Navmar Applied Sciences: Navy Costs Billed Twice or Shifted Past Ceilings

The Navmar Applied Sciences settlement required the company to pay $4.4 million to resolve allegations of Navy double billing and material cost shifting. The Justice Department announced the civil agreement on September 15, 2023, alleging that Navmar billed some costs twice and moved others between contracts to avoid cost ceilings. If you know which Navy job used the labor or materials, you may recognize what the final bill leaves out: where the expense actually belonged.

The Navy Work Behind the Charges

Navmar Applied Sciences Corporation, headquartered in Warminster, Pennsylvania, provided research and engineering services, unmanned aircraft development and support, and intelligence, surveillance and reconnaissance operations. Between 2010 and 2012, the Navy awarded Navmar a series of contracts for surveillance systems, hardware, technical support, advanced sensors and unmanned aerial systems. The agreement says those awards rested in part on technologies developed under the Small Business Innovation Research Program Phase III.

The settlement concerned costs charged across those Navy contracts. The government’s allegation followed the labor and materials into the bills: a cost could appear on another contract after the Navy had already paid it, or move to a different contract to get around a ceiling. For someone in program finance, the useful connection is between the work performed, the account charged and the payment the company requested.

The Same Labor and Materials on Two Navy Bills

The government alleged that Navmar knowingly billed the Navy for certain labor and material costs on one contract, received payment, then billed and received payment for those same costs on another contract. The settlement agreement identifies the contract pairings using short labels: J10 and J09, and J10 and J15.

The distinction matters to the employee who knows the original expense. A time record can show which work an employee performed, while the job assignment shows which contract benefited. The invoice or voucher shows where the company asked the Navy to pay. In the government’s account, the same expense reached the Navy through more than one contract and produced more than one payment.

For a materials employee or accountant, the purchase and allocation records provide the equivalent connection. We compare the underlying expense with each charge and payment request, including the history of any transfer. The question is concrete: did these bills charge the Navy again for the same labor or materials?

Material Costs Moved to Avoid Navy Contract Ceilings

Navmar’s Navy settlement also addressed allegations that material costs moved between contracts to avoid cost ceilings and maximize payments the company was not entitled to receive. The agreement lists these movements using its short contract labels:

The government’s cost-allocation rule ties a cost to the benefit the contract receives or another fair relationship. That makes the original material assignment consequential. Moving its cost to another account changes the bill. It does not change which work benefited from the material.

The contract’s payment terms explain why a ceiling matters. In cost-reimbursement work, the government pays allowable incurred costs within the contract’s authorization and ceiling. An insider who knows the original assignment and the funding limit can explain both where the cost belonged and why moving it affected the government’s bill.

We see a simple unfairness in the Navmar allegation: the Navy set a limit, and the company allegedly used another contract to get around it. The transfer’s destination and the reason for moving it belong beside the material record. A cost can disappear from one job’s account while still reaching the same taxpayer.

What Evidence Is Needed to Prove Fraud?

For the conduct alleged in the Navmar settlement, the useful evidence connects an original cost to the contract charged, the government payment and the decision behind the charge. We work with insiders to connect the work records and the government’s bill, including time entries, material assignments, transfer records, contract ceilings and payment requests. The person who knows why a cost moved can explain something the final total cannot.

The Defense Contract Audit Agency audited Navmar’s incurred-cost proposals, and the Justice Department conducted an investigation related to aspects of those audits and the resulting claims. For a contractor accountant, that connects the initial bill to the later cost submission: we examine how a charge moved through interim billing, final indirect-cost proposals and completion vouchers.

The records answer different questions. The original job assignment identifies the work that benefited. The transfer history shows where the charge went. An approval or instruction can explain who chose the destination and what they knew about the original cost. We follow that decision through to the invoice or voucher, so the accounting change stays connected to government money.

A 2022 study in the International Journal of Management and Humanities compared 49 defense contractors and found higher penalties and penalty ratios among firms with compliance and ethics programs. For us, evaluating controls means understanding what happened when someone assigned, approved or challenged a particular cost, rather than stopping at the existence of a compliance program.

An insider’s knowledge of the work and the billing decision can be the starting point for a defense contractor whistleblower case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

Other Cost Cases Show Why the Destination Matters

AEPTEC Microsystems agreed to pay $1,662,500 in April 2006 to resolve allegations that it charged four Navy cost-plus-fixed-fee contracts for hours spent on commercial and other government fixed-price work. In that case, the source and destination contract types supplied the financial incentive: the contractor’s fixed-price work carried its own cost risk, while the Navy contracts reimbursed allowable costs. The government’s allegation put the expense of other work onto the Navy’s bill.

Fairbanks Morse Engine agreed to an additional $142,500 civil settlement in August 2016 after disclosing and correcting its billing and repaying overcharges. The government alleged that supervisory hours included in a fixed-price engine-repair subcontract for USS Ashland were shifted to a separate time-and-materials subcontract on the same ship. The vessel did not change. The agreement used to bill the hours did.

A whistleblower’s complaint against Raytheon described a different reason for moving material costs: changing reported costs and earnings. Its allegation makes the purpose explicit:

That complaint pointed to estimates at completion identifying excess materials and transfers between contracts. For a program-finance insider, the material assignment, transfer history and estimate can explain why the reported cost changed. Navmar’s settlement allegations make the payment connection especially direct: the government said it paid the same costs twice or paid costs shifted to avoid ceilings.

The Settlement’s Own Costs Could Not Become Another Government Bill

The Navmar agreement required the company to account separately for the settlement payment and the costs of investigations, defense, corrective actions and resolving the matter. It barred those expenses from direct or indirect charges to federal contracts and required Navmar to identify and repay any already submitted for payment. We think that provision belongs at the center of a cost-charging case: taxpayers should not have to fund the expense of resolving allegations about their own bills.

When You Know Why the Charge Moved

If you know which Navy job used the labor or materials and why another contract carried the charge, speak to one of our Whistleblower Experts about why the charge moved. We work alongside you to build your strongest defense contractor whistleblower case from the original expense, the company’s decisions and the government’s payments. We bring in defense contractor fraud whistleblower lawyers who understand cost allocation, and stay with you as your case moves forward.