Some Allegations Against Northrop Called False : But Air Force General Says Firm Engaged in ‘Dumb’ Contracting Practices

Air Force Gen. Lawrence A. Skantze told a congressional committee Tuesday that some allegations of inadequacies in MX missile guidance systems built by Northrop are not true but that Northrop had engaged in contracting practices that he described as “dumb.”

Testifying before the House Armed Services Committee, Skantze said three of 10 major allegations involving improper contracting practices have proven to be unfounded and that seven others remain under investigation by the Air Force, the Defense Contract Audit Agency and the U.S. Attorney’s office in Los Angeles.

Skantze, the Air Force’s top officer for weapons development and procurement, also disclosed that the Air Force will throw open to competition a contract for future production of MX guidance systems (called “guidance sets”) next year, two years earlier than expected.

The Air Force funded Rockwell International last year to prepare for competing against Northrop, an action based on Northrop’s problems in delivering equipment on schedule and a belief that competition could save money, Skantze said.

The Air Force may decide to hold a “winner-take-all” competition to determine which company will supply the additional 76 guidance systems it needs to deploy the currently planned 50 MX missiles, Skantze said. That would give Rockwell an opportunity to knock Northrop out of the business.

However, an Air Force spokesman later said that a final decision has not been made on whether to split the production order or hold a winner-take-all competition. So far, Northrop has received contracts for 113 production sets of the 189 needed for the 50-missile system.

Although the company remains four months behind schedule, it has been improving lately on its deliveries and hopes to be back on schedule next year, according to company Vice President David Ferguson.

In Tuesday’s hearings, Rep. Samuel S. Stratton (D-N.Y.) interrupted Skantze’s testimony to question him on the issue of Northrop’s use of fictitious companies set up to purchase MX parts with $381,000 in petty cash.

“The MX is being built by individuals on their lunch hour, if they can get some money out of the petty-cash drawer,” Stratton said.

“These accounts were set up under the table,” Skantze replied. “You can’t fault the Air Force, because we are not an investigating agency.”

Stratton shot back: “You are the top guy and you can walk in anywhere you want and take a look.”

A few minutes later, Skantze said: “Don’t confuse these dumb accounts, where people were buying lunch-time . . . parts, with the entire program.”

Even Rep. Robert E. Badham (R-Newport Beach), an MX supporter, joined the critics, saying: “It is so dumb, nobody else would do it that way.”

Nevertheless, Skantze said that the Northrop guidance devices, known as inertial measurement units or IMUs, are operating with twice the reliability that the Air Force had expected and have performed in missile tests 33% more accurately than required.

Skantze also refuted in detail three allegations made by former Northrop engineers in an earlier hearing before the committee.

An allegation that engineering drawings had been modified without government approval was untrue, Skantze said. Also, he said, Northrop’s test software does not automatically pass bad equipment as had been charged. A third allegation that he refuted involved the unauthorized use of an epoxy sealant on electronic components.

Meanwhile, Skantze said the seven investigations that remain open involve allegations, among others, that Northrop threw away surplus MX parts owned by government, did not perform required parts testing and overcharged on labor costs.