The High Cost of Inaccurate Cost Information: Raytheon Settles FCA and Other Claims for $950 Million

Last month, the Department of Justice (DOJ) kicked off its Fiscal Year 2025 False Claims Act (FCA) recoveries with a bang when the defense contractor Raytheon Company (Raytheon) reached a blockbuster settlement with the DOJ that includes $428 million to resolve FCA allegations. Raytheon also resolved criminal allegations of: (1) a major government fraud scheme involving violations of the Truthful Cost or Pricing Data statute (known by its former name, Truth in Negotiations Act or TINA) and (2) violations of the Foreign Corrupt Practices Act (FCPA) and the Arms Export Control Act (AECA) and its implementing regulations, the International Traffic in Arms Regulations (ITAR). DOJ’s press release touts the $428 million FCA settlement as the second largest government procurement fraud recovery under the FCA.

In the first of two criminal cases resolved, Raytheon entered into a three-year deferred prosecution agreement (DPA) with DOJ and admitted to engaging in two schemes to defraud the Department of Defense (DOD) in connection with contracts to provide PATRIOT missile fire units and a radar system. Raytheon was charged with submitting false and fraudulent information to the DOD to mislead DOD into awarding two contracts at inflated prices. The DPA describes Raytheon’s knowing and willful violations of TINA, which, when applicable, requires contractors to submit cost and pricing data during contract negotiations that is truthful, accurate, and complete. The FCA case is also based on TINA violations. There, Raytheon admitted, acknowledged, and accepted responsibility for failing to provide accurate, current, and complete data regarding its labor and material costs on several government contracts, including the two at issue in the DPA. Specifically, Raytheon admitted that it failed to provide required cost data during contract negotiations, falsely certified that its proposed costs were in compliance with TINA, achieved labor efficiencies that reduced its costs yet failed to disclose the labor savings when it recertified its cost and pricing data, proposed labor costs using a faulty methodology that was higher than those that were justified, and overcharged the government as a result of its conduct on 15 contracts. Raytheon also admitted that it proposed and billed the same labor costs as both direct and indirect costs resulting in double billing on a weapons maintenance contract.

Approximately $219 million of the $428 million FCA settlement amount is restitution, indicating that the parties agreed to a multiplier of approximately 1.95. This reduced multiplier reflects Raytheon’s cooperation, which is described in the settlement agreement as performing and disclosing results of an internal investigation, disclosing facts and material not known to the government, providing inculpatory evidence, conducting a damages analysis, identifying individuals involved in the misconduct, admitting liability and accepting responsibility, and improving its compliance program. Finally, the FCA settlement also resolved a related qui tam action brought by a former Raytheon employee who will receive $4.2 million, or 18% of the nearly $24 million proceeds of her qui tam action.

Raytheon also entered into a separate three-year DPA to resolve charges that Raytheon conspired to violate the FCPA by engaging in a scheme to bribe a Qatari government official and conspiracy to violate the AECA for willfully failing to disclose the bribes in export license applications as required by the ITAR. Raytheon admitted that it knowingly and willfully conspired to offer and pay bribes to a high ranking Qatari official to assist Raytheon in obtaining and retaining business from the Qatar Emiri Air Force and Qatar’s Armed Forces. The bribes were paid through sham subcontracts for air defense operations-related studies that were prepared by a Raytheon employee rather than the subcontracted Qatari entities. Raytheon also entered into a teaming agreement with a Qatari entity that Raytheon knew could not complete work on the relevant contract and planned to pay at least a portion of what would be paid to the Qatari entity as bribes to the Qatari official. Raytheon also admitted that it knowingly and willfully conspired to violate the AECA and ITAR by failing to disclose to the State Department’s Directorate of Defense Trade Controls the bribes Raytheon paid to the Qatari official through the sham contracts in connection with certain export license applications.

Under the first DPA, Raytheon agreed to pay a nearly $146 million criminal monetary penalty and $111 million as victim compensation. The victim compensation amount will be paid to offset the restitution in the FCA proceeding. Under the second DPA, Raytheon agreed to pay a $230.4 million criminal monetary penalty and forfeit $36.7 million. The company agreed separately with the Securities and Exchange Commission to pay $124 million to resolve parallel FCPA allegations.

In both criminal matters, Raytheon received credit for cooperation and remediation, resulting in downward departures of the penalties on the Sentencing Guidelines. Notably, Raytheon’s cooperation in the TINA-related matter included that Raytheon demonstrated its willingness to disclose all relevant facts by analyzing whether the crime-fraud exception applied to certain potentially privileged documents and releasing the documents that it deemed fell within the exception. Both agreements require Raytheon to retain an independent compliance monitor for three years, enhance its internal compliance program, report evidence of additional misconduct, and cooperate with any ongoing or future investigations.

Finally, DOJ’s press release states that because more than one agency has an interest in Raytheon’s potential suspension and debarment related to these settlements, DOJ has referred the matter to the Interagency Suspension and Debarment Committee to determine which federal agency will take the lead in Raytheon’s suspension and debarment proceedings. A suspension or debarment would restrict Raytheon’s ability to contract with the government, and such administrative proceedings will be independent from the DOJ’s settlement with Raytheon.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.