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Whistleblowers Praised for Exposing Alleged Pentagon Contractor Fraud

Justice secures $13 million settlement by two firms said to have shipped by truck but billed at air rates.

Two firms contracting with the Pentagon’s massive Defense Transportation Coordination Initiative agreed to pay the government $13 million to settle allegations of overbilling exposed by two whistleblowers, the Justice Department and private attorneys announced Tuesday.

The California-based companies Menlo Worldwide Services and Estes Forwarding Worldwide agreed to resolve a lawsuit brought in 2013 under the False Claims Act, which allows private citizens bringing forward material information to collect a reward. They were said to have billed the Pentagon the cost of moving freight by air when it was actually shipped by ground, charges that the companies did not admit to.

The two firms were also alleged to have knowingly submitted inflated charges for air fuel instead of ground fuel, and charges for oversized freight when the freight did not qualify as oversized.

The Pentagon’s transportation initiative has been called the “largest outsourced military transportation contract in U.S. history,” noted one of the whistleblowers’ attorneys. Menlo Worldwide Services in 2007 beat out UPS and Federal Express for the nationwide job.

“This settlement demonstrates our commitment to protecting the integrity of federal contracts and ensuring the government only pays for the actual services rendered as required under the contract,” said acting U.S. Attorney Phillip Talbert of the settlement unsealed Tuesday in the Eastern District of California, noting that the companies cooperated in the investigation.

The whistleblowers, Richard Ricks and Marcelo Cuellar, will share $2.86 million in recovery proceeds. Menlo is paying $10 million of the settlement, Estes $3 million.

The settlement was coordinated by the U.S. Attorney’s Office for the Eastern District of California; the U.S. Transportation Command; the Defense Criminal Investigative Service; the Defense Contract Audit Agency; the U.S. Army Criminal Investigation Command; and the Department of Justice’s Civil Division, Commercial Litigation Branch.

“This case demonstrates the significance of having insiders willing to do the right thing,” said Cuellar’s attorney, Michael Hirst. “In both large and small government contracts, overbilling can take place in the crevices and shadows,” he added. “If it weren’t for these whistleblowers, the billings would likely have continued without the government realizing that it was overpaying for thousands of shipments.”

The case is not over. One of the whistleblowers, Cuellar, alleges that he was fired by Estes during the two-year investigation, and his attorney is proceeding with a separate complaint.