XPO, Estes Agree to Pay $13 Million to Settle DOD Overcharge Claims
This story appears in the May 9 print edition of Transport Topics.
XPO Logistics Inc. and Estes Express Lines have agreed to pay a total of $13 million to settle overcharge claims in connection with the Defense Transportation Coordination Initiative program, a federal contract that was meant to lower military logistics costs.
The settlement agreement covers $10 million that will be paid by XPO, whose Menlo Worldwide Government Services unit won the $1.7 billion contract, an agreement that was described at the time as the largest defense logistics outsourcing contract in U.S. history.
Estes, through its Estes Forwarding Worldwide business, will pay $3 million for its role as a subcontractor, according to documents provided to Transport Topics by Michael Hirst, attorney for Richard Ricks and Marcelo Cuellar, who filed a whisteblower complaint about the contract in 2013.
The settlement chronicles seven ways in which the civil suit alleges that the United States was overcharged between August 2007 and April 2016. However, the total amount of overcharges claimed is not listed in the 25-page settlement agreement.
The identified approaches in- cluded charging for more expensive airfreight when goods were shipped by ground, using costlier air fuel surcharges instead of ground surcharges, levying additional accessorial charges when the freight didn’t qualify for them, inflating charges for expedited shipments, cheating on mileage traveled, inflating shipment weights and misapplying rates when loads were redirected to a different destination, the suit said.
In a joint statement, XPO and Estes “strenuously” denied that any wrongdoing occurred.
“We are pleased with this settlement, which avoids the cost and distraction of litigation and provides clarity for our stakeholders,” said Gordon Devens, chief legal officer of XPO. “While the work was performed years before we acquired the Menlo operations, we believe that Menlo and its subcontractors, including EFW [Estes Forwarding Worldwide] and Estes, provided their services in exemp- lary fashion.”
XPO, based in Greenwich, Connecticut, took on the civil investigation when it acquired Con-way Inc., the parent company of Menlo Logistics, in October 2015.
“During the entire course of our performance under the DTCI program, we complied with the terms of our contracts and well-established industry standards,” said Scott Fisher, CEO of Estes Forwarding Worldwide. “We proudly stand by the quality services we provided to the government and the integrity with which we delivered them.”
Hirst said the two whistleblowers will receive $2.86 million from the settlement.
Cuellar, who was fired by Richmond, Virginia-based Estes after filing the complaint, has a separate case pending against his former employer, according to Hirst of Hirst Law Group in Davis, California.
Since the contract first was awarded, the Department of Defense has scaled back the types of shipments that were covered as well as exclusion last year of all air shipments. In 2013, all specialty and flatbed freight were excluded, because expected cost savings weren’t realized after a Pentagon analysis of shipping costs.
As part of the suit, under the federal False Claims Act, dozens of examples were included involving billing. For instance, a shipment from a depot near Stockton, California, to Corpus Christi, Texas, was billed as an air shipment at $541.22, but the actual cost to move the goods on the ground was $163.53. In another case, a move from Los Angeles to Philadelphia was billed at more than $4,200 for air transport, but actually was moved by ground for $599.70, according to a court filing.
Hirst said in a statement: “Without the courageous help of these two whistleblowers, the government might never have learned of the inflated charges” that involved thousands of shipments.
The Menlo contract initially was crafted to coordinate nearly one-third of military freight movements in the continental United States. It was extended last year for two years to allow time for a new contract proposal to be written, bid upon and awarded.
