Government Contracts Monitor

Nonconformance Can Be Costly: Defense Contractor Charged With Wire Fraud Conspiracy for Providing Nonconforming Parts to the Government

June 24, 2014

On June 14, 2014, Richard Melton, the former president of defense contractor Partz Network, was arrested and charged with allegedly stealing $3 million through fraudulent contracts with the U.S. Department of Defense (DoD). Most of the contracts were for replacement parts for military rolling stock – parts required to be manufactured by DoD-recognized qualified manufacturers. Partz Network allegedly provided parts made by unapproved, and oftentimes unknown, sources and, to make matters worse, allegedly altered or created fictitious traceability documentation for these parts. Nonconformance could be very costly for Melton: his charges carry a potential penalty of 20 years in prison and a fine of $250,000, or twice the gain or loss from the offense.

According to documents filed in this case and statements made in court: Melton was the founder, owner, and president of Partz Network and contracted to supply the DoD with parts on small-dollar contracts. The majority of the contracts were for replacement parts for trucks, trailers, and engineering equipment.

Melton and his conspirators allegedly lied on Partz Network’s bids for DoD contracts, stating they would provide the “exact product” required by the DoD, meaning a part manufactured by a DoD-recognized qualified manufacturer. The Defense Logistics Agency (DLA), learned that nonconforming parts were being received from Partz Network and asked them to provide “traceability documents” to confirm the parts being supplied were manufactured by DoD recognized qualified manufacturers. The traceability documents and invoices provided to DLA were either altered or completely fictitious.

For example, Partz Network submitted a bid in response to a DoD RFQ and represented that it would provide the exact product manufactured by one of the two DoD-recognized qualified manufacturers. Partz Network was awarded the contract – which stated that the exact product was required. Not only were the items provided by Partz Network not the exact products required under the contract but, prior to Partz Network submitting its bid, Melton sent an e-mail to one of his employees, with a link to the RFQ, stating: “Bid these [parts] and I will have them made overseas by [a company located in the People’s Republic of China] or another overseas firm.”

The Defense Acquisition University, which provides training for defense workers in the acquisition field, concludes in a report that "counterfeit products are a pandemic crisis, growing annually." The training center report says that while the problem is difficult to contain, efforts to control it are increasing, both in the military and in industry.

According to DLA, more than 200 cases a year are investigated for possible fraud, with many of these cases being prosecuted. In its own words, DLA is “vigilant” about nonconforming parts.

A copy of the Complaint against Melton can be found here.

Lindsay Simmons is the attorney responsible for the content of this article.

Attorneys

Lindsay Simmons