Whistleblower accuses Navistar of fraudulent pricing for MRAPs in newly unsealed complaint

WASHINGTON — The U.S. District Court for the District of Columbia has unsealed a 6-year-old complaint filed by a former Navistar Defense employee accusing the company of fraudulent, inflated pricing for the thousands of mine-resistant, ambush-protected vehicles it sold to the U.S. Marine Corps.

The whistleblower and former contract director at Navistar, Duquoin Burgess, claims the company violated the False Claims Act by forging invoices, catalog prices and other information used in negotiations to sell MRAP vehicles to the Marine Corps.

Burgess is seeking at least $1.28 billion in damages, which roughly equates to the amount of money the former employee believes the company reaped from lying about its prices to the government.

The complaint, originally filed in 2013, was required to remain sealed until the U.S. government completed its investigation into the claims. The government intervened in the case Dec. 3 with its own filing, which is sealed.

Burgess, who asked for a jury trial, is represented by the Washington, D.C.-based law firm Sanford Heisler Sharp. The government will work with the firm in prosecuting the case.

According to Burgess’ attorney Vince McKnight, the case is unusual because even the company’s top executives, to include its president, allegedly knew about the fraudulent activity.

The forged and fraudulent pricing records were used to secure both the initial contract award and further orders from 2007 to 2012, according to the complaint filed by Burgess’ attorneys, which was reviewed by Defense News.

The company allegedly either forged sales history where there was no sales history or it nearly doubled commercial prices for a variety of critical MRAP parts like the chassis, the engine and the suspension system.

The complaint claims the company took advantage of the very critical need to rapidly procure MRAPs to protect soldiers against improvised explosive devices in Iraq and Afghanistan by inflating its prices for the vehicles.

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While Navistar will file a response to the complaint in the coming months, the company told Defense News in a statement that “we do not believe [Burgess]’s unsealed complaint is well founded in fact or law. The company intends to defend itself as necessary and appropriate."

“There is nothing more important than the safety of those serving our country, and we take tremendous pride in the vehicles we manufacture," the company added. “We value our long-standing partnership with the military and are proud to provide safe, reliable military vehicles of superior quality.

“Beyond that, we will not comment on the pending litigation.”

Over the course of the MRAP contract’s five-year life cycle, the government paid Navistar approximately $9 billion for its MaxxPro MRAPs, according to the complaint, but a conservative estimate alleges that roughly $1.28 billion of that was based on fraud. According to the complaint, the government could be entitled to up to three times the actual damages suffered if the judge finds the Navistar guilty of fraudulent conduct — a total of $3.84 billion.

Red flags

Navistar and the government held contracting sessions in March 2008 to work out the terms of the contract, with top company executives present, including its then-president, Archie Massicotte.

According to the complaint, Navistar tried to convince the government the MRAP was a commercial item to avoid having to provide certified cost or pricing data. The government found that it should not be considered a commercial item, so the company applied for a waiver to avoid producing the data.

The waiver, the company argued, was warranted because it didn’t have to initially produce cost data from suppliers due to competition, and because it was a manufacturer accustomed to operating in the commercial industry where it’s not customary to request such data from suppliers. Navistar argued that the MRAP deliveries would be delayed if the company had to chase after that information, noting that it attested to the accuracy of the cost data it presented in negotiations.

The government granted the waiver in 2008.

Burgess, upon joining Navistar in 2009, consistently refused to sign the certifications of the cost and pricing data for MRAPs required by the waiver, but his supervisor, the complaint states, told him that he could easily be replaced if he didn’t sign them.

Burgess was not alone in his concerns, according to the complaint. Linda DiToro, Burgess’s predecessor, also refused to sign the certifications. She was only with Navistar for a year before quitting.

When DiToro refused to sign certifications for MRAPs without first receiving underlying facts as to how Navistar arrived at its cost and pricing data, Massicotte himself “reacted negatively” and even excluded her from social events, including an end-of-the year party at his residence for the entire office staff, the complaint recounts.

DiToro left in 2009 and has been employed by Boeing for more than 10 years. Burgess left the company after only a few years and went on to work on contracting issues for Boeing and BAE Systems.

Michael Lyons, who served as a government contracts manager at Navistar, also raised concerns via email and in face-to-face meetings that he believed invoices were forged to the highest levels within the company.

Burgess was Lyons’ direct supervisor, and the former recommended an investigation into the claims. Instead, Burgess was told to fire Lyons “for insubordination and creation of a hostile work environment,” the complaint notes.

But since Navistar feared Lyons’ firing might turn him into a whistleblower, he was kept on, according to the court documents.

The chassis

In the complaint it is alleged that Navistar specifically made misrepresentations of the price of its 7400 chassis used in the MRAP vehicles.

Navistar is accused of bumping the price to $250,000 a piece compared to a $125,000 price tag for other customers.

Because the chassis is a commercial item, Navistar was exempt from having to show certified cost and pricing data to the Marine Corps.

Burgess noticed, during the course of his job, that Navistar was charging $125,000 for the chassis to other customers, including another branch of the U.S. military and foreign countries. He brought the discrepancy to Navistar’s manager of financing for the MRAP contract, where it was confirmed the prices were different, but he received no explanation as to why.

The government ordered 9,000 MRAPs with the 7400 chassis and suffered approximately $1.25 billion in damages from the chassis price difference alone, the complaint alleges.

Engine sales

Navistar, according to the complaint, was charging the Marine Corps between $27,000 and $34,000 per engine when sold with the MRAP.

Meanwhile, Navistar charged other non-government customers roughly $17,000 per unit.

The government, therefore, suffered roughly $36 million in damages related to engine pricing, the complaint calculates.

To represent the cost data, the company forged sales histories of the engine, the complaint states.

Navistar gave the government copies of invoices for sales of trucks incorporating the same engine. The invoices purported to show the sale of a fleet of medium-duty trucks to an Illinois-based landscaping company.

Lyons specifically noticed the price of the engine seemed inflated and asked for copies of invoices and other documentation to support the price and received the invoice to the landscaping company. Lyons contacted the company and learned that it had purchased only one truck and no spare parts. Lyons realized, according to the complaint, that the invoices were forgeries.

When Lyons brought the issue to his supervisors, they indicated the invoices had been prepared under the direction of senior company leadership and was “angrily ordered” to stop looking into the issue or risk his job, the complaint states.

Suspension systems

When the Marine Corps decided in 2009 that it needed modifications to MRAPs sent to Afghanistan due to the more difficult terrain encountered there, it required the companies providing the vehicles to redesign the platforms with improved suspension systems to better handle tough, uneven terrain. Older vehicles would be retrofitted, while all new deliveries would have the new capability.

Navistar outfitted 3,898 vehicles with improved suspension system, or ISS, upgrades, the complaint notes.

According to the complaint, Navistar was concerned it would now have to produce cost data on the chassis and engine when negotiating pricing for the ISS upgrade.

Navistar employees including Burgess were directed to ensure the government would not get access to the data, the complaint states, because there was a fear the government would retroactively seek a rebate on MRAPs already sold to the Marine Corps.

Contract negotiations for the upgrades took place in 2010. And again, Navistar’s executive leadership team was at the table and proposed a $143,294 per unit price for the kits, which was then negotiated down to $142,602 per unit.

Navistar allegedly decided to convince the government the ISS kit was a commercial item to avoid providing cost data again. Burgess argued at the time that the kit didn’t meet the criteria, the complaint recounts.

Navistar showed purported sales histories, catalog listing and vendor quotes to try to convince the government the price was fair, according to the complaint, but the documents were either “forged or utterly misleading.”

For example, one sale history for a transfer case shaft to Deutsch’s Truck and Diesel Repair turned out to be a forgery — the company hadn’t sold the part to Deutsch’s.

And in another case, Navistar presented the government with other vendor quotes, including one price of $103,904 for front and rear axles. The complaint alleges that in reality the quote to that company was actually $58,480 per set.

Overall, due to the inflation of the ISS kits, Navistar overcharged the government $30,455 per kit, according to the complaint. The complaint calculates that total damages here amount to roughly $118.7 million.