Time is more precious than gold. If somebody could figure out how to turn it into money, they'd could make a fortune. Some government contractors have done just that.
When you put money in the bank, you earn interest, based on the time that money stays in the account. "Time value of money" is a concept based on the premise that an investor prefers to receive a smaller amount of money today, instead of more in the future. Some companies have used this concept to cheat the government of time and money under government contracts. Lockheed Martin Space Systems Company is a good example.
Lockheed had a multi-billion contract to build and maintain Titan IV space boosters. The Titan IV was used to launch space-shuttle-type payloads for the Air Force. In 2005, the Titan IV program ended and was replaced with the Atlas V rocket and Delta IV heavy-rocket booster.
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Even though it made billions on the contract, Lockheed was not satisfied. Over a three-year period, Lockheed lied about its progress in order to get paid quicker than it was entitled to be paid.
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In many government contracts for building large equipment – such as ships, planes or buildings – a contractor submits monthly progress reports. It estimates what percentage of work it has completed and is paid for its progress, based on that percentage. When a company lies about how much of the work it has completed, it's called "progress payment fraud."
In progress payment fraud, the government does not pay more than it should, but sooner than it should. For instance, a company may be only 10 percent done, but claim that it is 20 percent done to get paid more quickly. Lying about the amount of work done is still fraud. And the government is harmed by the time value of money. It could have kept the money in the bank earning interest, if it had not paid early.
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Typically, when a major program ends, the government conducts a final audit of all spending. In this case, in anticipation the audit, Lockheed performed its own assessment and discovered that some of its employees had committed progress payment fraud. The management was in a tough spot. Should it turn itself in for cheating on the contract or keep silent and hope the government did not discover the fraud?
The good news is that Lockheed chose to report that it had committed progress payment fraud.
In May of 2008, Lockheed agreed to pay the government twice the amount of the lost interest the government could have earned on the funds that were paid early. On big contracts, that interest adds up quickly. In this case, $5 million had been lost, and Lockheed was required to repay $10 million. The reason it paid double is that, under the False Claims Act, a company is required to repay three times the amount of fraud, but only twice the amount if it self reports.
Lockheed ultimately did the right thing, but not without the fear of getting caught. If you know of someone stealing time by committing progress payment fraud against the government, set things right by reporting it. The Department of Justice will pay you up to 25 percent of what it recovers if you do. More importantly, you will restore time to its proper place.
