The False Claims Amendments Act of 2021, S. 2428, now before the Senate, aims to eliminate loopholes that, in some cases, may allow defense companies and other firms to avoid financial liability in cases in which they knowingly supply defective equipment but are not found financially liable by the courts because the contractor team is the sole supplier of a given system.

Last Oct. 28, the Senate Judiciary Committee advanced S. 2428 to the Senate on a 15-7 vote. Republican Senators Mike Lee (R-Utah), Ted Cruz (R-Texas), Josh Hawley (R-Mo.), Tom Cotton (R-Ark.), Marsha Blackburn (R-Tenn.), Thom Tillis (R-N.C.), and Ben Sasse (R-Nebraska), voted against the bill for what they said were possible increases in health care costs because of the bill. Proponents said the bill would crack down on fraud and lower health care and other costs, including costs to DoD.

Low angled view of the U.S. Capitol East Facade Front in Washington, DC.

In a Jan. 4 Senate floor speech, Sen. Charles Grassley (R-Iowa), the ranking member of the Senate Judiciary Committee and an author of the 1986 amendments to the FCA, said that the updated law has resulted in the federal government’s recovery of $65 billion in fraudulently spent funds.

“Some courts now say that if the government keeps paying a claim despite some knowledge of potential fraud, then the violation is not material,” Grassley said. “Now, that is not common sense…Had this flawed interpretation applied, the results would have been absurd and tragic.”

Grassley then noted a court case in 2009 in which Northrop Grumman [NOC] settled a $325 million qui tam lawsuit by whistleblower, Robert Ferro, a then-electrical engineer with Aerospace Corp.

Despite TRW, Inc. research in 1995 showing that certain TRW-supplied microelectronic parts, heterojunction bipolar transistors (HBTs), on National Reconnaissance Office (NRO) satellites, would fail, the company–bought by Northrop Grumman in 2002–did not inform the government, the complaint said (Defense Daily, Apr. 5, 2009). The settlement was the largest ever civil recovery by a government agency within the intelligence community.

In addition to exorbitant costs imposed on NRO satellite programs, the defective parts also led to the NRO having to bear the cost of maintaining the Lockheed Martin [LMT] Titan rocket program for 18 months beyond its scheduled shut down, according to an NRO inspector general report obtained in 2018 by GovernmentAttic under a Freedom of Information Act request. The last Titan launch–of an NRO payload–was in 2005.

“Due to the faulty parts [HBTs], several satellites started to malfunction,” Grassley said in his Jan. 4 Senate floor speech. “One of them was on an important mission over the Middle East during a time of war. Evidence showed that the contractor knew about the malfunctions but hid— hid—these modifications from the government. But even if the government had some idea about fraud, it couldn’t stop payment because the contractor was the only company that could manufacture and support these satellites.”

“Had this case been brought today, a court could incorrectly find that the violation was not material,” Grassley said. “This ought to be unacceptable, and it is. This kind of fraud can hurt our troops and damage our national security.”

Congress passed the first FCA–known as the “Lincoln Law”–on March 2, 1863 to hold contractors liable for supplying the Union Army with low-quality rifles, ammunition, food, horses, and mules.

When reports of fraud among military contractors surfaced in the 1980s, Congress updated the law in 1986.

“When I authored the False Claims Act amendments in 1986, I did it because fraud against the federal government was out of control, especially in the defense sector,” Grassley said in his Jan. 4 Senate floor speech. “At the time, the Justice Department estimated that we were losing somewhere between one percent to 10 percent of the federal budget to fraud. Most importantly, I saw that fraud put lives at risk, including those of our military, those of our law enforcement, and even of our veterans.”