Boeing Pays Pentagon $10.7 Million to Settle Double-Billing Case

(Bloomberg) -- Boeing Co. quietly agreed to repay the U.S. $10.7 million after a three-year investigation concluded it double-billed the military for taxes paid to foreign governments on overseas employees, according to a document and officials.

The overcharges “affected hundreds of contracts across numerous Department of Defense entities,” according to the latest edition of an in-house training newsletter of the Defense Contract Management Agency highlighting contract irregularities. The agreement, reached in September, wasn't previously disclosed.

“After a thorough investigation and review, Boeing paid $10.7 million to resolve the matter,” the newsletter disclosed. “Of this settlement, $404,000 involved foreign military sales. The countries involved in the foreign military sales were identified.”

“We can't provide a list of all countries impacted, but to put the scope into perspective it was more than 35,” agency spokesman Matthew Montgomery said in an email.

The suspected irregularity was discovered in March 2017 by the Defense Contract Audit Agency during a billing review and was referred to the Pentagon's inspector general the next month, Pentagon spokesman Chris Sherwood said. The referral led to an inquiry by the Defense Criminal Investigative Service and its Air Force and Army counterparts that took more than three years.

Boeing Aerospace Operations and the Defense Contract Management Agency “settled a matter regarding how Boeing had previously invoiced some taxes,” Deborah VanNierop, a spokeswoman for Chicago-based Boeing, said in an email. “The issue was settled as part of typical contract administration, and there were no allegations of fraud.”

VanNierop didn't respond to a question as to why the settlement wasn't reported in the company's regulatory filings. Boeing reports first-quarter earnings Wednesday.

“Cost Mischarging comes in all shapes and sizes,” said the DCMA newsletter. “When the contractor is a Top 5, like The Boeing Company, the agency's role is even more important.” In this case, “a contractual remedy was utilized instead of a civil False Claims Act remedy,” the agency newsletter said. The case was “an example of how complicated investigating and resolving these irregularities can be.”

The contract irregularity related to Boeing's treatment of employer social security taxes paid to foreign governments, according to the newsletter and an official.

The taxes paid to the foreign governments were treated as a fringe benefit cost in “Forward Pricing Rate” proposals submitted to the Defense Contract Audit Agency for review and reimbursement. Boeing also submitted the same costs to DCAA for reimbursement in a billing category known as “Other Direct Costs.” According to the government, this resulted in improperly reclassified costs incurred for the same purpose.

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