An electricity distribution infrastructure contractor that worked for the U.S. Army Corps of Engineers on hurricane restoration in Puerto Rico has agreed to pay the government $8.4 million to resolve allegations that it improperly withheld pricing data. The company denies the charges, agreeing to the settlement in order to avoid lengthy litigation. 

The Corps’ Jacksonville District hired Durham, N.C.-based PowerSecure Inc., a subsidiary of Atlanta-based Southern Co., via a sole source time-and-materials contract for repair and restoration of Puerto Rico’s power grid following Hurricane Maria in 2017. The Corps’ contract was initially worth $1.3 million. After several modifications, its value reached $523 million, according to a 2019 U.S. Dept. of Defense Inspector General audit.

US Justice Dept. officials alleged that PowerSecure violated the Truth in Negotiations Act, which requires that government negotiators have access to cost or pricing data when developing a proposal for a sole-source contract, as well as the False Claims Act, which makes contractors liable for defrauding the federal government, by knowingly failing to disclose pricing data related to labor and equipment costs on another post-hurricane restoration project it had taken in Florida and Georgia earlier in 2017.

“Where government contractors seek the award of a sole source contract, they have an obligation to be fully transparent with the government regarding the basis for their proposed pricing,” Brian Boynton, principal deputy assistant attorney general and head of DOJ’s civil division, said in a statement.

The settlement agreement notes that PowerSecure does not admit any liability and that the deal was reached to avoid prolonged litigation. In a statement, a PowerSecure spokesperson said the company, “negotiated in good faith with the Corps at all times.”

“PowerSecure is proud of the challenging and dangerous work it performed and emphatically denies the government’s allegations,” they said.

The DOD audit notes that time-and-materials contracts are not preferred because they provide no incentive for the contractor to control costs or labor efficiency. Government agencies are required to monitor contractor performance when using these contracts. However, auditors found that the Corps did not adequately monitor PowerSource’s hours worked or review invoices to ensure they correspond to actual work performed.

The Corps did not know whether $61.3 million of labor costs paid across seven invoices were allowable under regulations or the contract terms, auditors wrote. They found $29.2 million paid by the Corps “was unsupported and potentially unallowable.”

“This settlement is an example of the need for transparency and accountability in proposed pricing when negotiating sole source contracts,” Sean O’Donnell, DOD’s acting inspector general, said in a statement.