Contractor pays $2.5 million settlement fee

The Science Applications International Corp. agreed to pay $2.5 million to settle a lawsuit that accused the information technology contractor of lying about pricing information on an Air Force contract.

The allegations, made in 2002, involved a contract at Kelly Air Force Base in San Antonio that involved environmental cleanup work. A former employee said the company exaggerated cost estimates and, as a result, the company collected a profit of 27 percent instead of the agreed upon 8 percent to 10 percent, on eight delivery orders.

In a statement, SAIC said it was pleased the matter had been resolved. "The Air Force is an invaluable customer, and it was important that this matter be put behind us, so that we can focus on the critical national defense work at hand," it said, adding that "this case turned on complex legal issues which were hotly contested."

The Air Force issued an alert against the company in December, which SAIC contested and asked the service to withdraw.

Michael Lent, publisher of Government Services Insider, a newsletter on government contracting firms, said he was impressed with SAIC's strategy of settling the case. "It was very practical and smart….it contained any damage to its reputation, which is the most important thing a firm in this business has," he said.

Lent said he didn't think the case would adversely affect SAIC's business.

Patrick Burns, spokesman for Taxpayers Against Fraud, a Washington-based nonprofit group, however, said damage had been done: "SAIC got off pretty cheap in terms of money, but it was expensive in terms of reputation," he said.

A spokesman for the company declined to comment beyond its statement.

Lent said that the case will probably cause other companies and agencies to look more closely at cost estimates in contracts. "Even a contracting officer at EPA or Interior or the Army probably got into this case…they too have been sensitized to the issue of what ought to be disclosed in a price proposal," he said.

In a statement, U.S. Attorney Johnny Sutton said, "This is a victory in the ongoing battle against alleged contractor fraud."

The former SAIC employee who made the allegations, Michael Dwight Woodley, will receive $500,000, or 20 percent of the settlement. Burns said whistleblowers typically receive between 15 and 30 percent of settlements.