Rockwell International Corp. and two of its former managers were indicted Tuesday on charges of double-billing the Air Force by nearly $450,000 on contracts for a sophisticated satellite navigational system.
The 25-count Los Angeles federal grand jury indictment accuses the giant aerospace firm of obtaining secret reimbursement for unexpected repair costs on the $1.2-billion NAVSTAR global positioning project from a subcontractor, and then billing the U.S. government for the same costs and misleading government auditors looking into discrepancies in the billings.
Named in the indictment are Donald Carter, 59, former material division director at Rockwell's Satellite Systems Division in Downey and Seal Beach, and Robert Zavodnick, 46, former manager of major subcontracts for the division.
Contempt Is Charged
The indictment also seeks to have the company held in criminal contempt for violating a 1982 injunction prohibiting the firm from submitting false claims to the government, an order issued in response to a government suit accusing the company of fraudulently shifting costs to the space shuttle program.
"What is particularly egregious and disturbing about this case is that, according to the indictment returned today, Rockwell managers launched another scheme to chisel and defraud the government before the ink was dry on the injunctive order," U.S. Atty. Robert C. Bonner said in a prepared statement.
Assistant U.S. Atty. Janet Goldstein, who presented the case to the grand jury, said the alleged fraudulent activities began nine days after a federal judge issued the 1982 injunction.
In a harshly worded response, Rockwell officials denied that the company had done anything illegal and called the U.S. attorney's decision to seek a criminal indictment "an irresponsible and unwarranted abuse of prosecutorial discretion."
Charles H. Harff, senior vice president and general counsel for the company, said the case is based on information that Rockwell voluntarily provided to the government nearly 18 months ago.
As a result of extensive internal investigation, he said, the company in the fall of 1986 offered the Air Force a contract adjustment and instituted "appropriate management actions."
Zavodnick, a Fountain Valley resident, was fired in October, 1986. Carter, of Downey, was removed from management status in the fall of 1986 and was placed on suspension Tuesday.
"The company has vigorously supported the government's voluntary disclosure policy, under which contractors have been led to believe that criminal processes are not appropriate for resolving government contract irregularities," Harff said. "Since Rockwell believes that it has fulfilled all of the requirements of the voluntary disclosure program, this indictment calls into question the government's commitment to its own policy and may well have a chilling effect on the self-governance process."
But Goldstein denied that Rockwell had made any voluntary disclosures about the contract discrepancies.
"On the contrary, rather than reveal their wrongdoing, Rockwell took affirmative steps to hide and conceal its crimes from the government and went as far as misleading and lying to the government when they (investigators) were trying to detect what had happened," she said in an interview.
Tuesday's indictment is the latest of several recent setbacks for Rockwell.
The company pleaded guilty in 1985 to charges that it submitted false employee time cards and overcharged the Air Force on a spare parts contract. Under a plea agreement, Rockwell agreed to pay $500,000 to the government and put $1 million toward installation of a computerized time-keeping system.
Last December, Rockwell's Downey-based space station group was unsuccessful in its attempt to win a $1.9-billion contract to build a major portion of America's first permanent space station. The contract was awarded to McDonnell Douglas Astronautics Co. in Huntington Beach. But Rockwell's Rocketdyne division in Canoga Park was awarded a $1.6-billion contract to build another section of the space station.
Last week, Rockwell lost out to Martin Marietta for a $508-million contract to build a national test bed simulation facility for the Strategic Defense Initiative.
The indictment focuses on two contracts Rockwell signed with the Air Force for development of the NAVSTAR program, capable of providing precise location information to ground troops, planes and ships by way of satellite-based signals.
The development contract, signed in November, 1979, called for Rockwell to manufacture four experimental satellites. Costs that Rockwell incurred above a certain target level were to be shared with the government, with the Air Force picking up 65 cents of every dollar spent, up to a maximum ceiling price.
The subsequent production contract, executed in May of 1983, covered the delivery and launching of 28 production satellites, but it made Rockwell responsible for all costs incurred above the basic target price.
According to the indictment, Rockwell had begun negotiating the production contract when it ran into a dispute with a subcontractor, ITT-Defense Communications Division of New Jersey, which was responsible for the costs of repairs needed on some of the parts ITT had supplied on the development contract.
The indictment alleges that Rockwell secretly negotiated a deal with ITT under which ITT would charge Rockwell a total of $42.3 million for new work to be performed under the development contract, but which actually was a package deal that included a $337,000 settlement of all costs that Rockwell still owed for the repairs.
The indictment alleges that Rockwell failed to tell government contract negotiators that it was paying ITT only $41.96 million, not $42.3 million, for the subcontracting work. In addition, Rockwell submitted a claim to the government for $337,000 in repair costs for which it had already been reimbursed through the ITT package deal, Goldstein said.
In order to mislead government investigators, Goldstein added, Rockwell employees then doctored the company's own internal case files, deleting any reference to the ITT transactions.
ITT Not Charged
ITT, she said, "is not charged in the indictment, and there is no evidence in the indictment indicating that ITT had any criminal culpability."
Harff said the company investigation pinpointed problems in the contracting process but did not uncover any criminal wrongdoing.
"We believe that our employees did engage in actions which did not meet what we view to be the ethical standards with which we like to see our customers treated. That does not mean that those are illegal, that they violated contract law, or that they constituted criminal acts," Harff said.
If convicted on the conspiracy, mail fraud and false claims counts, Rockwell faces a maximum fine of $1.52 million. Carter and Zavodnick face a maximum penalty of five years in prison and a fine of $771,000.