A Department of Justice civil lawsuit alleging past fraud and kickbacks under the Mission Support Alliance contract at the Hanford Site in Washington state should be dismissed, plaintiffs said in motions filed Wednesday with a federal court.
A hearing on their motions is set for Oct. 3 in U.S. District Court for Eastern Washington.
The Justice Department in February sued Mission Support Alliance (MSA), Lockheed Martin Corp., Lockheed Martin Services Inc. (LMSI), and former executive Frank Armijo. It claimed that from 2010 to 2015 the federal government was overcharged for information technology services provided by LMSI as a subcontractor to Mission Support Alliance. Lockheed Martin then collected double profits for information technology services — once as the principal owner of MSA and also as the owner of LMSI. Finally, according to the lawsuit, Armijo and other executives were paid kickbacks in the form of bonuses.
All plaintiffs strongly denied the Justice Department allegations when the lawsuit was filed, and they refuted specific claims in this week’s motions.
The Energy Department raised concerns about the appropriateness of paying profit to LMSI in 2015 and Mission Support Alliance let the subcontract end. In 2016, Lockheed Martin sold the division that included primary ownership of MSA to Leidos. Armijo, a Lockheed Martin executive, was seconded to MSA and served as vice president or president until 2015.
Mission Support Alliance had brought the dispute over LMSI profit payments to the U.S. Civilian Board of Contract Appeals, which resolves federal contracting disputes. The board had not ruled when the Department of Justice filed its lawsuit, and the case before the board is now stayed. The board is the appropriate place for the issue to be resolved, not federal court, plaintiffs said.
“This case is a classic example of what is at most a contract dispute transformed 10 years later into allegations of fraud by hindsight,” MSA said in court documents. It called the lawsuit “a textbook case of overreach.”
Mission Support Alliance, which has held the site services contract at Hanford for almost a decade, said in federal court documents that the Energy Department approved its subcontract for information technology services with LMSI, including specific prices to be paid. Lockheed Martin Services Inc. also had provided information technology services as a subcontractor for prior support services prime Fluor, before Fluor’s contract expired and MSA began providing site services such as security, information technology, and utilities.
Mission Support Alliance and Lockheed argued in their filings that the Energy Department had agreed to an MSA subcontracting structure with LMSI to be paid with fixed prices and rates that by their nature included the possibility of profit or loss for the Lockheed business.
The lawsuit alleged that in some cases MSA and LMSI both billed for the same labor and that LMSI also billed for some work outside the scope it was assigned. However, Lockheed Martin said the Justice Department failed to provide any specifics on those allegations for it to refute.
The lawsuit’s claims of kickbacks referred to Lockheed’s incentive compensation plan. Former MSA Chief Financial Officer Rich Olsen reached a settlement agreement with the Justice Department in August over allegations he received bonuses after inflating prices charged to DOE for LMSI work. He admitted no wrongdoing but agreed to pay $124,400 and cooperate in the federal investigation, his attorney said.
Armijo was similarly targeted over a single line in one self-evaluation that mentioned the LMSI subcontract, Armijo’s attorneys said in federal court documents. They accused the Justice Department of building its case against Armijo on a “series of inaccuracies and omissions that tell an incomplete and misleading story.” The lawsuit “attributes to Armijo actions that he did not take, that he did not have the authority to take, or that he took in good faith based on the advice of seasoned subject-matter experts,” according to his attorneys.
The U.S. Supreme Court has ruled that bonuses paid by a company to an employee cannot be considered kickbacks, Armijo’s attorneys said. The Supreme Court found that there must be a third party involved for a payment to be a kickback, they said. The owners of Hanford contractors routinely assign their executives to work at Hanford, and a ruling that their bonuses are kickbacks would have ruinous consequences, Armijo’s attorneys said.
