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Contract Fraud is Universal as Mitsubishi Electric Hit with Ban

by: Matthew Potter
January 30, 2012

Category: Business Line, Companies, Contract Awards, Countries, crime, Events, Japan, Military Aviation, missile defense, production program, Suspensions | RSS 2.0

The issue of fraud, waste and abuse has been a constant in defense contracting since the first piece of equipment was sold to a soldier. It could be rotten food in the Civil War, poorly made weapons or just simple overcharging or substituting inferior work for what the contract requires. Even in this day of lawyers, strong contracts, inspections and high technology these issues still occur as people look for ways to get more money out of their customers. In Japan the second largest defense contractor, Mitsubishi Electric (TSE) is now facing a ban for falsely inflating contract costs.

Reportedly not only the defense ministry has suspended the company but also the Japan Aerospace Exploration Agency (JAXA) and the Cabinet Satellite Intelligence Center will also stop doing business with Mitsubishi Electric. The company is making different things related to the country’s space program for JAXA and developing a intelligence satellite for the Intelligence Center.

The company has been found artificially increasing the number of workers and hours billed for on a contract to produce the Type 03 surface-to-air missile. This is a vehicle mounted system that uses IR and radar guidance and reportedly has a range of about 50,000 meters.

In 2010 Mitsubishi Electric was working on over $1.5 billion in contracts for Japan making missiles, electronics and other equipment. The suspension currently means that it cannot get new work. A further inspection of other contracts is expected to begin in the near term.

The suspension is it last a significant length of time will affect the company as it will limit opportunities for new work. The company may also see it paying money back to the government and fines and charges that could affect the bottom line. Long term it will have to remain as a viable contractor for Japan due to the type of work it does and the requirements of the armed forces. Unfortunately in this time of very few defense contractors it is hard to ban or suspend permanently any one company.

Japan has not been immune to these problems. In 2010 the Japanese Air Self-Defense Force who most likely contracted for the Type 03 was investigated and many officers and officials charged with bid rigging and bribery. Bribes were being used to steer contracts for office equipment and supplies to preferred vendors.

These cases illustrate that when large amounts of money are involved there is a great deal of temptation to try and make profit and get rich off of it in ways that short change the customer, tax payer and the user.

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