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Boeing's drone unit to pay $25 million to settle fraud charge that was sparked by whistleblower complaint

Dominic Gates, The Seattle Times on

Published in Business News

SEATTLE — Boeing’s drone subsidiary, Insitu, will pay $25 million to settle a federal lawsuit accusing it of fraudulently overcharging the government on no-bid military contracts by billing for new parts but using recycled ones.

The whistleblower who brought the original case, D R O’Hara, who was fired by Boeing, will get $4.625 million as a share of that penalty for uncovering the fraud. Insitu will also have to pay O’Hara’s legal expenses.

The Department of Justice accused Insitu of “knowingly submitting materially false cost and pricing data” for contracts to supply surveillance drones to both the U.S. Special Operations Command, or SOCOM, and the Navy, according to a statement Tuesday.

Insitu does not admit any wrongdoing, and said in a statement that “our disclosures to the government at the time satisfied all requirements.”

The DOJ alleged that between 2009 and 2017, Insitu entered into five noncompetitively bid contracts with the Navy and two contracts with SOCOM for drones at deliberately inflated prices using cost and pricing data for new parts and materials, while planning all along to use recycled parts.

“Taxpayers deserve to get what they paid for,” said U.S. Attorney for Western Washington Brian Moran. “Cases such as this one should be seen as a warning to defense contractors that false claims have no place in military purchasing.”

 

Bryan Denny, special agent in charge of the Defense Department’s Criminal Investigative Service, Western Field Office, said the litigation is an “example of our agents and law enforcement partners working together to uncover fraudulent activity and protect taxpayers’ dollars entrusted to the DoD.”

The DOJ took over investigation of the case after O’Hara filed an initial complaint in 2015 under the federal False Claims Act, which allows whistleblowers to initiate cases against parties who have defrauded the U.S. government.

Boeing acquired drone maker Insitu in 2008 but has allowed it to operate as an independent subsidiary to preserve its innovative and agile culture.

In 2011, Boeing Corporate sent O’Hara, then a 37-year veteran of the company, to Insitu in Bingen, Klickitat County, as director of estimating, pricing and procurement to help manage the complex compliance processes for government contracts.

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