NEW YORK Leo Burnett will pay $15.5 million to resolve allegations that it overbilled the U.S Army when it handled the military service's account between 2000 and 2006, the U.S Department of Justice said today.
The settlement resolves a 4 1/2-year civil lawsuit filed by former Burnett staffers Greg Hamilton and Michelle Casey on behalf of the U.S. government, according to a press release that the DOJ issued today. Hamilton and Casey will receive a share of the settlement -- $2.79 million -- as permitted by the U.S False Claims Act. Casey is a former agency vp, corporate controller; Hamilton served as a vp in the shop's finance unit.
The suit accused Publicis Groupe's Burnett of overbilling for Web site development handled by two agency subsidiaries and, in the process, filing false claims. The DOJ alleged that Burnett billed as if the subsidiaries were independent subcontractors, which resulted in a higher rate under the agency's Army contract, Burnett acknowledged in a statement today.
In its defense, Burnett said the Army was aware that the subsidiaries were affiliated with the main agency and that the labor rate discrepancy was inadvertent.
Furthermore, Burnett claims that it "brought the inadvertent error to the Army's attention in 2002" and even offered to reimburse the Army then, "but Army officials never acted on that offer." Asked to respond, a DOJ representative said: "The offer was made after the fraud had been committed."
As such, Burnett maintained -- even after the settlement was revealed -- that the government's claims were without merit. "We seriously considered fully litigating the matter," wrote agency worldwide CEO Tom Bernardin, in an internal memo today. "But litigation can be a long, expensive and uncertain process and the time devoted to the lawsuit would be better spent serving our clients and managing our own growth."
In the memo, Bernardin added that "as a result of our decision to get this case behind us quickly, we are agreeing to disagree, and will be paying an amount which had been fully reserved, and is a fraction of the total value of the work we performed for the United States Army. In no way does this civil case affect any other client, or any of our affiliates, or any other part of the our business."
To cover the $15.5 million settlement, Burnett will pay $12.1 million in cash and credit the Army $3.4 million for work the agency performed but did not bill for, according to the DOJ.
The case was litigated and settled by the U.S. Attorney's Office for the Northern District of Illinois and DOJ's civil division.
In a statement, Gregory Katsas, an assistant attorney general in the civil division, said, "The Justice Department is committed to vigorously pursuing all those who knowingly submit false claims with respect to military contracts."
Brig. Gen. Rodney Johnson of the U.S. Army Criminal Justice Command added that the "American people trust us to ensure [that] their tax dollars are spent appropriately and we will continue to aggressively seek out and investigate those who intend to defraud the Army and the American taxpayer."
The Army account shifted to Interpublic Group's McCann Worldgroup in 2006 after a review that ended in December 2005. Burnett in Chicago was among four finalists in that review.
In 2005 -- Burnett's last full year on the business -- the Army spent more than $110 million in major measured media, according to Nielsen Monitor-Plus. The totals for 2007 and the first 10 months of 2008 were about $135 million and $100 million, respectively, per Nielsen.