Airbus U.S. Space & Defense: A Fee on Top of a Fee

In the 2021 Airbus U.S. Space & Defense settlement, the company agreed to pay $1,043,475 to resolve allegations involving affiliate fees, an unapproved cost rate and Navy radar storage charges. If you work with proposals, intercompany pricing or storage bills, the case asks a familiar question: how much of the amount charged to the government was actually the cost it purported to be?

The Justice Department announced the settlement on October 4, 2021. Airbus U.S. Space & Defense was formerly known as Airbus Defense and Space, the name used in the whistleblower’s complaint. A former employee brought the qui tam case under the False Claims Act. The government alleged three ways Airbus added charges to federal contract work.

The Orlando Factor in Contract Proposals

The Orlando Factor was an unapproved cost rate that Airbus allegedly included in contract proposals from January 2016 through January 2017. The Justice Department said the company was not entitled to that rate.

The whistleblower’s complaint described where the rate came from. It alleged that Airbus created a special cost pool and rate to collect costs resulting from the sale of its electronics division, then applied that rate to proposals without revising its disclosed accounting practices. That connects the name Orlando Factor to an internal accounting decision and to what the government was told about it.

For someone working on indirect costs, the important records sit behind the rate: the expenses gathered into the pool, the basis for allocating them and the proposal using the result. Those connections let us examine how an internal expense became part of a government price.

Affiliate Fees Inside Radar Parts Prices

The Airbus affiliate-fee allegations covered certain contracts during 2013 through 2020. The government alleged that Airbus charged federal agencies an affiliate’s fee on top of its own fee for parts bought from that affiliate, without accurately disclosing the additional charge. The government-facing price therefore allegedly carried profit from different businesses within the same group.

The complaint made that pricing chain tangible through TRS-3D radar spare parts. It alleged that the Defense Logistics Agency bought the components from Airbus, which subcontracted their manufacture, handling and shipping to its German affiliate, Airbus Defence and Space GmbH. According to the complaint, the affiliate passed the parts to Airbus at a price that already included its fee.

The whistleblower alleged that a pricing workbook then made the affiliate’s price look as though the fee had been removed:

The complaint alleged that Airbus applied its own fee after the arbitrary reduction and concealed the affiliate’s real fee from the government. We see the absurdity in that alleged maneuver: an assumed deduction stood in for the actual fee, and the spreadsheet made the price look fee-free. A cell did the explaining.

Navy Radar Storage Charges Passed Through Another Defense Contractor

The Navy radar storage allegation concerned a monthly charge that reached the government through a third-party contractor. The Justice Department’s national announcement explains that payment path: Airbus allegedly charged the contractor an excessive storage fee for a radar system purchased to support a Navy contract. The contractor passed the full fee to the Navy, while Airbus allegedly failed to disclose that it paid only part of that amount to store the radar.

The Navy allegedly paid the full charge without being told what Airbus actually paid for storage. We would compare the invoices, storage terms and disclosures to trace that difference from Airbus through the contractor to the Navy’s bill.

Follow the Fee to the Government Bill

In the Airbus storage allegation, the billing step through another contractor carried the full storage fee to the Navy. A similar question about the contents of an affiliate’s price arose in Sikorsky Support Services and Derco Aerospace‘s Navy parts case. The government alleged that Sikorsky bought parts from Derco at supplier cost plus a fixed 32% markup, then sought Navy reimbursement without disclosing the prohibited arrangement. The court ruled that this cost-plus-percentage-of-cost arrangement violated federal law and the Navy contracts.

In the Airbus complaint, an assumed deduction allegedly hid an affiliate fee. In the Sikorsky and Derco allegations, the reimbursement request carried a supplier cost with a percentage added.

What a Public Contract Listing Leaves Out

Gaps in public subcontractor information obscured potential conflicts of interest and how much government funding reached private military and security companies as subcontractors, according to Transparency International Defence and Security. Its 2022 report Hidden Costs: US Private Military and Security Companies and the Risks of Corruption and Conflict explains why knowing the prime contractor alone leaves part of the spending out of view.

In the Airbus allegations, the total charged to the government concealed what went into the price. A pricing employee might understand the affiliate’s fee and the workbook adjustment, while someone handling storage payments might know the expense behind the onward charge. That knowledge can connect the government’s bill to decisions made elsewhere in the business.

What Proof Do You Need as a Whistleblower?

For allegations like these, the useful evidence connects the internal calculation to what the government was told and charged. The Airbus complaint identifies a particular pricing workbook and a particular change to disclosed accounting practices. The storage allegation adds a comparison between the amount charged onward and the expense actually paid.

The former employee’s position helps explain that view. The complaint describes a contracts manager who supported responses to government solicitations and helped with changes and performance issues during contract work. Someone doing that work can understand how the proposal, the supplier’s price and the company’s explanation fit together. That is the view we turn into a case.

The Whistleblower Case and the Investigation

The civil settlement resolved claims brought by the former employee in the Eastern District of Virginia. The Justice Department credited investigative support from the U.S. Department of Defense, Office of Inspector General, Defense Criminal Investigative Service, and the U.S. Army Criminal Investigation Division.

The announcement also provided for the former employee to receive a share of the settlement. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The Airbus case shows why the employee who understands a proposal or intercompany charge can bring something valuable to a defense contractor whistleblower case.

You Know What the Price Contains

If you saw an affiliate fee disappear from a disclosure or a storage expense grow before it reached the Navy, speak to one of our Whistleblower Experts about the pricing you know. We develop your case with you and bring in defense contractor fraud whistleblower lawyers who understand affiliate pricing, indirect rates and charges passed through to the government. From the first conversation onward, we stay on your side of the table to build your strongest defense contractor whistleblower case.