Fairbanks Morse Engine: The Same Ship, a Different Bill

In the Fairbanks Morse Engine settlement, the company agreed to pay an additional $142,500 to resolve allegations that it charged Navy engine-repair supervisory hours to the wrong subcontract. Fairbanks Morse had already taken corrective action and repaid the overcharges. The disputed hours concerned work on the same ship, USS Ashland, under subcontracts that paid differently.

The Justice Department’s August 25, 2016 announcement identified Fairbanks Morse Engine as a Norfolk company performing engine repairs for the Navy. Its account of the alleged cost mischarging turns on a distinction that a supervisor, timekeeper or contract accountant would recognize: doing the work and charging the right contract are separate questions.

The USS Ashland Labor Allocation

Fairbanks Morse had two subcontracts for work on USS Ashland: a firm-fixed-price subcontract and a time-and-materials subcontract. The government alleged that supervisory hours charged to the time-and-materials subcontract should already have been included in the separate fixed-price subcontract. The alleged overcharge came from putting those hours on a bill for work paid by time when the fixed price already covered them.

That is why the subcontract matters as much as the ship. A record identifying Ashland could locate the repair correctly while leaving unanswered which agreement covered the supervisor’s time.

Why the Subcontract Changed the Bill

The payment terms explain the financial consequence of moving the hours. Under a firm-fixed-price arrangement, the contractor agrees to perform the required work for a set price and bears the resulting profit or loss. The price does not rise simply because the contractor’s actual costs rise.

Time-and-materials work pays for qualifying labor hours at fixed rates for the relevant labor categories, with materials paid under the applicable cost rules. Those hourly rates include wages, overhead, general and administrative expense, and profit. The hours assigned to that work therefore affect the bill, while supervisory effort already covered by a fixed price belongs inside that price.

We expect a fixed price to mean something. Under the government’s allegation, the Navy was billed by the hour for supervision it had already bought. Same work, another bill.

Disclosure, Repayment and an Additional Settlement

Fairbanks Morse took corrective action after the conduct came to light, repaid the overcharges and submitted a disclosure to the Defense Department Office of Inspector General. Its disclosure came under the contractor ethics and mandatory-disclosure rule. The additional agreement settled the government’s False Claims Act allegations.

Returning the overcharges did not end this case. The company still agreed to a separate civil settlement, which is why we look at both the original billing and the response when an insider tells us the problem was corrected.

What Evidence Is Needed to Prove Fraud?

For a labor-allocation case like this, the evidence connects the work performed, the subcontract that covered it, the hours charged and the resulting payment request. We compare the executed agreements and modifications with the time sheets, job codes and billing records. The useful connection is between a particular assignment and the contract that ultimately carried its cost.

The scope of work explains what the fixed price bought, including which supervisory work it covered. The time record and charge code show where the hours went. The payment request shows how those entries became a charge for the customer.

Someone in the repair operation may know the assignment, while someone in finance may know how it appeared on the bill. We work with the insider to connect those views, including who directed or approved the allocation and what happened when it was questioned. That is the point of the evidence behind the government’s bill: linking the operational facts to the payment decision.

A 2026 University of California, Davis Law Review article explains why the people making daily decisions matter even when a company has legal and compliance staff. Its point is the gap between a decision inside the business and the later scrutiny of that decision:

For a labor-billing case, that puts the supervisor’s allocation decision alongside the time sheet and invoice. We want to understand what management directed when the charge was made, as well as how the company described it after the overcharge surfaced.

The Same Labor Problem on a Different Hull

In the Huntington Ingalls Industries case, a shipyard foreman alleged that supervisors assigned labor to hull and order numbers that did not match the work. The complaint described what those allocations allegedly concealed:

The complaint alleged that accurate allocations would have exposed exceeded hourly targets and cost the company and its managers incentive or bonus payments. Those allegations tied the wrong hull or order to a reason for moving the hours.

Fairbanks Morse’s alleged allocation stayed on the same ship but crossed between subcontracts with different payment terms. Both accounts show why knowing where the crew worked is only part of understanding a labor charge. The agreement carrying the hours explains who was asked to pay.

Whistleblower Rewards for Contract Billing Cases

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. If you know why supervisory hours belonged to one contract but appeared on another, our whistleblower experts can help turn that knowledge into your strongest defense contractor whistleblower case.

You Know Where the Hours Belong

If you saw repair supervision charged outside the job that already covered it, speak to one of our whistleblower experts about the allocation you saw. We build the case with you and bring in defense contractor whistleblower lawyers who understand labor allocation and subcontract billing. From the first account of the work through the pursuit of a recovery, we stay on your side of the table.