Justice Dept. Joins Suit Alleging Big Overcharges by McDonnell

The federal government has joined defense whistle-blower Rod Stillwell in making new allegations that McDonnell Douglas fraudulently overcharged the Army by up to $175 million on the Apache attack helicopter program. The suit seeks total damages of up to $750 million.

A Justice Department attorney said the government’s decision to join in an amended complaint making the new allegations signifies that the government sees merit in the case, although it remains under investigation.

The accusations are contained in documents filed in U.S. District Court in Los Angeles alleging that McDonnell engaged in a pattern of overcharging the Army on the Apache program.

The original complaint in the case, filed more than a year ago, sought only $1.1 million in damages. With the claim for increased damages, Stillwell attorney William Ramsey said Thursday, the case is believed to be the largest false claims suit against a defense contractor that the Justice Department has joined.

The amended complaint estimates damages to the government at $175 million, which can be trebled for an estimated total of between $500 million and $750 million, the suit says, depending on the legal theory applied. Stillwell would share up to 25% of any damages recovered under the False Claims Act.

The Justice Department filed an “election to proceed” in federal court on April 28, meaning that the government will join Stillwell in pressing the new allegation. The Justice Department did not formally announce the action.

A spokesman for McDonnell Douglas said the case is without merit and disputed whether the government has actually joined in the new allegation. “The government has not determined what action it intends to take with the case,” he said without elaborating.

Stillwell filed his original suit in March, 1987, alleging that McDonnell Douglas had overcharged the Army by $1.1 million on a subcontract it issued to Parker Hannifin, an industrial firm based in Cleveland. The Justice Department joined the case in September.

Stillwell first made his allegations in 1984, shortly after uncovering allegedly forged documents in his job as a subcontracts administrator at Hughes Helicopters Inc., which was later acquired by McDonnell Douglas.

His allegations have been the focus of a long-running investigation by the Defense Criminal Investigation Service, the Defense Contract Audit Agency, the Army Criminal Investigation Division and a federal grand jury.

Forced to Resign

Stillwell discovered a budgeting discrepancy of more than $1.1 million, involving two “memorandums of agreement” on a subcontract to Parker Hannifin’s Bertea unit in Irvine. He eventually discovered that McDonnell had submitted to the Army a memorandum of agreement listing a value of $11,604,712 for helicopter parts. But another version of the memorandum in McDonnell’s files showed a value of $12,728,037, a difference of $1.1 million.

After raising questions about the discrepancy, Stillwell was forced to resign, he said.

The new amended complaint alleges that the practices followed in the Parker Hannifin subcontract were part of a broad practice that applied to all of the Apache helicopter subcontracts. The complaint says that McDonnell attempted to shift costs from the first procurement lot of helicopters to a second lot.

Hasn’t Opened Books

Ramsey, the attorney, said the intent of the alleged scheme was to “low-ball the program” and “buy into the program,” terms that refer to a practice by a contractor to artificially lower the price of a weapon to get a program established and accepted by Congress so that it can later raise the price once it is too late to stop production.

“They figured they could make it back later on,” Ramsey said. “The exact figures will not be known until McDonnell agrees to open its books to the government, which it has refused to do. If they were not dirty, they would have opened their books by now.”

The documents filed by the Justice Department raise the same issue, noting that the defendants have been “unwilling or unable to supply the government investigators and auditors with the requested information and documentation relevant to the claims.”

Ramsey said the Justice Department intervention signifies that “they are endorsing the fact that the mischarges extended well beyond Parker Hannifin and went across the board.” He estimated that as many as 20 major subcontracts involved discrepancies similar to Parker Hannifin’s.

In addition to the civil suit, a federal criminal investigation is continuing. It was reported earlier that evidence has been presented to a grand jury.