Lockheed Martin Space Systems: Premature Titan IV Progress Payments

In the 2008 Lockheed Martin Titan IV progress payments settlement, Lockheed Martin Space Systems agreed to pay $10.5 million to resolve civil allegations that it submitted invoices for financing it was not entitled to receive. The Justice Department’s May 12 announcement described the settlement as approximately double the interest Lockheed would have received by holding premature payments. For someone who knows the contract’s billing calculations, that is the point of this case: the government alleged that changes on paper let the contractor get its hands on public money too soon.

The Launch Contract Behind the Payments

Lockheed Martin Space Systems Company, a Denver-based business unit of Lockheed Martin Corporation, supplied launch vehicles and services under a multibillion-dollar Titan IV contract. The General Accounting Office’s 2003 account of the program describes Titan IV as a heavy-lift vehicle carrying military satellites into space, including Defense Support Program and Milstar satellites.

Government financing could put money into the work before delivery. Cost-based progress payments fund eligible costs as work proceeds, and later delivery payments repay that financing through an offset. In a contract supplying both launch vehicles and services, the cost calculation and the treatment of delivered items therefore affect when the government parts with its money. Those were the calculations the Titan IV investigation examined.

Changed Costs on Progress-Payment Requests

The government alleged that Lockheed changed how it calculated the cost of delivered items on its progress-payment requests without notifying the government. According to the settlement announcement, that change caused Lockheed to receive excessive progress payments from October 1998 through December 2001. The allegation put an internal accounting method directly in the path of government financing.

The mechanics of progress-payment fraud make the delivered-item calculation consequential. The government’s progress-payment clause bases cost financing on eligible incurred costs and qualifying subcontract financing, less previous payments, and places limits on the outstanding balance. A request carries the result of those calculations to the government. Someone inside the finance or contracts team may know when the method behind that result changed and what the government was told about it.

For this allegation, we would want to understand the old calculation, the replacement calculation and the requests affected by the change. The important connection is between the method used inside the company and the amount it asked the government to advance. That is where an employee’s knowledge of how the numbers were produced can give meaning to the invoice total.

The Liquidation Rate Changed the Repayment

A liquidation rate determines how much the government withholds from a delivery payment to repay earlier progress payments. The government alleged that, in August 2000, Lockheed submitted an invoice improperly claiming millions of dollars in extra progress payments because the contract’s liquidation rate had been lowered. This allegation concerned the calculation that unwinds the earlier financing when an item is delivered.

Lowering that rate reduces the amount withheld at delivery and leaves more of the earlier financing outstanding. The Justice Department tied the disputed adjustment to a particular invoice claiming additional money. The rate, the invoice and the repayment calculation belong together: they show how a change in a percentage can change the cash the contractor receives. Millions, on one invoice.

We see an expensive privilege hidden in a dry accounting term. Government money has value while a contractor holds it, which is why the announcement measured the settlement against the interest benefit from premature payments. A calculation described as an adjustment can still decide who gets the use of millions of public dollars.

The Audit Came Before the Disclosure

An October 2004 Defense Contract Audit Agency audit preceded Lockheed’s internal audit and disclosure. The Justice Department said the internal review found that Lockheed should not have requested certain interim payments. Lockheed disclosed its findings to the government. According to the Justice Department, the ensuing investigation determined that Lockheed had received millions of dollars in premature progress payments to which it was not entitled.

The U.S. Attorney’s Office in Los Angeles coordinated the investigation into alleged False Claims Act violations. The team included agents and auditors from the Air Force Office of Special Investigations and the Defense Contract Audit Agency, and the announcement credited Lockheed’s cooperation. The sequence matters to an insider: the government audit, the company’s review and the disclosure each concern what people understood about the same payment requests.

The Titan IV sequence shows how that financial examination can also feed a government fraud investigation. An insider who understands the accounting may be able to connect the auditor’s question to the request that drew the payment.

Contract Pricing and Contract Financing

Other Lockheed matters concern different decisions about government money. In the F-35 pricing case, the government alleged that Lockheed withheld known supplier cost or pricing data during negotiations, causing higher contract prices. In the LANTIRN case, the government pursued allegations that an inflated proposal would generate profit to cover overruns on another Air Force contract. Those cases turn on the price being negotiated. Titan IV turns on the financing requested and the repayment calculation.

A closer financing parallel appears in NP Precision. In his guilty plea, the company’s owner admitted diverting unearned progress payments on Army contracts for Chinook helicopter couplings. The connection is the government financing: an insider may understand both what a request represented and what happened to the money after payment.

What Proof Do You Need as a Whistleblower?

For a case about premature progress payments, useful evidence connects the contract’s financing terms, the calculations behind a request and the government’s payment. The Titan IV allegations give that comparison a specific shape: delivered-item costs calculated under a changed method, and an invoice seeking extra financing through a lower liquidation rate. We examine the connection between what the government was told and what you saw inside the business, including who understood the change and how it affected the request.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Our work with defense contractor whistleblowers starts with the part of the payment story they understand and builds the case around that knowledge.

You Know How the Request Was Calculated

If you saw a delivered-item cost method change or a liquidation adjustment create a claim for extra government money, speak to one of our whistleblower experts about how the request was calculated. We work beside you to build your strongest defense contractor whistleblower case from that knowledge and bring in defense contractor whistleblower lawyers who understand progress payments and government contract accounting.