Tom Temin And you wrote that this is a pretty large problem. The Justice Department has filed, I think, 500 cases under the False Claims Act in 2023. What’s going on?

Greg Williams Well, let me first put into context that this is the second largest false claims recovery ever. And the false claims recovery portion of that roughly $1 billion settlement amounts to nearly half a billion dollars. I think it’s also worth observing for your listeners that in case you didn’t know, these False Claims Act cases are often not prosecuted without an individual whistleblower does not manifest itself. And that was the case in this case. So if you take this billion dollar settlement and realize that a good half of it would not have gone through without an individual putting themselves in harm’s way and coming forward, that basically tells you that the half the value of this settlement comes from someone with great courage and we cannot count on the government to arrest all perpetrators of cases like this. The other piece of context I wanted to highlight is that this bad behavior has been going on since 2009. So it took us 15 years to discover and fix these issues with Raytheon. So imagine if you received a speeding ticket only 15 years after speeding on the highway, that doesn’t seem to me to be some sort of airtight control mechanism that would allow you to get caught and respond immediately at the threat of being caught.

Tom Temin And given the number of laws and the number of regulations under the FAR or the DFAR supplement, federal defense acquisition regulations that exist, what would motivate a company not to ensure that this doesn’t happen? This is an extraordinary case.

Greg Williams Yes, I think it’s extraordinary, especially given the size of the defendant in this case, RTX. Back when I worked for a defense contractor, we had to attend annual briefings that lasted several hours and explained all the different possible ways to break the law. And it’s not difficult to understand, as I said, virtually all management personnel have completed these trainings. It is therefore very difficult for me to believe that the individuals involved in these crimes did not understand that they were breaking the law and did not understand the very severe or potential penalties. Again, what I find unusual is that this is one of the top five U.S. defense contractors. And I have no way of proving it, but it certainly raises the question of whether you’re big enough or whether you have some wiggle room as to what you can do if the government thinks you’re too great to fail. I think it’s also worth looking at the Justice Department’s press release on this settlement and seeing the many ways in which RTX and Raytheon were actually given some leeway based on their cooperation in investigations. This is despite the fact that in each case the Justice Department observes that at least initially they failed to produce documents at a reasonable pace. So, even with this level of lack of cooperation, these sanctions remain significantly lower than they could have been.

Tom Temin We speak with Greg Williams. He is director of the Project on Government Oversight Defense Information Center. That’s right, Raytheon agreed, well, they fired some people and put in place anti-fraud and compliance measures that I think, according to the Department of Justice, reduced potential penalties by 25%. in some cases. So it appears that this wasn’t taken up to management, but as far as we can tell, it was something initiated by individuals.

Greg Williams Yeah. It does not appear that the most senior people likely to be aware of this behavior are being held accountable.

Tom Temin And in the whole area of ​​overcharging, the government can do it for a variety of reasons, some of which are legal simply because you can get away with it and you’ve followed all the rules. But it also sometimes happens that in certain types of contracts you almost cannot avoid the false claims law at some point in the history of your business, especially in the case of a reseller, where somewhere, someone could get a cheaper price and therefore you are in violation. . So what is your assessment, I guess, of the state of the industry in terms of its compliance with the standards, laws, statutes and regulations under which it is obligated to operate?

Greg Williams Well, I think for me one of the important differences between defense contracting and what we do every day as consumers is that we are powerfully, individually, individually motivated to find the best deals available. And while I’ve certainly met many government buyers and contract administrators who are passionate about getting the best possible deal from government as an overall system, we don’t have a good set of mechanisms in place to ensuring that whenever we engage with the private sector we push them with all our might to provide the best possible price, particularly with the Ministry of Defense we are a buyer of enormous market power. And I don’t think we’re using that power effectively to get the best prices. And a big part of that is the extent to which we’ve allowed the defense industry to define what a so-called commercial product is and dramatically reduce the number of situations in which they have to document or certify the costs of that product. that it produces. you sell them to us.

Tom Temin Because in this case it was Patriot missile systems.

Greg Williams Patriot missile systems, then a whole defense installation.

Tom Temin RIGHT. So there may be commercial elements, but the main piece itself is hardly commercial. And that comes back to the problem and we’ve seen it platform after platform. What is a reasonable cost of this thing that the ministry can afford? And yet, it is a unique platform of its kind.

Greg Williams Yeah. It’s not something they sell on a competitive basis to the private sector.

Tom Temin RIGHT. So what is the government’s best recourse in this matter?

Greg Williams Well, the government’s best recourse is to demand the certified price or cost information to which it is entitled, and then examine it carefully. But when the seller deliberately hides this information, especially hiding the cost of bribing officials, from the start you don’t have a clear idea of ​​what’s going on.

Tom Temin RIGHT. This is a violation of foreign military sales, I suppose, where the U.S. government acquires them for export purposes. And in this case, it was up to Qatar to have this missile defense system and its maintenance. And Raytheon paid Qatar, I guess, to choose this system over a Norwegian system or a German system or something competitive.

Greg Williams The information available from the Ministry of Justice is therefore somewhat vague on these points. So I don’t know who the competitors or potential competitors might have been. All I think the press release says is that an official received a kickback to give Raytheon an advantage. Now, the law is pretty clear that you can’t disguise this as an expedited fee, or the law is pretty good at avoiding ambiguity about what you are and what you’re not allowed to pay someone for.

Tom Temin All right. So we have a settlement of almost a billion dollars, and the company has been cooperative with that. Yet, as you point out, it took many, many years for this to come to light, which is often the case.

Greg Williams And they took their time to become cooperative. Again, the Department of Justice points out that in each case they were initially very slow in producing the documents.

Tom Temin So, for the government, what are the lessons learned from this situation? What can we learn from this particular case, other than, yes, it was a very important case.

Greg Williams Yeah. Just like you need to be vigilant every time you buy a car or a house, you can’t have a bad experience, then scold the salesperson and expect the next salesperson you meet to be cooperative. You need to review every purchase and make sure you’re getting the best deal possible. And you need to make sure you fully fund investigative agencies like the Defense Contract Audit Agency and the Defense Criminal Investigative Service, as well as various inspectors general. It takes time and staff to do a good job and to constantly be on the lookout for the best deal.

Tom Temin And does the government have the tools and personnel it needs to do this in each case?

Greg Williams Well, I think if it takes them 15 years to get there, then here’s your answer. And if they can only do this with the help of extraordinarily courageous whistleblowers, then there is another answer. And if a company as successful as RTX, I remember when I received the training every year, we were stressed that we should just not get into something that could cost the company millions, tens of millions, potentially hundreds of millions of dollars. And I just can’t imagine that anyone with the authority at Raytheon to be directly involved in these transactions wouldn’t have received that training and wouldn’t know that they were doing something illegal. And that strongly suggests to me that they didn’t think it was likely enough that they would get caught, that they would be motivated to avoid these obviously illegal behaviors.