Mission Support Alliance / Lockheed: What the Hanford Court’s Partial Dismissal Decided

In the Mission Support Alliance / Lockheed case, the Hanford court’s January 13, 2020 partial dismissal ended the Anti-Kickback Act claim while allowing the government’s False Claims Act pricing claims to continue. The government alleged that an IT subcontract carried inflated rates and concealed affiliate profit, with the same executive helping set the seller’s price and accept it for the buyer.

The Justice Department announced the suit on February 8, 2019, naming Mission Support Alliance, Lockheed Martin Corporation, Lockheed Martin Services and a Lockheed executive who also served as Mission Support Alliance’s president. The Department of Energy identified possible fraud while administering the contract and referred it to the Justice Department and its own Office of Inspector General.

What the Hanford Mission Support Contract Required

Hanford’s mission-support contract paid for the services behind environmental cleanup: information technology, security, occupational health, training and logistics. The former plutonium production site in southeastern Washington needed those services alongside the cleanup work itself.

Mission Support Alliance worked under a cost-reimbursement contract: the government covered allowable, reasonable costs attributable to the work. Its profit came through an award fee tied to performance, including success in limiting the government’s costs. An affiliate subcontract mattered because it offered another place to put profit into the bill.

The contract’s fee clause generally prohibited a separate additional fee for subcontractors affiliated with a member of the prime-contract team. It contained exceptions, including commercial items and competitively awarded fixed-price subcontracts. Whether the IT services qualified for an exception became central to the dispute over what the government had agreed to buy.

Lockheed owned part of Mission Support Alliance and all of the IT subcontractor, Lockheed Martin Services.

According to the Justice Department, Mission Support Alliance awarded Lockheed Martin Services a $232 million subcontract without competition, covering January 2010 through June 2016. The government alleged that the billing rates concealed profit beyond what the Energy Department would allow.

How the Alleged Affiliate Pricing Was Built

The government’s pricing case followed the explanations attached to the rates: where they came from, how much profit they contained and who had checked them. The court’s account of the allegations shows those explanations changing as the subcontract moved toward agency consent.

An earlier proposal put the labor-only subcontract at $275,672,433 for fiscal years 2009 through 2018. At the Energy Department’s request, the Defense Contract Audit Agency reviewed the proposal and questioned $59,545,246 as unallowable profit. The government alleged that Lockheed personnel then created technical and pricing analyses for the audit while presenting them as work Mission Support Alliance had already performed before submitting its proposal.

A competing bidder protested the award to the Government Accountability Office in 2008, arguing that extra profit for the Lockheed affiliate would drive up Mission Support Alliance’s costs. The Energy Department told the office it planned corrective action. When it re-awarded the contract in April 2009, its contracting officer said he would not consent to the subcontract until it contained no fee.

Discounts From Rates That Did Not Match

The July 2009 revised proposal and the following month’s audit-response letter described discounted General Services Administration schedule prices. The audit response also claimed the services were commercial, invoking the contract’s exception for affiliate profit. The government alleged that some labor categories and all the proposed materials were not even on the subcontractor’s GSA Schedule.

The October 2010 best-and-final offer made the comparison more specific. It represented the labor rates as a 7.13% discount from the schedule prices. The government alleged that the offered rates instead exceeded those prices, and that the agency had negotiated better prices than the ones offered to Mission Support Alliance.

Those representations reached the Energy Department through Mission Support Alliance’s November 2010 consent letter. According to the government, executives on loan from Lockheed helped establish the subcontractor’s pricing while also accepting it in their Mission Support Alliance roles. One executive allegedly controlled both what Lockheed Martin Services would offer and what Mission Support Alliance would accept, then represented the pricing as independently evaluated.

We see the absurdity in that alleged arrangement: the independent price check came back to the person who helped set the price. Both sides of the table.

The Profit Behind the Performance Promise

Mission Support Alliance’s consent letter said it had not requested cost details and had no specific fee figure for the subcontractor. The government alleged that executives on loan from Lockheed knew precisely what additional profit Lockheed expected.

The letter put estimated net profit at 1% and represented that the remaining fee was at risk if the subcontractor performed poorly. The government alleged that the companies actually anticipated at least 11.5% in additional profit, overwhelmingly built into inflated labor rates, fixed-unit rates and fixed prices rather than dependent on good performance.

In February 2011, the Energy Department conditionally consented after requiring removal of the affiliate fee as it understood it. The government alleged that the companies reduced proposed labor rates by the represented fee percentage while concealing the larger expected profit. The alleged misrepresentation followed the money into claims from the subcontractor to Mission Support Alliance and from Mission Support Alliance to the government.

Why the False Claims Act Claims Continued

The court allowed the False Claims Act claims over the pricing representations to continue because the government identified specific written statements that could have influenced the Energy Department’s consent and payment decisions.

The defendants pointed to their disclosed rates and argued that the Energy Department knew the subcontract could earn profit. The court found that the government’s detailed allegations of misleading statements were enough to challenge that account.

The revised proposal, audit response, best-and-final offer and consent letter supplied concrete statements about the rates and profit. The court found enough detail in the allegations to infer that the defendants had at least disregarded whether their statements were true. That was enough for the pricing claims to go forward.

The breach of contract claim against Mission Support Alliance also continued. The company argued that the affiliate-fee dispute belonged before the Civilian Board of Contract Appeals, where a parallel dispute was already pending. The court kept the claim because the Contract Disputes Act makes an exception for claims involving fraud, and the contract and false-claims allegations relied on overlapping evidence.

Why the Court Dismissed the Kickback Claim

The court dismissed the civil Anti-Kickback Act count against all defendants. Its reasoning concerned both the incentive payments and the relationship between the parties making and receiving them.

The government alleged that Lockheed Martin Corporation paid more than $1 million to Mission Support Alliance executives to obtain favorable treatment for the IT subcontract at inflated rates. It identified Lockheed’s Management Incentive Compensation Program as the vehicle for those payments.

The court treated the program as a standardized executive incentive arrangement and found that the complaint did not allege side payments from a third party. It also treated the affiliated businesses as one business association under that law, rather than separate parties paying each other.

The court also dismissed the unjust-enrichment claim against the executive: the claim that he had unfairly kept money. The complaint did not identify which payments it sought to recover, and the court found that the claim arose from the written contract. The government could revise that claim.

The Executive’s Separate Settlement

An earlier settlement concerned a different executive, Mission Support Alliance’s chief financial officer, who was a Lockheed employee on loan. In the resolution announced in August 2018, he agreed to pay $124,440 over allegations involving favorable treatment of the IT subcontract. The government alleged that he represented the subcontract as carrying no affiliate profit and received a payment for obtaining the Energy Department’s consent.

That executive’s settlement addressed his conduct concerning the same subcontract. The later suit against the companies and another executive challenged the broader pricing and consent process.

What Are the Indicators of Government Procurement Fraud?

In this case, the alleged indicators were contradictions between the rates described to the government and the pricing information inside the businesses. The useful billing evidence connects the claimed GSA discounts, internal profit estimates and statements about who had independently reviewed the price.

The management structure matters alongside those documents. A study in the Journal of Forensic and Investigative Accounting, Unique Characteristics of Management Override Fraud Cases, compared frauds involving management override with those involving a lack of internal controls. It found that stronger anti-fraud environments were associated with a greater relative likelihood of management override rather than an absence of controls. The study offered this interpretation:

For someone inside a pricing or subcontract team, that distinction gives the approval trail a purpose. We look at who prepared the rate comparison, who could challenge it and who ultimately represented it to the government as independently checked. In the Hanford allegations, the people filling those roles were as important as the figures in the proposal.

For a pricing or subcontract employee who sees a gap between internal forecasts and what the agency was told, we bring the expertise to turn that knowledge into a whistleblower case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Who Set the Price

If you worked on affiliate rates, profit forecasts or the consent letter and know why the internal numbers differed from what the agency heard, talk with our whistleblower experts. We build the case around that knowledge, bring in government procurement whistleblower lawyers who understand affiliate subcontract pricing, and stand beside you through the case.