Defense Contracting:

Contractor Claims for Legal Costs Associated with Stockholder Lawsuits

NSIAD-95-166: Published: Jul 17, 1995. Publicly Released: Jul 17, 1995.

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Pursuant to a congressional request, GAO provided information on defense procurement fraud cases focusing on the: (1) Defense Contract Audit Agency's (DCAA) policy on the allowability of legal fees associated with stockholder derivative lawsuits; and (2) number of stockholder lawsuits associated with defense contractor wrongdoing.

GAO found that DCAA: (1) performs contract audit functions for the Department of Defense (DOD) and audits costs and makes recommendations regarding the allowability of costs claimed by contractors; (2) issued audit guidance that addresses the allowability of legal fees incurred when defending against stockholder derivative lawsuits; (3) concluded that legal fees are unallowable when the lawsuit is based on contractor wrongdoing. In addition, GAO found that: (1) there were 72 cases of procurement fraud associated with DOD contractors from October 1988 through December 1994; (2) criminal fines, awards, and restitution amounts totalled $1.03 billion; and (3) only 13 of the 72 cases involved stockholder lawsuits.

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