The federal government Thursday filed a lawsuit against BAE Systems, accusing the company of knowingly overcharging the Army for materials under a military truck contract.

In 2008, the Army Tactical Command Life Cycle Management Command (ATCLCMC) awarded BAE’s Tactical Vehicles Systems of Sealy, Texas, a $1.7 billion firm-fixed price and cost-reimbursable contract to build more than 10,000 medium tactical vehicles. The Justice Department alleges BAE knowingly inflated the price of the contract by concealing cost and pricing data on numerous parts and materials during contract negotiations, despite having certified that the data it disclosed was accurate, complete and current, according to a department statement.

One of BAE Systems' Family of Medium Tactical Vehicles (FMTV) on the assembly line. Photo: U.S. Army.
One of BAE Systems’ Family of Medium Tactical Vehicles (FMTV) on the assembly line. Photo: U.S. Army.

Federal procurement law requires contractors negotiating government contracts above a threshold price to disclose cost or pricing data relevant to the negotiations. The government’s complaint alleges claims under the Truth-in-Negotiations Act, which requires the truthful disclosure of cost or pricing data, and the False Claims Act, which prohibits knowingly submitting false claims for federal funds.

BAE’s Tactical Vehicle Systems is a subsidiary of BAE Systems Inc., the U.S. subsidiary of BAE Systems plc, which is based in London. BAE Systems Inc. spokesman Neil Franz said Friday in a statement it objects to the characterization of the company’s actions and contract pricing data and that it is the company’s policy to maintain fair and compliant pricing for all customers.

“This matter relates to an existing contract pricing dispute before the Armed Services Board of Contract Appeals,” Franz said. “We see no basis for the Department of Justice’s complaint and we intend to vigorously defend our position.”

The Army, in September 2008, agreed to buy 8,400 Family of Medium Tactical Vehicle (FMTV) trucks, 1,600 FMTV trailers, system technical support and program support from BAE for $2.1 billion with an option to buy an additional 10,000 units for $1.7 billion.

The government alleges BAE submitted a bill of materials (BOM), a list of parts and materials needed for a contract, together with costs, prices and quantities. The BOM is a key document in negotiations, the government said in the court filing. On Sept. 11, 2008, BAE submitted a revised BOM to Army negotiators.

According to the government, as negotiations continued, the Sept. 11 BOM continued to be updated as the pricing for individual parts was discussed. Although updated in the following days, this key negotiating document continued to be referred to as the Sept. 11 BOM. In addition to providing the Army negotiators with cost or pricing data on parts and materials that BAE proposed to purchase, the company also provided cost or pricing data on parts it intended to fabricate itself.

These parts were called Fab Shop Parts, and include the price of labor. The government said in the court filing because the labor rates for BAE’s employees were built into the price of the Fab Shop Parts, knowing and understanding the labor rate used was important in the negotiations and in reaching a fair and reasonable price for the Fab Shop Parts. The company’s labor rates were separately negotiated with the Defense Contract Management Agency (DCMA) and established the labor rates that BAE would use on all its contracts with the Army, including the contract for FMTVs.

On July 18, 2008, BAE reached an agreement with DCMA on its labor rates, finalized in an forward pricing rate agreement (FPRA). The company, the government alleges, was required to use these rates going forward on all of its applicable projects and contracts, including the FMTV contract.

In order to ensure that BAE Systems was using the labor rates agreed to on July 18, 2008, in the contract, Army negotiators specifically asked the company if it was using those rates in its proposal submission, including for Fab Shop Parts, and the government alleges BAE confirmed that all labor calculations were based on the new July 18, 2008, rates.

Sometime before Sept. 24, 2008, the government said BAE performed a sweep of its cost or pricing data and prepared a final updated BOM of material costs, known as the Sweep BOM. The government alleges BAE did not disclose this Sweep BOM to Army negotiators.

On Sept. 25, 2008, a BAE negotiator told the Army that the result of the sweep revealed a $16 million increase in the cost of materials, but that nevertheless BAE would agree to the price agreed to, based on the Sept. 11 BOM.

The government said BAE knew it had cost and pricing data that it had not disclosed to the Army, as it was required to, that revealed that its costs of parts and materials were significantly lower than had been disclosed. The government alleges that BAE negotiators knew that before the company certified its cost or pricing data as accurate, complete and current, that BAE had compiled an updated BOM, the Sweep BOM, that revealed, in many instances, lower material costs than those disclosed to the government.