TRW Policies Didn’t Lead to Overcharges, Chairman Says

TRW Chairman Ruben F. Mettler, rebutting accusations by former employees that his company’s overcharging on government contracts was caused by flaws in the aerospace giant’s internal policies, told Congress on Thursday that the issue was “a people problem, not a system problem.”

Mettler denied allegations by two TRW executives who contend that they were fired last December to divert attention from serious irregularities in the company’s accounting procedures. He asserted that the two former employees, who oversaw units where overcharges occurred, were themselves responsible for the abuses.

“The other 8,000 TRW employees got the message that legal and ethical behavior was a top priority,” Mettler told the House Energy and Commerce Committee’s subcommittee on investigations and oversight. The panel had previously heard testimony Wednesday and Thursday from former TRW employees who blamed their superiors for the problems.

Mettler acknowledged that the company, in four self-initiated investigations, has uncovered overcharges totaling between $10 million and $23 million. He said TRW intends to reimburse the government and that “I am determined to do everything in my power to revent any recurrence.”

TRW is fighting any government consideration of its possible suspension as a defense contractor. The Defense Logistics Agency, which has the authority to suspend a contractor, is examining TRW’s conduct.

Once Standard Practice

Mettler insisted that four well-publicized recent cases of TRW overcharges and quality-control failures came to light only because of a tough self-policing policy in which he insisted that TRW is an industry leader.

Mettler explained that before March, 1985, it was standard practice for a defense contractor to estimate overhead on a percentage basis, then negotiate the final amount with Defense Department procurement officials. When TRW billings were withdrawn and audited, it turned out that ineligible costs had been included, including country club dues, travel by executives’ wives and boarding a dog at a kennel.

But Mettler rejected any suggestion by dismissed TRW officials and committee Democrats that the company was targeting mid-level officials for discipline while overcompensating top executives who should have been held responsible.

At the opening of Thursday’s committee session, fired TRW executives Robert L. North, a senior corporate officer, and Hugo Poza, who reported to North and headed a San Diego-based unit where overcharges occurred, blamed poorly designed and overly complex company accounting procedures for the problems.

“The point was to isolate a few individuals they could cite for wrongdoing and ignore the root causes,” North testified.

“The discipline was more a matter of showmanship than anything else,” said Poza, who said that the charging procedures at the San Diego unit were used at other TRW operations, including the one in Redondo Beach, where North’s office was.

Mettler, however, asserted that no similar overcharging problems were found at the Redondo Beach unit, and said that North and Poza “used charging practices that were completely outside any acceptable range.”

Citing testimony Wednesday from Larry L. Eagleye, a former controller at TRW’s compressor components division in Cleveland, where there had been overcharges on rotor blades manufactured for military jet engines, subcommittee Chairman John D. Dingell (D-Mich.) and other committee members asked why Eagleye was fired but company higher-ups were not disciplined.

Dingell, waving a rotor blade and banging it on his desk for emphasis, repeatedly pressed Mettler to concede that Eagleye’s manager, Mervin Wallace, and the division controller, Ted Wilson, “should have known” and thus were either equally guilty or else “blockheads.” Yet, Dingell declared several times, “Wilson was promoted and Wallace got a $58,000 bonus and was sent to London.”

Mettler, in response, said Wallace “was the whistle blower” who started the investigation and that Wilson was unaware of the abuses because “Eagleye kept the information” from him.