Northrop Misconduct Alleged in MX Contract : Federal Probers Sent U.S. Attorney in L.A. Data Linked to Possible Fraud, Aspin Memo Reports

Times Staff Writer

Federal investigators have turned over to the U.S. attorney in Los Angeles evidence of possible criminal and civil misconduct by Northrop Corp. while the firm was working under an Air Force contract to build a key guidance device in the MX missile system.

The action was disclosed in a memo written by Rep. Les Aspin (D-Wis.), chairman of the House Armed Services Committee.

As a result of "serious problems" in the MX program discovered by the committee staff and two Defense Department investigative agencies, Aspin said that he plans to call hearings in Washington later this week.

Problems Seen Deepening

The congressional hearings and the prospect of a U.S. attorney's investigation would mark a deepening of Northrop's problems with the MX missile program. The first public indication of Northrop's troubles with the MX came last October when a Northrop engineer alleged in a Times story that the guidance system had serious technical problems. Since then, the Air Force has suspended all contract payments because of late deliveries, and a former manager has alleged that the firm resorted to irregular contracting practices to correct its problems.

A memorandum sent Friday by Aspin to members of the Armed Services Committee cited three cases of alleged misconduct by Northrop that have been turned over to the U.S. attorney. The memo, which was obtained by The Times, states that the Air Force Office of Special Investigations and the Defense Contract Audit Agency are involved in the investigations.

Aspin's memo said the cases referred to the U.S. attorney include time card violations that resulted in excess charges to the government of up to $14 million, a certification by Northrop to the Air Force that a test was conducted on a part called a heat exchanger when Northrop did not have the instruments to conduct the test and allegations regarding double-charging on certain electrical cables called flex harnesses.

U.S. Atty. Robert Bonner declined to comment on Aspin's memo but issued a statement that read: "The area of defense contractor fraud is the highest priority white-collar crime area in our office." The fact that the three cases have been turned over to Bonner does not mean that he would necessarily seek to bring charges against Northrop.

Separately, Air Force officials on Friday sealed a Northrop warehouse on Century Boulevard in El Segundo, which was being used to store MX missile parts. The sealing order prohibits Northrop or other parties from entering the premises until Air Force officials complete an audit of government-owned property stored at the facility.

At Company's Request

A Northrop spokesman said the action was taken at the company's request after an internal investigation showed that government property at the warehouse was in good order. That internal investigation apparently came after recent allegations by a former Northrop manager, David Peterson, that the company was throwing MX parts into a garbage bin to conceal irregular parts purchases. Congressional investigators have taken possession of at least a portion of 80 boxes of discarded parts, and, according to Peterson's attorney, Robert Kilborne, the Office of Special Investigations is preparing to subpoena the rest.

Kilborne turned over documents to congressional investigators that showed Peterson was in control of a petty cash fund that disbursed $250,000 of Northrop funds through a fictitious business known as Liaison Engineering Services. A Northrop spokesman said that business was a legal "procurement expediting" activity that has since been shut down.

The Century Boulevard warehouse is the same facility that was cited in an Air Force audit conducted last year, the results of which were obtained by The Times under the Freedom of Information Act.

Cites Improper Handling

The audit cites numerous cases of improper handling and storage of government-owned property at the warehouse. For example, Exhibit 45 in the audit contains a picture of a cardboard box with the words "Gold Scrap" scrawled on it. The audit described the situation as "government-owned gold scrap stored away from government storage area. No safeguarding, no accountability."

Allegations raised by Aspin about time cards and flex harnesses in the MX program are under investigation by the Ballistic Missile Office in San Bernardino, which manages the program, a spokesman for that office confirmed. But so far, he said, Air Force officials "have not found any instance of Northrop corporate management intent to deliver anything but what the government is paying for."

The spokesman added that Northrop admitted to "falsification" of the heat-exchanger test and corrective actions were taken, which apparently included disciplining some Northrop managers. The Air Force said that "to Northrop's credit" the company discovered the heat-exchanger problem at the same time as the Air Force.

Missile Office May Be Target

The Ballistic Missile Office itself could face substantial criticism in the House hearings this week because the office is responsible for proper management of the MX in the first place. The Air Force investigation and audit, as well as the warehouse sealing action, were taken by other branches of the service.

The MX guidance device at issue is known as the inertial measurement unit, or IMU, a basketball-size sphere that guides the MX nuclear missile in flight. Under an Air Force production contract, Northrop was to have delivered 54 IMUs through the end of April but delivered only 33, putting it about four months behind schedule. The Air Force suspended contract payments to Northrop earlier this year and was holding back $59 million through the end of April.

In April, Aspin disclosed that late IMU deliveries had forced the Air Force to reduce the number of MX missiles on alert status at F. E. Warren Air Force Base in Wyoming, basing site for the missiles.

Reliability Defended

Air Force officials, however, dispute any suggestions that Northrop's tardiness in delivering the IMUs throws their reliability into question. "The reliability of their IMU has exceeded our projections both in performance of 17 highly successful flight tests and in the field in operational missiles," an Air Force spokesman at the missile office said.

The office spokesman said that seven of the 33 IMUs supplied by Northrop had failed by the end of April, whereas the Air Force had expected to have 13 IMU failures. But a former Northrop engineer, Brian Hiatt, filed a lawsuit last year that alleged the IMU has serious electronic defects that would cause the MX to fail if it is ever called into operation.

Attorney Herbert Hafif, calling the case an "outrageous scandal," said that Hiatt and two other individuals he represents would testify before the House hearing.

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