Macalan and NEK: JIEDDO Equipment-Lease Costs

In the Macalan and NEK settlement, the security contractor paid $2.08 million to resolve allegations of excessive or unallowable costs, principally equipment lease fees, on a Joint Improvised Explosive Device Defeat Organization contract. The government alleged that NEK was prohibited from charging lease fees above what it had paid to buy the equipment. If you know the purchase costs and the rental charges, you know where that comparison begins.

The Macalan Group, formerly NEK Advanced Securities Inc., was a security contractor headquartered in Colorado Springs, Colorado. The Justice Department’s September 17, 2013 announcement described the settlement of the government’s false-invoice allegations.

What the JIEDDO Contract Required

NEK’s contract with the Joint Improvised Explosive Device Defeat Organization required it to develop and deploy teams of specialized personnel to Iraq and Afghanistan to combat improvised explosive devices. The government’s allegations concerned what NEK charged for that work, with equipment lease fees the most significant disputed costs.

For an insider, the mission and the bill meet in the contract’s payment terms. A defense contract specifies the work, the basis for payment and the evidence supporting a payment request. The equipment’s use on a mission explains why it was there; the contract and its modifications explain what the contractor could charge for it.

The Equipment-Lease Allegation

The alleged equipment-lease overcharging centered on a limit tied to NEK’s purchase price. In its national settlement announcement, the Justice Department said NEK submitted false invoices claiming excessive or unallowable costs and was prohibited from charging lease fees exceeding the price it paid for the equipment. The government’s account puts a familiar business document, the purchase record, beside the rental bill.

We see the unfairness in what the government alleged: taxpayers paying rent beyond the contractor’s purchase cost despite the stated limit. The mission explains the need for equipment. It does not explain billing past the limit the government said applied.

The broader cost-mischarging problem is the connection between an expense and the government contract asked to bear it. The government’s cost-allowability rule requires records showing that claimed costs were incurred and belong to the contract, as well as compliance with the contract’s terms. Paying an expense and entering it in the ledger still leaves the question of what the government owes.

Cash, an Unpaid Invoice and Equipment

The Colorado announcement distinguished cash already paid from obligations still to be performed:

Those obligations reached beyond the money already paid, into what the contractor still sought to collect and what it held. The Army Criminal Investigation Command’s Major Procurement Fraud Unit and the Defense Criminal Investigative Service investigated the Macalan matter, with support from the Defense Contract Audit Agency.

What Proof Do You Need as a Whistleblower?

For an equipment-lease case, useful proof connects what the equipment cost, what the contractor was allowed to charge and what it asked the government to pay. We examine the equipment and billing records behind that comparison with you, including the contract and modifications, purchase records, lease invoices, cost assignments and payment requests. Property and return records can also explain what equipment the contractor held and when its use ended.

Different line items can use different pricing arrangements. We look at the line item behind the equipment charge and the payment request it entered, so the comparison follows the bill the government actually received.

The view from inside a supplier can reach beyond the public contract entry. In its 2022 report Hidden Costs, Transparency International Defence and Security described how gaps in subcontractor information obscure both conflicts of interest and the reach of government funding:

That finding gives a supplier’s knowledge a concrete place in our assessment. Where an equipment expense passes through a subcontractor, the lease and purchase records can explain a charge that the prime contractor’s public award description leaves out. We follow that expense through to the government-facing invoice.

When Equipment History Changes the Bill

KBR provides a separate example of why the equipment’s history matters. In its settlement account involving Army logistics contracts, the Justice Department described allegations that logistics subcontracts were extended after equipment had been returned or was no longer needed, with the costs billed onward to the Army. A return record and a continuing rental charge can tell sharply different stories about the same equipment.

GS Engineering, its president and a former bookkeeper agreed to a $1 million civil settlement over alleged lease costs between related businesses. For us, understanding who approved a lease expense and how it reached the government is part of understanding the charge itself.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. If you understand the difference between the equipment’s cost and the charge submitted, we can assess how that knowledge supports a defense contractor whistleblower case.

You Know What the Equipment Cost

If you saw how equipment purchases became lease charges on a defense contract, talk with our whistleblower experts about the bill you know from the inside. We build your strongest defense contractor whistleblower case around your understanding of the equipment and the accounting, bring in defense contractor fraud whistleblower lawyers who know cost-billing disputes, and stay beside you throughout the case.