The U.S. Justice Department’s civil fraud case against an Energy Department contractor at the Hanford Site in Washington state is going forward, but a federal judge Monday dismissed “kickback” allegations against a former Mission Support Alliance president.
Federal attorneys last February brought the case against defendants Mission Support Alliance (MSA), Lockheed Martin Corp., Lockheed Martin Services Inc. (LMSI), and Frank Armijo under the False Claims Act.
The federal government claims MSA and Lockheed knowingly overbilled and in some cases double-billed the Energy Department for work done by a Lockheed subsidiary, in violation of the contract. In June, the defendants filed a motion to dismiss claiming the Justice case is largely a garden-variety billing dispute – already being litigated in another forum –that the government is portraying as fraud.
U.S. District Judge Rosanna Malouf Peterson of the Eastern District of Washington on Monday granted only part of the defendants’ motion to dismiss. The judge allowed the breach of contract claim against MSA – for billing the government for inflated and unallowable costs – to proceed toward trial.
The vendor started work on a $4.3 billion support services contract at Hanford in May 2009, in charge of a wide range of operations including providing emergency services, information technology, and management of a federal training center. Lockheed was the lead partner in MSA during the time at issue, with then-partners Jacobs and Centerra.
Allegations in the case center around the management and technology solution services MSA agreed to provide at Hanford. In January 2010, without competitive bidding, Mission Support Alliance awarded its affiliate, LMSI, a $232 million subcontract to perform the work from 2010 through mid- 2016. But the DOE contract included restrictions designed to discourage payment of additional fee to wholly-owned subsidiarie,s of team members.
The government claims false statements by defendants induced DOE to approve the subcontract and pay “false and inflated” rates for the work. The complaint claims Lockheed Martin made bonus payments of more than $1 million to Armijo and other MSA executives in order to obtain improper favorable treatment for Lockheed Martin Corp. and the affiliated subcontractor.
Peterson dismissed the kickback case against Armijo. The Management Incentive Compensation Program at Lockheed does not quality as a kickback under established law, the judge held. Instead, it was a standard program for Lockheed executives. Armijo was a Lockheed executive when the company organized MSA.
The judge left the door open for the government to refile an “unjust enrichment” count against Armijo with additional information. For now, however, the government allegation that Armijo unjustly enriched himself at federal expense is too short on fact. It is unclear whether the individual’s unjust benefit was “his entire salary from MSA,” his management incentive from Lockheed, some mix of the two, or something else, according to the ruling.
As a result, the count against Armijo was dismissed without prejudice – meaning the Justice Department could refile its case. The judge gave Justice until Feb. 14 to refile.
Mission Support Alliance has argued that the breach of contract for unallowable costs charge largely mirrors a dispute with DOE that is already being litigated before the federal Civilian Board of Contract Appeals. The Justice Department countered that CBCA does not have exclusive jurisdiction where the contract dispute involves fraud.
The judge agreed with the latter argument and held that the CBCA litigation does not strip the federal court of jurisdiction.
Leidos bought Lockheed’s share of the Hanford contractor in 2016, after the alleged fraud cited in the federal suit. The current partners in MSA are Leidos and Centerra, after Jacobs dropped out so it could avoid conflict of interest when buying Hanford cleanup contractor CH2M.
The Justice Department in June filed a motion urging the court to reject the motion to dismiss filed by the defendants who argued the government case was merely a contract disptue and is being litigated before CBCA. The latter proceeding has been put on hold following the Justice Department complaint.
After the deadline passes for amended charges by the government, the court will then set up a trial schedule.
