Fluor accused of overcharging the government
Fluor whistleblowers: Calls, audits name Greenville management in defense contract fraud
A federal lawsuit filed by six whistleblowers claims that Fluor Corp. overcharged the U.S. government by hundreds of millions of dollars under a government contract for logistics and army base operations in Afghanistan between 2009 and 2016.
The allegations, which focus on Fluor's management team in Greenville and will be heard at the federal courthouse in Anderson, were under federal investigation for five years. The case was unsealed in October, and the company was served notice of the lawsuit at its headquarters in Irving, Texas, earlier this month.
Fluor has until early March to respond, but a company spokesman in Greenville, Brett Turner, said Fluor believes the case has no merit.
"We have cooperated extensively with the government regarding these allegations and have provided substantial proof that they are false and misguided," Turner said in an email to The Greenville News.
Among the allegations in the suit are that Fluor:
- billed the government for work it was never supposed to do and work it didn't do;
- hired thousands more employees than necessary;
- overcharged the government by inflating its performance and compliance figures in mandatory reports related to health and safety; and
- falsified its inventory records, which concealed millions of dollars in inventory shortages and property loss in the war zone, and then charged a commission to replace the materials.
It is a significant challenge to Fluor, which employs about 2,400 people in Greenville and nearly 57,000 worldwide. The plaintiffs are seeking damages and civil penalties under the False Claims Act, a federal law that lets private plaintiffs file whistleblower cases on behalf of the United States government.
Fluor has been performing work for the U.S. Army in Afghanistan since 2009 under the so-called "LOGCAP IV" contract, which stands for "Logistics Civil Augmentation Program."
"Fluor profited greatly from its fraud, from the very beginning of its involvement in the LOGCAP and throughout," the lawsuit says.
Civil penalties under federal law could be as high as $11,000 per violation. The plaintiffs are asking the court to collect three times the amount of any damages — not specifically itemized — that the U.S. government sustained. They are also asking to receive 30 percent of the government's recovery, as allowed under the law, plus attorneys fees.
The whistleblowers, all former military officers and soldiers, have filed five separate lawsuits in the case, but their attorneys are working together with federal investigators and have consolidated their efforts under one lead case.
Among the plaintiffs is a retired officer and Simpsonville resident, Jeffery Nix, who spent 23 years in the Army and did tours in Afghanistan and Iraq before joining Fluor as a compliance manager in 2011.
The other five plaintiffs, led by former Fluor contractors Charles Shepherd and Danny Rude, live out of state. Shepherd and Rude state in their lawsuit that Nix and the other complainants "were all victims of retaliatory terminations of their employment" after filing suit.
The plaintiffs and their attorneys declined to comment for the story.
The case dates back to 2009, when Fluor took on the non-combat, logistics U.S. Army contract to run 74 military bases in northern Afghanistan. This work included building housing, installing power and water lines and transporting military materials and personnel. At the time, the then five-year contract was estimated to be worth $7 billion.
Fluor, which 10 years later remains under that contract after it was extended a couple of times, has billed the government for a total of $12.76 billion, according to a News review of Federal Procurement Data System records. The contract ends in April.
The lawsuit alleges, essentially, that Fluor overbilled the federal government.
No criminal charges have been filed against Fluor, and the U.S. Attorney's Office of South Carolina has declined to join the case.
"After a five-year investigation, the U.S. Department of Justice has decided not to pursue this matter," Fluor's Turner said. "We are pleased with this outcome."
Still, several federal agencies have investigated the allegations and issued reports acknowledging insufficient oversight over contractors in Afghanistan.
Without naming Fluor specifically, the federal Defense Criminal Investigative Service issued a report in December 2017 saying the U.S. Army did not "perform effective oversight" of government-furnished property handled by logistics contractors in Afghanistan.
"LOGCAP contractors have self-reported more than $9.7 million in GFP losses since 2012," the report said. "However, without maintaining an accurate list of all GFP, Army officials cannot be certain that all contractor GFP losses have been identified, investigated, and reported."
The Inspector General of the Department of Defense issued a similar, 51-page report in May 2018 that found the U.S. Army had paid every LOGCAP voucher between 2015 and 2017, worth $2.4 billion, "with little or no examination of the supporting
documentation." The inspector general found about 10 percent of vouchers, worth $536 million, "did not contain sufficient detail for us to determine how the contractor calculated costs."
The case will continue through the whistleblowers and their private attorneys, armed with the testimony of witnesses who served in the Afghan theater and the results of multiple federal investigations.
Former U.S. Attorney Bill Nettles said the justice department's decision not to join the case does not mean it is without merit. The government often declines to join good cases if, for instance, it deems it does not have the resources to participate, Nettles said.
"This is a really, really, really effective way for the government to police fraud," said Nettles, who added five lawyers to False Claim Act cases while he headed up the U.S. Attorney's office in Columbia. "It incentivizes people to help the government to police fraud."
Meanwhile, a who's who of local and state attorneys — Beattie Ashmore, Frank Eppes, and Dick Harpootlian, among others — are attached to the case, taking on court duties here for the plaintiffs while a slew of whistleblower specialists with firms in Chicago, Houston, Birmingham, Alabama, and Washington, D.C., are leading the complaints.
Nexsen Pruet's Mark Moore is representing Fluor.
Lance Crick with the U.S. Attorney's office in Columbia declined to comment, but Nettles, who entered private practice in 2016, said the Fluor case was under active investigation while he was with the South Carolina office.
"It was pretty bad," he said.
Problems emerged at the outset of Fluor's contract with the U.S. Army, the lawsuits allege, with Fluor failing to undertake facility and inventory inspections as the previous contractor — Kellogg, Brown and Root (a subsidiary of Halliburton) — handed over operations between 2009 and 2011.
Fluor, the lawsuit alleges, had certified to the government that it had done the inspections.
The U.S. Army had discontinued Kellogg, Brown and Root's work for the military after government audits, heavily covered in the media, revealed their billing had reached $37 billion under essentially open-ended terms. In other words, the contract in place since 2001 had allowed Kellogg "to decide what work needed to be done, determine the cost, and bill it to the Government, without any competition with regard to the ultimate cost of performance," according to Rude and Shepherd's lawsuit.
Before handing the contract over to Fluor, Kellogg, Brown and Root (KBR) was supposed to inspect its facilities for any safety problems and fix them, the lawsuit says, but didn't do so. Having claimed the inspections were finished and the facilities were in good shape, Fluor then spent "tens of millions of dollars in labor and materials" to fix those that were not, the lawsuit claims.
"The result is that the government, in unknowingly paying Fluor for work that KBR was contracted for and paid to complete, was deceived into paying twice for work that it should only have paid for one time," the lawsuit states.
KBR was also supposed to inventory and document any previously unreported property as well as any lost, damaged and destroyed property before handing the operation over to Fluor, the lawsuit says, and Fluor was supposed to check this documentation against the materials it received.
"Unfortunately, Fluor later determined that there was tens of millions of dollars of inventory that KBR (and Fluor) could not physically account for to the government," the lawsuit says.
Having ducked the inspections, the lawsuit says, KBR had collected a commission to obtain these materials which were now missing and avoided reimbursing the government for the lost materials. Fluor then was able to replace the missing materials, charging the government a fee for the service, the lawsuit says.
"Put simply, Fluor defrauded the government into letting KBR off the hook for, at minimum,tens of millions of dollars of inventory it could not account for and then Fluor billed the government for much of this same material when it eventually determined that KBR’s inventory list was grossly inaccurate," the lawsuit says.
Under its contract, Fluor has continued to be responsible for managing the government’s property and materials in Afghanistan, but inventory problems continued for years after Fluor took over the contract, the lawsuit claims.
When Nix worked as a Fluor compliance manager in Afghanistan from December 2012 to April 2014, he observed massive inventory shortages, the lawsuit says.
Nix undertook a random sampling of 236 items from 168,868 inventory transactions worth $386 million between January 2010 and February 2013, the lawsuit said. He found that 80 percent of them had been adjusted down with no audit trail.
"This meant that in the vast majority of instances when a shortage was discovered in inventory, Fluor personnel simply papered over the shortage by adjusting the Maximo records downward," the lawsuit said.
At an 80 percent shortage rate, as much as $310 million in government materials were missing or unaccounted for on Fluor's watch, according to the lawsuit.
The lawsuit claims that in an effort to collect bonus payments from the federal government for good performance, Fluor under-reported workplace injuries and also found ways to make its response times on work orders look shorter.
For the first six months of 2012, according to the lawsuit, Fluor claimed an accident rate of 0.19 percent.
Fluor did this from 2008 to 2013, according to the lawsuit, by not reporting injuries that happened outside of work shifts "despite the fact that the reporting requirement is continuous and incidents are to be recorded 24 hours per day." Fluor also didn't report injuries suffered by subcontractors, the lawsuit claims, despite contract rules requiring it do so.
Under its contract, according to the lawsuit, Fluor had to respond to "emergency," or "Priority 1," work-order calls within two hours and mitigate any threats. Such calls might include exposed wiring, the lawsuit said. The lawsuit claims that Fluor reported 100 percent compliance with these response deadlines even though the company rarely met them.
"Fluor routinely recorded the time of its response immediately when the emergency was called in; even though at that point no Fluor technician had even laid eyes on the problem," the lawsuit claims. "Even more egregious is that Fluor would leave the life, health, and safety issue unmitigated until it could schedule a technician to repair it, which was almost always far longer than the two hour response time requirement."
Poorly documented inventory shortages made making repairs within the required time difficult, the lawsuit claims, and the company would get around that by closing service orders and then re-opening them when needed materials came in.
The company also reclassified emergency calls down if it couldn't make deadlines, the lawsuit claims. Urgent calls (Priority 2) needed a response within a day and routine Priority 3 calls were supposed to be answered within three days. The company also created a secret "off the books" classification (Priority 4) where it could shelve service requests until personnel could deal with them, the lawsuit claims.
The plaintiffs estimate Fluor met its service compliance rate about 27 percent of the time, but the company reported 77 percent compliance to the federal government — in the process collecting bonuses (dubbed "award fees"). The threshold for bonuses was 70 percent.
"Fluor was awarded millions of dollars in award fees for the first half of 2012 based in part on the government’s belief that 'emergency response continued to be an area of strength for Fluor,'" the lawsuit alleges.
From mid-2009 to mid-2012, Fluor collected more than $100 million in base and bonus fees for service compliance, the lawsuit says.
Fluffing the contract
The lawsuit claims in several places that Fluor expanded the terms of its contract without getting the federal government's approval.
One way Fluor did this was by evading change orders, the lawsuit alleges. Off-contract work under $5,000 was allowed, but Fluor often took jobs that it knew would cost more than $5,000, later getting them added to the government's scope of work.
Fluor also hired "thousands" of "redundant, unnecessary" people, according to the lawsuit.
"Over the course of its LOGCAP IV contract performance, Fluor systematically inflated its billings to the United States by hundreds of millions of dollars through the deployment of unnecessary and redundant personnel," the lawsuit says.
One of the whistleblowers, West Point graduate Scott Dillard, recorded a phone conversation with supervisors who shared the same concerns.
Paul Gentry, Fluor’s deputy project manager for site management and construction, was recorded saying he added 800 people in 2012 with no job to do. He'd received 2,000 people the year before for jobs that he estimated needed about 200 people total.
"The same number of buildings on the density list, the same meals served, the same mission, the same this, same, same, same, same. An extra 1,800 people," the lawsuit quotes Gentry saying. "The next year, extra 800 ... people. What ... were they for?"
"Who’s pushing that, (Fluor management in) Greenville?" the lawsuit quotes Dillard asking.
"Yeah. Just maximize billing, maximize billing. That’s all," Gentry answers.
At an average salary and expenses of $170,000 per employee, not including recruitment, travel and medical exams, the total cost of 2,600 unnecessary people for the 12-month period described in this phone call would have been$442 million, according to the lawsuit.
According to the lawsuit, Dillard and his supervisor tried to reduce the workforce in their area in 2012 but managers in Greenville overruled the decision.
"Fit for Duty" exams were another way that Fluor boosted its billing to the federal government, the lawsuit claims. The Defense Department required employees to undergo an annual health screening on-site in Afghanistan, but Fluor instead paid every employee to travel to Dubai, stay in a hotel, eat several meals there and undergo a comprehensive physical exam at a medical clinic it subcontracted with there.
At its peak, 30,000 Fluor employees a year would have been taking these exams in Dubai, supported by a medical records staff in Greenville, according to the lawsuit.
Dillard estimates in the lawsuit that Fluor billed the United States about $91.1 million for "unnecessary, annual, comprehensive physical exams performed in Dubai."
The lawsuit also claims Fluor overbilled the government for vehicles and fuel, at times running them in neutral to burn fuel and clock hours.