CONTRACT AND PROCUREMENT FRAUD

CONTRACT AND PROCUREMENT FRAUD

In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual or entity. The specific legal definition varies by legal jurisdiction, but fraud is a crime, and is also a civil law violation.

Fraud has nine elements:

1.           a representation of an existing fact;

2.           its materiality;

3.           its falsity;

4.           the speaker's knowledge of its falsity;

5.           the speaker's intent that it shall be acted upon by the plaintiff;

6.           plaintiff's ignorance of its falsity;

7.           plaintiff's reliance on the truth of the representation;

8.           plaintiff's right to rely upon it; and

9.           consequent damages suffered by plaintiff.

Procurement fraud

Procurement fraud includes, but is not limited to, cost/labor mischarging, defective pricing, defective parts, price fixing and bid rigging, and product substitution.

Cost/labor mischarging are Schemes by contractors on cost-type contracts to fraudulently inflate the cost of labor or materials, while Defective pricing occurs when a contractor does not submit or disclose to the government or client, cost or pricing data that is accurate, complete, and current prior to reaching a price agreement.

An audit may determine if a negotiated contract price was increased by a significant amount because the contractor did not submit or disclose accurate, complete, and current cost or pricing data.  To show that defective pricing exists, the audit must establish each of the following five points:

(1)       The information in question fits the definition of cost or pricing data.

(2)       Accurate, complete, and current data existed and were reasonably available to the contractor before the agreement on price.

(3)       Accurate, complete, and current data were not submitted or disclosed to the contracting officer or one of the authorized representatives of the contracting officer and that these individuals did not have actual knowledge of such data or its significance to the proposal.

(4)       The government relied on the defective data in negotiating with the contractor.

(5)       The government’s reliance on the defective data caused an increase in the contract price.

Defective parts is defined as a defect in design, specification, material, manufacturing and workmanship, which may cause death, injury or severe occupational illness; would cause loss of major or minor capabilities of the using organization or which would result in a production line stoppage

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