McDonnell to Pay Pentagon $1.6 Million to Settle Charges

McDonnell Douglas has agreed to pay the government $1.6 million to settle allegations that one of its divisions based in Missouri overcharged the Air Force on two 1981 contracts.

The division, McDonnell Douglas Electronics of St. Charles, Mo., allegedly failed to disclose to Air Force negotiators the existence of internal estimates of the amount of labor necessary to perform the contract.

The failure to disclose the internal estimates, which were substantially lower than estimates given to Air Force officials during contract negotiations, led to the payments of inflated claims, the government alleged.

The agreement states that the settlement “does not constitute an admission of liability” and it releases McDonnell from any further government claims in the case.

The Justice Department, which negotiated the settlement, said the government was damaged by about $850,000 by the alleged withholding of the cost estimates, which is technically known as defective pricing. McDonnell agreed to pay the $1.6 million within 10 days.

One contract was for the purchase of voice warning generator units for the F-4 Phantom jet. The other was for replacement parts for the F-111 flight simulator.

A McDonnell spokesman said: “We are pleased to have finally resolved this lengthy contract disagreement to the satisfaction of both McDonnell Douglas and the customer. Now we can get on with our business without additional expenses of litigation.”

The spokesman said the $1.6 million is not financially material to the company and would not result in a charge against earnings.