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Defense contractor to pay $18.1M in False Claims Act settlement

A former CFO who blew the whistle on his employer under the False Claims Act will receive a $2.6 million cut of an $18.1 million settlement with the U.S. government.

Relator Kimthy Chao alleged that Calnet Inc., a Reston-based defense contracting company, systematically overbilled the Department of Defense by millions of dollars over a period of three years.

Chao filed the claim after confronting Calnet president and CEO Kaleem Shah over the billing practices, to no avail, according to plaintiff’s attorney Zachary A. Kitts of Fairfax.

The suit involved three different “cost plus” contracts between Calnet and the U.S. Department of Defense, under which Calnet provided translation and linguistic services at Guantanamo Bay and several other facilities.

Under the “cost plus” arrangement, the government pays the contractor based on the company’s estimated costs, plus a fee. The contractor has a duty to make a good faith estimate of the costs to avoid being overpaid by the government.

The original complaint was filed in 2009 in Alexandria federal court under the qui tam provision of the Federal False Claims Act. Chao alleged that from 2006 to 2009, Calnet knowingly inflated its cost estimates and took between $6 and $9 million dollars in overpayments from the Army, as well as from a prime contractor with whom Calnet worked, L-3 Services.

A copy of the first amended and supplemented complaint, filed in August 2010, is available here.

In a qui tam action, any individual with non-public knowledge of fraud on the government can file suit on their own behalf, as well as on behalf of the government. Under the statute, the defendant is liable for treble damages, a civil penalty for each false claim plus attorneys’ fees if litigated to judgment, Kitts said. The relator is entitled to a percentage of the award or settlement.

The case settled for $18,161,393 earlier this month. Chao will receive $2,669,724.

Kitts said that due to the complexity of the allegations, the case took longer to resolve than most cases filed in the Eastern District.

- Sarah Rodriguez

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