Sikorsky Support Services Inc. and Derco Aerospace Inc. Agree to Pay $70M to Settle False Claims Act Allegations

In a lawsuit filed in the U.S. District Court for the Eastern District of Wisconsin, the Justice Department alleged that SSSI and Derco, which were both wholly-owned subsidiaries of the same parent company, knowingly entered into an improper cost-plus-percentage-of-cost (CPPC) subcontract.

Under that contract, SSSI agreed to purchase parts from Derco at the cost that Derco paid other suppliers for those parts, plus a fixed 32% markup. SSSI, in turn, submitted cost vouchers to the Navy for reimbursement of the amounts it paid to Derco. 

The government alleged that, by failing to disclose that the costs claimed by SSSI were the product of an illegal CPPC subcontract between SSSI and Derco, SSSI and Derco knowingly presented false and fraudulent cost vouchers to the Navy. The district court ruled that Derco’s markup violated a federal statute barring CPPC contracting, which Congress prohibited because it gives suppliers incentive to drive up government costs, as well as the terms of the prime contracts between SSSI and the Navy. 

The settlement resolves a lawsuit filed under the qui tam or whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery. The Act permits the United States to intervene and take over responsibility for litigating these cases, as the United States did here. The qui tam case is captioned United States ex rel. Patzer v. Sikorsky Aircraft Corp., Sikorsky Support Services Inc., and Derco Aerospace Inc., Case No. 11-0560 (E.D. Wis.) and was brought by Mary Patzer, a former employee of Derco.

The claims resolved by the settlement are allegations only. There has been no determination of liability.