A decade of “systemic” time-card fraud charged to a $2.6 billion nuclear tank cleaning contract will cost global engineering firm CH2M Hill Companies Ltd. $18.5 million in penalties and restitution, the U.S. Department of Justice has announced.
CH2M Hill and subsidiary CH2M Hill Hanford Group Inc. (CHG) "have agreed that CHG committed federal criminal violations, defrauding the public by engaging in years of widespread time card fraud" at the Hanford Nuclear Site in Washington State from 1999 to 2008, the Justice Department announced Thursday (March 7).
However, the companies will avoid criminal prosecution under a Non-Prosecution Agreement with the U.S. Attorney’s Office for the Eastern District of Washington, authorities said.
Photos: Department of Energy
At left, a CH2M Hill employee shows a new decontamination mobile unit in 2003 at Hanford. At right, a tank farm worker uses monitoring equipment. More than 500 workers were employed under the contract, which was tied to wages paid.
Eight employees have pleaded guilty to felony charges in the same fraud and conspiracy. One of the eight was an employee who blew the whistle on the scheme.
CH2M Hill did not respond to a request for comment on the settlement.
Under the federal settlement, CH2M Hill will:
Pay $16,550,000 to resolve its civil liability under the False Claims Act;
Refund $1.95 million in "wrongfully obtained profits";
Spend $500,000 "to foster increased accountability at the Hanford Site"; and
Pay for independent monitoring to ensure that CH2M Hill takes adequate corrective actions.
Established in 1943 as part of the Manhattan Project, Hanford is the most contaminated nuclear site in the United States and one of the largest and most complex hazardous waste sites in the world.
Tank Farms Contract
The case stems from a Department of Energy contract to manage and clean 177 large underground storage tanks containing mixed radioactive and hazardous waste at the Hanford site, located on the Columbia River in southeastern Washington.
The Hanford site was used to produce weapons-grade nuclear material during World War II and the Cold War. Most of the site has been decommissioned, but tens of millions of tons of radioactive waste remain. The DOE assumed control of the site in 1977.
The cleanup contract was originally signed with Lockheed Martin Hanford Corp., which was later taken over by CH2M Hill.
Now mostly decommissioned, the Hanford site (shown here in 1960) is one of the largest and most complex hazardous-waste sites in the world.
Court records show that CH2M employed 500 hourly-wage workers at Hanford, plus administrative and supervisory personnel, under a contract that tied the company's fees to the wages it paid.
The time-card fraud involved both employees and management, the CH2M Hill admits:
CHG hourly employees involved in the cleanup routinely overstated the number of hours they worked; and
CHG management condoned the practice and submitted inflated, fraudulent claims to DOE for the hours.
Contract Tied to Wages
Details of the scam were laid out in a statement of fact agreed to by CH2M Hill and the Justice Department.
Basically, the statement describes a scheme in which some members of upper management signed off on what they knew to be inflated overtime claims in order to attract employees to meet production benchmarks required for executive bonuses and greater profits.
Representatives from the Department of Energy and CH2M Hill sign a congratulatory banner at a 2004 celebration of a Hanford tank cleanup milestone.
Unlike traditional cost-plus contracts, which include a base fee, CH2M earned its fees under the contract only by performing specified fee-bearing work, court records show.
Under the contract, the company paid employees and then billed DOE for those expenses, plus overhead, incidental expenses and profit. The more wages billed by employees, the more fees paid to the company under the contract.
Executive Bonuses Threatened
The statement says that CHG’s hourly workers “consistently refuse[d] to perform any overtime work" unless the work was offered in eight-hour blocks.
Management's inability to secure enough overtime workers for various jobs "threatened CHG’s ability to complete various projects linked to the Tank Farms Contract performance incentives," the statement of fact said.
"This, in turn, threatened CHG’s ability to earn certain fees, and therefore profits under the Tank Farms Contract.”
Those incentives also "directly impacted the personal corporate bonuses of certain members of CHG’s upper management," the statement said.
Therefore, the statement said, “certain members of CHG’s upper management, certain direct supervisors of the hourly workers, and certain other supervisory personnel accepted the practice of hourly workers only working until the particular overtime job was completed, leaving Hanford, and falsely claiming a full 8 hours even when the job took less than 8 hours."
Direct supervisors of the employees furthered the scheme by engaging "in patterns designed to avoid the detection of the routine time card fraud by law enforcement and internal auditors.”
CHG “knowingly, willfully, and with intent to defraud, facilitated CHG’s hourly workers routinely getting paid for hours they did not work and combined, conspired, and agreed with CHG hourly workers to accomplish the same, all at the sole expense of the citizens of the United States,” the parties said.
The time-card fraud "was not limited to overtime abuse and had occurred for many years, in some instances even pre-dating the Tank Farms Contact," the statement of fact reported.
Court records in the case indicate, for example, that routine work that should have been done during regular shifts was pushed to overtime shifts where employees earned time-and-a-half or double time. In some cases, personal work was done on company time.
The fraud unraveled after a complaint by employee Carl Schroeder. According to a whistleblower lawsuit eventually filed by the U.S. on Schroeder's behalf, Schroeder's supervisor order him in May 2008 to go to the supervisor's home with another manager to repair the supervisor's home air conditioner.
After fixing that air conditioner, the supervisor drove Schroeder to a friend's house and told him to fix the friend's air conditioner.
Schroeder bought a part for the supervisor's friend's air conditioner, fixed it, returned to the work site, "and was paid for his time at work that day as if he had never left the site," said the suit, filed under the False Claims Act.
Later, Schroeder complained about the incident to the company and to the DOE Inspector General. When the Inspector General began to investigate, CH2M Hill fired Schroeder. In September 2012, the Justice Department joined the whistleblower suit (United States ex rel. Schroeder v. CH2M Hill, No. 09-cv-5038, E.D. Wash.).
That suit values the contract between CH2M and DOE as $2,652,092,374.76 between Oct. 1, 1999, and Sept. 30, 2006.
The D reactor at Hanford is decommissioned in this undated photo.
On May 29, 2008, a new joint venture called Washington River Protection Solutions (WRPS) was awarded a $7 billion contract to complete the tank cleanup and waste management.
Scapegoating vs. 'Official Employment Policy'
According to the U.S. suit, CH2M Hill made Schroeder "a scapegoat for its policy of upcharging hourly work, falsely and wrongfully climing that the problem was limited to a few 'bad apples' when in fact the upcharging was the result of a deliberate and persistent policy whereby Defendants used more than 400 hourly workers to defraud the United States...."
"Virtually all" of CH2M Hill's nearly 500 employees at Hanford were engaged in "upcharging and overtime abuse with the knowledge and consent of the supervisors and other management," the suit said. "These practices were known, condoned, and encouraged by the hourly workers' supervsiors, managers, and directors at CH2.
"The practices were so widespread that they can only be characterized as the official employment policy of CH2."
The suit said the practices had been going on for more than 10 years.
A federal prosecutor criticized CH2M Hill's behavior but commended its cooperation in the investigation.
“This sort of systemic fraud is an appalling abuse of the trust we place in our contractors at Hanford, and it simply will not be tolerated,” said Michal C. Ormsby, U.S. Attorney for the Eastern District of Washington.
“However, we are pleased that CH2M Hill has stepped up and admitted to the criminal conduct of its subsidiary and has agreed to pay back a good faith estimate of what was taken, including criminal proceeds from the conspiracy.”
Another CH2M subsidiary, CH2M Hill Plateau Remediation Company, is still working at the Hanford site.
A 2003 photo shows the bottom of an underground Hanford tank with less than an inch of highly radioactive waste remaining after the waste has been pumped out. DOE's Office of River Protection and CH2M Hill "are Considering the Tank as Empty as it May Ever Be!" according to photo information on DOE's website.
“Under this global resolution, CH2M Hill will continue its commendable cooperation and help ensure that all individuals who participated in this conspiracy and profited from it will be brought to justice as well.”
Last week, the Ethisphere Insitute named CH2M Hill to its 2013 list of "World's Most Ethical Companies." It was the Denver-based company's fifth consecutive year on the list.
Ethisphere describes itself as a "leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability."