AEPTEC Microsystems / 3e Technologies: Other Customers’ Hours on the Navy’s Bill

In the AEPTEC Microsystems and 3e Technologies settlement, the company agreed to pay $1,662,500 to resolve allegations that it shifted labor costs from other customers’ work onto four Navy contracts. AEPTEC Microsystems, headquartered in Rockville and doing business as 3e Technologies, allegedly charged the Navy for hours spent on commercial and other-government fixed-price work. If you knew which project an employee actually worked on, you could recognize the mismatch the government alleged between the work performed and the contract billed.

The cost-mischarging allegation turned on who should bear the labor expense. The Navy contracts reimbursed costs, while the other work carried a fixed price. Moving the hours between those jobs could change what the government paid without changing the work an employee had done.

What the Navy Contracts Covered

The Navy bought development and installation of shipboard systems that transferred information wirelessly, both aboard ships and to shore facilities. The Justice Department’s account of the projects describes distinct uses for that technology, from monitoring equipment wear to keeping track of food inventories.

Three contracts involved wireless sensors collecting data about wear and tear on shipboard equipment. The sensors were meant to help the Navy move from scheduled maintenance to condition-based maintenance, using the equipment’s condition to inform the work it needed. The fourth contract covered food-service automation, including development of a wireless system to monitor food inventories aboard ships. The allegation concerned hours spent serving other customers that ended up on those shipboard projects’ bills.

How the Labor Allocation Allegedly Worked

The government alleged that 3e shifted labor hours from fixed-price work for commercial purchasers and other government entities to the Navy’s cost-plus-fixed-fee contracts. That distinction between contract payment terms explains why a change in the labor allocation mattered. It moved an expense from work with an agreed total price into work for which the Navy reimbursed costs.

The fixed-price customer’s bill did not rise with the contractor’s labor costs. The Navy’s fixed-fee arrangement reimbursed allowable costs while keeping the fee fixed at the outset. The alleged gain came from moving other customers’ labor expenses onto the Navy’s bill, without needing a higher fee.

We see the unfairness in the alleged arrangement: the fixed-price customer gets its work, while taxpayers pick up labor costs the contractor should have carried within that customer’s price. The employee’s effort becomes a way to draw additional government money simply by changing the job charged. Same work, different bill. That is why the original assignment matters as much as the total hours on the time sheet.

The Investigation and Civil Settlement

The Defense Criminal Investigative Service investigated 3e’s performance under the Navy contracts with the United States Attorney’s Office for Maryland. The Justice Department announced the civil settlement on April 6, 2006, resolving False Claims Act allegations that the company overcharged the Navy.

What Evidence Is Needed to Prove Fraud?

For a labor-allocation allegation like this one, evidence connects the actual work to the contract billed and to the people who directed or approved the charge. We examine the contract and its modifications alongside time records, job codes and the payment request. The contract identifies the promised work and payment terms, while the labor records show which project absorbed the expense.

Government cost-allocation rules tie charges to the work they benefit, including shared costs spread fairly across projects. In reviewing a suspected shift, we compare the original work assignment with the charge that entered the accounting system and any later transfer. An instruction or approval can explain who chose the destination, while the cost voucher connects that choice to the government’s bill.

A technical employee may know the customer whose system the work served. A supervisor may know the assignment given, and an accountant may know when the charge changed accounts. We bring those views together around the same labor expense. That lets the technical work and the billing history answer each other, instead of treating the payroll total as the whole story.

The Same Question on Other Military Bills

CDI Corporation faced allegations that its Sharonville office directed false labor allocations to military aircraft-engine purchase orders under General Electric subcontracts. In the Huntington Ingalls Industries case, the government alleged that labor incurred on one Navy or Coast Guard shipbuilding contract was charged to another. That comparison stays within government work, while AEPTEC’s alleged transfers also brought commercial work onto the Navy’s bill. Each account makes the same practical connection valuable: someone knows the work performed, and the charge names a different project.

What Your Knowledge of the Work Can Mean

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For someone who understands the assignments behind a labor charge, the starting point is the difference between the work performed and the work represented to the government.

You Know Whose Project It Was

If your assignments and the Navy charges tell different stories, talk with our whistleblower experts about the work behind those hours. We turn that knowledge into a focused case with you and bring in defense contractor fraud whistleblower lawyers who understand labor allocation and cost reimbursement. From the first conversation through the pursuit of a recovery, we stay beside you as your experts and partners.