The civilian transportation officer ("TO"), working for the U.S. Department of Defense (DOD) probably never thought the payments would stop. But then along came a disgruntled carrier who could not figure out why it was not receiving more transportation business from the DOD facilities where the TO worked. The carrier complained to DOD which opened a criminal investigation that included the FBI, DOD's Inspector General's Office and the Department of Justice.
As the matter eventually concluded, the TO was sentenced to over three years in prison for receiving unlawful gratuities from a particular logistics company. The logistics company was often awarded traffic by the TO when there were rates available from other transportation service providers that were much lower. The investigation has resulted in at least one other logistics company who dealt with the TO also being examined.
This case illustrates a new trend in the provision of transportation services to government shippers: criminal prosecutions. Until recently criminal actions against those abusing the government's transportation procurement systems were rare. Now they are more common.
Another logistics provider is under investigation by the DOD Inspector General's Office and a grand jury for overcharging the government for claiming payments for freight shipments by air that were actually moved by truck. In the past such overcharge matters were often handled through offset processes where overcharges discovered by the government would be administratively deducted from future payments. Now criminal action may be on the horizon.
A transportation service provider does not have to be under direct contact with the government to run the risk of criminal action. A carrier servicing a government prime contractor as a subcontractor may be at risk. In another recently reported case, an official with a logistics company entered a guilty plea after he was accused of overcharging a DOD contractor to which his company provided services. As is common, the prime contractor had passed the charges on to the government.
In still more recent actions, five ocean forwarders have entered guilty pleas in a series of criminal cases related to rigging bids on ocean transportation services for DOD. So far, $10 million in fines has been imposed. The investigation is continuing.
DOD pays private transportation companies over $1.5 billion a year for hauling services. Unlike large weapons systems, transportation payments are doled out over time in relatively small amounts for hundreds of thousands of shipments during a year. The transportation services procurement systems used by DOD and other government agencies are arcane and difficult to fathom. They can be perplexing to the uninitiated because they do not resemble the processes for procuring transportation in the civilian commercial sector.
DOD's Surface Deployment and Distribution Command ("SDDC") has decided to go after abuse via criminal prosecutions by adding to its staff investigators and attorneys who specialize in procurement fraud. All SDDC personnel are now mandated to undergo ethics and fraud training. As a result, the number of criminal cases related to transportation matters should increase.
Criminal actions for fraud are not the only thing that transportation service providers have to be concerned with. Whistle blower suits are on the increase. The False Claims Act contains a provision that allows private parties who become aware of fraud being practiced on the government to institute a private lawsuit on behalf of the United States. These often accompany government prosecutions.
Generally, these private lawsuits must be based on inside information. Employees, competitors and suppliers have been known to bring such suits. If the whistle blower is successful in court, he or she will receive a sizeable portion of the recovery plus attorney's fees. Several whistle blower suits have been instituted against transportation service providers alleging that they somehow defrauded the government.
Criminal convictions result in prison terms for participating individuals and heavy fines for corporations. Of significance can be the debarments that often accompany such criminal actions. Transportation service providers found to have committed fraud on the government may be barred from future government procurement activity. Further, debarment by one government agency runs to all agencies.
All those involved with providing transportation services for federal agencies need to be certain that none of its operations are in anyway fraudulent. Those orange suits really glow.
James Calderwood is a partner with the law firm of Zuckert, Scoutt & Rasenberger, L.L.P., in Washington, D.C., where he concentrates on transportation matters. He can be reached at [email protected]. This column is designed to provide information of general interest. It cannot substitute for indepth legal analysis of particular problems. Readers are urged to seek counsel concerning individual situations.