Integral Consulting Services: A Teaming Dispute on the Army’s Bill

Integral Consulting Services, Inc. agreed to pay $505,838 to resolve allegations that it charged teaming-agreement litigation expenses through indirect costs on an Army contract. The government’s allegation followed a dispute between contractors into the general and administrative pool used to bill government work. If you know what a legal expense was for and how it entered that pool, you know the connection at the center of this case.

The Justice Department announced the civil settlement on February 6, 2018. It resolved a False Claims Act case brought by a whistleblower in the District of Maryland over costs the government alleged had inflated the Army’s payments. The Justice Department credited the Defense Criminal and Civil Investigative Service and the Army Major Procurement Fraud Unit with investigating those charges.

The Army Biometric Contract Behind the Allegations

Integral was a Maryland-based IT company serving federal agencies and commercial organizations. Its services included biometric technologies, enterprise IT management and software development. In 2012, the Army awarded it contract W911W5-12-D-0002 to provide identity intelligence analysis support for the National Ground Intelligence Center’s Biometric Intelligence Program.

The Justice Department alleged that litigation expenses entered an indirect-cost pool spread across Integral’s government contracts, including the Army contract. The Army was buying intelligence support, while the disputed expenses came from a fight over a teaming agreement with another contracting company. The contract number connects the operational side of the business to the accounting side.

Teaming-Agreement Litigation in the G&A Pool

The government alleged that, from about May 1, 2012 through June 27, 2014, Integral included costs incurred by the company and its employees in connection with the teaming litigation in its G&A pool. That general and administrative pool spread expenses among Integral’s government contracts. The government alleged that including the litigation expenses inflated certain indirect cost rates and, through those rates, the claims paid by the Army.

The government’s cost-allowability rules require claimed costs to satisfy the contract’s terms, applicable accounting standards and limits on reimbursement. The supporting records must establish both that the expense was incurred and that it belongs to the contract. Paying a bill and recording it in the ledger leave another question to answer: why should the government carry it?

A fight between contractors allegedly became part of the Army’s bill for intelligence support. We see no reason a fight over a teaming agreement should become the taxpayer’s expense just because it passes through overhead.

What Evidence Is Needed to Prove Fraud?

For an alleged litigation-cost overcharge, the evidence connects the dispute, the expense, the indirect-cost pool and the government’s payment. We work with insiders to connect those records in a defense contractor whistleblower case. Each part answers a different question about why the government was charged.

The legal invoice or employee time record can identify the work and the dispute it served. Its accounting assignment shows where the company put the expense. The pool reconciliation and allocation base then connect that entry to the costs distributed across contracts. For this kind of allegation, the subject of the litigation and the treatment of its costs belong in the same account of what happened.

The rules for legal costs require potentially unallowable costs to be kept separate. The Integral announcement described expenses incurred by both the company and its employees, so the alleged cost path extended beyond a bill from an outside firm.

The proposal or voucher carries the connection onward to the government. We examine how the disputed expense affected the pool and the resulting charge under the particular contract. A person who understands the legal bill and a person who understands the rate calculation may see different parts of the same payment story.

What Cost Audits Examine

Incurred-cost audits examine direct and indirect costs charged to government contracts for reasonableness, their relationship to the work and whether the rules permit reimbursement. The Defense Department Inspector General describes that review in its Semiannual Report to the Congress for April through September 2018. It also describes a separate Navy audit that questioned legal fees among indirect costs.

The same report shows why the response to a cost finding matters. In a separate Baltimore contract-administration review, the Inspector General found that a contracting officer had failed to take appropriate action on a Defense Contract Audit Agency report identifying $1.1 million in indirect costs that did not comply with acquisition rules. The Inspector General recommended reassessment and recovery of costs found unallowable. For an insider who knows a disputed expense survived a review, the later decision about reimbursement is another part of the money trail.

The Settlement and the Whistleblower’s Share

The Justice Department’s announcement allocated the whistleblower a share of the government’s recovery from the Integral settlement. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Here, the person who brought the case connected a dispute between contractors with costs charged to the Army.

The Same Pool, Different Expenses

The TRW and Northrop Grumman cost case ended in a $111.2 million civil settlement over alleged cost shifting. The Justice Department alleged that costs of a private satellite proposal were charged to general and administrative accounts. TRW’s successor, Northrop Grumman Space & Mission Systems Corporation, agreed to the settlement.

The parallel is the relationship between the expense’s purpose and the account carrying it to the government. In the TRW allegations, a private satellite proposal reached indirect accounts. In Integral’s, litigation over a teaming agreement allegedly entered the shared pool. An insider’s knowledge of what the expense actually served gives the accounting entry its meaning.

You Know What the Legal Bill Was For

If you saw litigation expenses enter a pool charged to government contracts, talk with our whistleblower experts about the dispute and the accounting behind the bill. We work alongside you to build the case around those charging decisions and bring in defense contractor fraud whistleblower lawyers who understand indirect costs and excluded expenses. Your knowledge of why the cost was there is where our work together begins.