CyTerra: The Labor Costs Behind the Army’s Price

In the CyTerra mine-detector settlement, the company agreed to pay $1.9 million to resolve allegations that it withheld current labor-hour data during negotiations for three Army contract modifications. The government alleged that the Army would have negotiated a lower price if CyTerra had supplied the information. For someone who knows the production costs behind a government proposal, that is the telling connection: what the manufacturer knew about making the product, what it told the buyer, and the price the buyer agreed to pay.

CyTerra, headquartered in Waltham, Massachusetts, manufactured equipment for the U.S. military, including portable mine detectors. The Justice Department announced the civil settlement on July 2, 2013.

More Mine Detectors Meant Another Price Negotiation

The Army awarded CyTerra a contract in 2003 to produce and deliver AN/PSS-14 hand-held mine detection units. It modified that contract several times to buy additional units. The disputed negotiations concerned those later purchases.

According to the government, CyTerra knowingly failed to give the Army the most recent cost or pricing data on the labor hours needed to make a detector. The alleged omission concerned information available when the parties were negotiating the additional purchases.

An earlier order and a later purchase put different dates on the same practical question: how much labor does making a detector require? For an estimator, the useful comparison is the production information available for the later negotiation and the information that reached the buyer. The original contract date does not tell that whole story.

The broader problem in government contract changes is how the supporting costs become the government’s agreed price. A modification records a change to the bargain. In a negotiated modification, the contractor’s account of the work and its costs helps shape the price the buyer accepts. Here, the Army was buying more units, and the government’s allegation focused on the labor needed to produce them.

For a production or pricing insider, that puts the negotiation itself in view. The person who understands the labor estimate may know something the purchaser cannot see from a finished detector: the work represented by the number. That knowledge matters when the company asks the government to use its cost information in agreeing to another purchase.

Current Labor Data and the Truth in Negotiations Act

The Truth in Negotiations Act puts a plain expectation into the bargain: the buyer gets the cost facts needed to negotiate. The Justice Department said the law required CyTerra to provide accurate, complete and current cost or pricing data.

Those requirements reach the information behind a proposal. The federal certificate for cost or pricing data ties the accuracy, completeness and currency of submitted pricing facts to the relevant agreement date. For a manufacturer negotiating additional production, that directs attention to what the business knew when the price was agreed.

A labor-hour figure also needs someone who understands what it measures. The employee who knows the production work and the estimator who uses its costs bring different knowledge to the same proposal. Our work connects that knowledge to the information supplied for the negotiation. We want to understand the work behind the number, the decision to use it and the account the government received.

We expect the Army to negotiate a price. It should not have to bargain blind to cost information its supplier is required to provide.

Two Former Executives Started the CyTerra Whistleblower Case

Two former CyTerra executives filed the qui tam case in federal court in Massachusetts. The settlement announcement said they would receive a share of the civil recovery from this case.

The Defense Criminal Investigative Service provided investigative assistance, with assistance also from the Defense Contract Audit Agency’s Investigations Support Division.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. If you know the cost information behind a government proposal, our whistleblower experts can help you understand what your knowledge means for a case.

What Proof Do You Need as a Whistleblower?

For a pricing case like CyTerra’s, the useful evidence connects the production information available inside the company, the data supplied for the negotiation and the price agreed with the government. Our whistleblower experts examine those connections with you, including who knew about the information and when.

The estimate inside the business and the version supplied to the buyer tell us about different decisions. We examine them with someone who understands the work they describe. An insider’s explanation of which labor figure reached the pricing team, and which reached the government, helps us connect a production record to a negotiating decision. That is where your knowledge of the business gives the documents meaning.

Commercial Discounts Show the Same Pricing Problem

NetApp faced a related allegation about information withheld from a government buyer. In that case, the Justice Department alleged that incomplete commercial-sales disclosures weakened the government’s negotiated discounts. The contracts covered storage hardware, software and management services. The allegations also concerned improved discounts that NetApp failed to disclose and pass through as its contracts required.

That case shows why pricing knowledge matters beyond the original sale. NetApp’s alleged disclosure failures concerned both the initial negotiation and later discounts. CyTerra’s concerned negotiations for additional production. In each, the government pointed to information held inside the seller’s business that mattered to the price.

The insider’s vantage point differs with the product. In a commercial-sales case, it may be the discounts customers actually received. In a manufacturing case like CyTerra’s, it is the labor information behind the proposal. We follow the information that explains the bargain, whether it starts with a customer’s discount or the hours needed to make the equipment.

You Know the Costs Behind the Proposal

If you know which labor figures the company had and which ones reached the government, speak to one of our Whistleblower Experts about the costs kept out of the negotiation. We work with you to build your strongest pricing whistleblower case and bring in government contract pricing whistleblower lawyers who understand production costs and negotiated modifications. From the first conversation through the case, we stay beside you as your partners.