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ULA has settled a lawsuit with a whistleblower who claimed the company had defrauded the federal government of at least $90 million by overbilling employee work hours.
Unlike the commercial marketplace where prices of goods and services are determined by market forces including competition, sellers in the aerospace industry face little or no competition and contract pricing is based largely on a contractor’s estimated costs, the lawsuit says.
ULA charged the government tens of millions of dollars for work that was never performed and inflated the estimated labor hours including the time required to buy parts and materials from vendors, the lawsuit says.
ULA retaliated against Scott [the whistleblower] by forcing him out of the company after he revealed the alleged illegal activities. ULA officials placed a camera above his desk, monitored and questioned his cell phone and computer use, and suggested he violated the law or engaged in improper bidding practices himself, the lawsuit says.
ULA used a system called the Keith Crohn model that creates a grid using the cost of equipment to reach an employee cost. A labor value was placed on the grid for every item ordered through the company’s purchasing department. For example, any item that cost between $1 and $1,000 would be assigned a labor value of 8 hours. It didn’t matter what part it was, the lawsuit said. The U.S. bans arbitrary cost estimates when actual data is available that establishes the cost.
The first paragraph of the quote above actually describes the bad deal that the Air Force made with ULA back in the early 2000s, giving the company a monopoly on launches while subsidizing it to the tune of $1 billion per year. That deal is now dead, and ULA is instead forced to compete with SpaceX (and soon others I hope) for launch contracts. Not surprisingly, their prices have dropped considerably.