TRW May Have Overcharged Defense Dept.

TRW may owe the Pentagon up to $10 million because of improper charging of costs on certain secret defense contracts involving units in Sunnyvale, Calif., and San Diego, the company and a Pentagon official said Thursday.

A spokesman for Cleveland-based TRW, one of the nation’s largest defense contractors, said the firm’s investigation is still in its preliminary stage and thus it could not disclose which contracts and programs are involved.

However, a Pentagon official knowledgeable about the investigation said some of the overcharges involved secret programs. At least some of the overcharges were disclosed to TRW officials and defense officials in an anonymous letter from a TRW employee in December, 1984, alleging that certain charges were being billed to improper contract accounts, the official said.

TRW’s internal probe was delayed because the firm’s investigators had to obtain top-level clearances to examine the accounting on the secret programs, he said. One allegation involved the way that TRW was handling certain research and development charges.

TRW’s estimate of up to $10 million in improper charges was based on preliminary results of an internal investigation involving contracts at the firm’s TRW Microwave Inc. unit in Sunnyvale, spokesman Michael Johnson said. Those preliminary results have been given to the Defense Department.

The estimate also is based in part on the fact that an internal investigation is also under way involving TRW’s military electronics and avionics division in San Diego. However, preliminary findings are not yet available from that probe, Johnson said.

The firm said it will take “several months” to develop a more precise estimate. It said, however, that it does not expect any repayments to materially affect its earnings.

“The investigation and related voluntary disclosure is in keeping with TRW’s longstanding legal and ethical conduct policy,” the company said in a statement. “TRW and the government are working together to assess the extent of any damages.”

Although it is not known what actions the government may take against TRW, there have been isolated cases in which the government has filed criminal charges and civil suits against defense contractors for mischarging.

This is not the first time that TRW has had trouble with compliance on defense contract regulations. In 1984, the Air Force temporarily suspended payments on a TRW defense contract due to dissatisfaction over TRW’s system for managing costs and schedules.