TRW Subsidiary Pleads Guilty to Overcharging U.S. : Firm Will Repay $17 Million, May Continue to Get Contracts
A TRW unit pleaded guilty to felony charges filed Thursday in U.S. District Court in Denver, alleging that it overcharged the Pentagon by about $2.6 million on defense contracts.
TRW will repay $17 million to the government in connection with the Colorado overcharging incident and three unrelated overcharging cases that occurred at units in San Diego, Sunnyvale and Cleveland.
The company will not be suspended from receiving additional government contracts, however, an action that the Pentagon was considering during the course of at least two grand jury investigations into the company’s contracting practices.
“The Defense Department’s determination not to suspend or bar TRW follows a comprehensive examination of our self-governance program and voluntary disclosures (by the company) in all four cases,” said TRW Chairman Ruben F. Mettler.
A TRW spokesman said the company agreed to make the $17-million payment on the basis of its best estimate of the amount of overcharges. But the amount must still be verified by government investigators.
Labor Costs Padded
“The government has accepted this without agreement that this is all that is due,” the spokesman said. “We have always offered to make restitution.
The 10-count criminal information filed Thursday in federal court alleged that TRW Electronic Products Inc., a Colorado subsidiary, added labor costs to contracts “to enhance profits or reduce losses on certain fixed-price contracts.”
“This mischarging resulted in TRW’s filing of inflated claims with the (Defense Department) and in overpayments by the government to EPI,” a Pentagon statement said.
The overcharges took place between 1980 and 1984, with most of them coming between April, 1983, and April, 1984, according to the Pentagon statement.
TRW, which did $3.4 billion in government work in 1986, voluntarily disclosed the overcharging incident after it received an anonymous letter questioning the unit’s charging practices.
The Pentagon statement indicated that TRW’s voluntary disclosure was considered “in weighing criminal, civil and administrative sanctions.” In some past cases of defense contractors that were criminally charged, the Pentagon has suspended the companies for a period of time.
In the San Diego overcharging case, TRW already has repaid $2.5 million to the government. That was part of the $17-million repayment cited Thursday.
The overcharges occurred when unallowable items were billed to overhead accounts at the firm’s military electronics and avionics division.
TRW fired two top managers in connection with the case, Robert L. North and Hugo Poza. North was a senior corporate officer of the parent company and Poza was head of the division. They have since filed wrongful termination suits against the company and testified in Congress that TRW’s contract system was flawed.
