XPO, Estes Agree to Settle Defense Contract Overcharge Suit
XPO Logistics and Estes Express have agreed to pay a total of $13 million to settle overcharge claims in connection with the Defense Transportation Coordination Initiative, a federal contract that was meant to lower logistics costs.
The settlement agreement covers $10 million that will be paid by XPO, whose Menlo Worldwide Government Services won the $1.7 billion contract to move Defense Department freight in 2007, 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, an attorney for Richard Ricks and Marcelo Cuellar, who filed a whistleblower complaint in 2013 about the contract.
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The settlement agreement chronicles seven different ways in which the United States was alleged to have been overcharged between August 2007 and April 2016. The total amount of the overcharges is not listed in the 25-page settlement agreement.
The approaches included 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, misapplying rates when shipments were redirected to a different destination and inflating the weight of shipments, the suit said.
Hirst said the two whistleblowers will receive $2.86 million from the settlement. Cuellar, who was fired by Estes after filing the complaint, has a separate case pending against his former employer, Hirst said.
In a joint statement by XPO and Estes “the companies 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 Logistics. “While the work was performed years before we acquired the Menlo operations, we believe that Menlo and its subcontractors, including EFW and Estes, provided their services in exemplary fashion.”
“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.”
Since the contract first was awarded, the Defense Department has scaled back the types of shipments that were covered, including exclusion of all air shipments from the contract last year. In 2013, all specialty and flatbed freight were excluded, because expected cost savings weren’t realized after a Pentagon analysis of shipping costs.
Hirst said in a statement, “Without the courageous help of these two whistleblowers, the government might never have learned of the inflated charges,” which covered 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.
XPO ranks No. 14 and Estes ranks No. 15 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.
