Sacramento Defense Contractor Agrees To Pay $2 Million To Settle Allegations Of Inflating Costs

SACRAMENTO, Calif. — Composite Engineering Inc., a Sacramento-based subsidiary of Kratos Defense & Security Solutions that manufactures remote-controlled subscale aircraft for the U.S. military, has agreed to pay the United States $2 million to resolve allegations that it violated the False Claims Act by submitting inflated costs in connection with a 2007 contract, United States Attorney Benjamin Wagner announced today.

The contract at issue was a firm fixed-price contract modification for the procurement of spare parts to meet the requirements of the Air Force’s Subscale Aerial Target (AFSAT) program. The United States alleges that, in submitting its contract proposal, CEI knowingly or recklessly included significantly overstated materials costs and labor hours, resulting in a windfall to CEI. The False Claims Act allows the government to recover damages and penalties for the presentation of false claims for payment to the United States. By basing its contract price with the government on overstated materials and labor costs, CEI caused the United States to pay artificially inflated prices.

“In this era of shrinking budgets, it is particularly important to safeguard public coffers against the unnecessary expenditure of taxpayer funds,” said U.S. Attorney Wagner. “Ensuring the integrity of federal contracting programs is one of the objectives of this office’s Affirmative Civil Enforcement Unit, and results like this one help accomplish that objective.”

Deputy Inspector General for Investigations James B. Burch of the Department of Defense, Defense Criminal Investigative Service (DCIS) said: “Fraud directly impacts our armed services’ resources and capabilities. DCIS works closely with our federal investigative partners to identify and bring to justice those seeking to steal from the American taxpayers and harm our armed services. The results of this case will ensure troops can finish their jobs without the burden of shortages created by such opportunists.”

The settlement is the product of an investigation by DCIS, the Defense Contract Audit Agency, and the Air Force Office of Special Investigations. Assistant U.S. Attorney Colleen M. Kennedy prosecuted the case on behalf of the United States. The claims settled by this agreement are allegations only, and CEI denies liability.