed-price contract
  • A lack of contract change requests on fixed-price contracts
  • Costs on a cost-plus contract that are significantly higher than expected

Cross charging often goes unnoticed, and taxpayers are left to finance the difference. However, the potential damage extends beyond financial losses. This crime can undermine government objectives and threaten the safety of soldiers, sailors, and airmen.

Whistleblowers play a crucial role in helping the government police fraud. That is why there are financial rewards and protections available for those who report defense contractor fraud.

Attorney James H. Shoemaker, Jr. has worked with many whistleblowers over the years. If you need an experienced defense contractor fraud lawyer to advise you on your next steps, please call Mr. Shoemaker today at 757-223-4580. He serves clients in Virginia Beach, Hampton Roads, Washington D.C., and throughout the country.

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