Drone Manufacturer Composite Engineering, Inc. Settles False Claims Act Allegations

The False Claims Act is one of the most successful federal statutes when it comes to recouping money lost due to wasteful fraud committed against the government and, as a result, the taxpayers. When it was enacted, soldiers and other participants in the U.S. Civil War were experiencing widespread fraud under government contracts for the provisions of war materials. Historians recount stories involving contracts for uniforms, armor, and supplies between the armies and various contractors that resulted in infantrymen receiving damaged or used goods – or no goods at all. As a result, Congress opted to enact the False Claims Act to incentivize those with information relating to defense contractor fraud to come forward and the Act has stood the test of time.

Over 150 years later, the False Claims Act continues to address fraud under defense contracts, including today’s case involving Sacramento’s Composite Engineering, Inc. The case was brought to light by a steadfast whistleblower with definitive knowledge of inflated prices and windfall profits. As a result, the manufacturer has agreed to pay $2 million to settle the allegations, which it insists is not an admission of guilt.

Details of case against Composite Engineering, Inc.

Composite Engineering, Inc. is based in Sacramento, California, and is in the business of manufacturing parts and components for the construction of military-grade drones. In 2007, the company entered into an agreement with the U.S. Air Force for the provision of spare parts and materials necessary to maintain the Air Force’s Subscale Aerial Target program. This program involves the use of 20-foot long unmanned drones that Air Force trainees use for target practice while flying.

Allegedly, Composite Engineering engaged in fraudulent misconduct during the negotiation phase of procuring the contract, including dramatically overstated figures for parts and labor. Relying on the information provided in the contract, the Department of Defense paid Composite Engineering a sum of $5.6 million over the duration of the agreement. According to the allegations, the government believes it was overcharged by a rate of $1.6 million – resulting in a windfall for the company.

Government takes aim at defense fraud

Fraud under defense contracts is one of the most prevalent and costly forms of reckless misconduct addressed by the False Claims Act. The U.S. Attorney’s Office said in a statement, “In this era of shrinking budgets, it is particularly important to safeguard public coffers against the unnecessary expenditure of taxpayer funds….”

Under the False Claims Act, defendants engaging in fraudulent conduct may face up to triple damages upon the conclusion of the case. Here, with an overcharge of $1.6 million, Composite Engineering could have faced a treble damages imposition of $4.8 million. Nonetheless, it settled the matter for $2 million and has since been awarded a separate $72 million contract for the provision of drones to the U.S. military.

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