Suit Claims Hughes Overcharged U.S. on 4 Radar Systems

A high-level manager at Hughes Aircraft has filed a lawsuit alleging that the aerospace firm illegally overcharged the government by $50 million on four radar programs, including the system for the B-2 Stealth bomber, it was learned Wednesday.

The suit was originally filed in U.S. District Court in Los Angeles in September and was quietly unsealed by a little-noticed court order late last month.

The allegations are made by William J. Schumer, former Hughes division contracts manager for the B-2 bomber at the company’s Radar Systems Group in El Segundo. Earlier this year, he filed another civil suit against the firm. Last year, Schumer had been demoted and transferred by Hughes to its Missile Systems Group in Canoga Park, where he is an assistant division contracts manager.

Hughes officials termed Schumer’s allegations “groundless” and said the charges in the new suit are merely more detailed than those in the earlier action.

Schumer, who holds a law degree but is not a practicing attorney, alleges in the federal suit that Hughes created six secret internal agreements that illegally provided for sharing development costs among radar programs for the Navy F-14, Air Force F-15 and Navy F-18 jet fighter programs and the Air Force B-2 bomber program.

“What Hughes was doing was allocating costs among programs on its own,” Dean Francis Pace, the Los Angeles attorney representing Schumer, said Wednesday. “Northrop (the B-2 prime contractor) didn’t know it and, more importantly, the special project offices for the Air Force and Navy didn’t know it. Hughes was unilaterally doing what only the Defense Department or the Congress should do.”

Pace said that under the internal agreements, executives at the Hughes Radar Systems Group in El Segundo decided to develop common electronic components, often called black boxes, for the four programs and to apportion the cost of the work among the four. Pace said he is in possession of all six agreements.

In some cases, Schumer alleges in his suit, Hughes double-billed the radar development costs and in other cases it misallocated the costs among fixed-price, incentive-type contracts and cost-plus-type contracts.

As a general rule of government work, contractors are allowed to bill contracts only for work performed for that contract. Otherwise, it would be possible, as alleged in this case, to shift costs from fixed-price contracts to cost-plus-type contracts, allowing a contractor to collect funds from the government when it otherwise would not have been able to do so.

The complaint filed by Schumer runs through a complex scenario in which the black boxes for various radar programs were jointly developed under the commonality agreements and their costs shared under different contracts. The agreements were approved by senior division executives, including J. R. Giacoletto, then director of contracts for the radar group and current president of the group.

The suit, filed under the federal False Claims Act, asks for treble damages of $150 million and civil penalties of up to $10 million. Under the False Claims Act, individuals can sue contractors on behalf of the federal government and share in any awards. In addition, the government can intervene as a plaintiff if it chooses.

The Justice Department is believed to be actively investigating both cases but has not formally joined either suit.

Last January, Schumer filed another False Claims suit against Hughes, alleging that the firm misallocated charges between the F-18 and B-2 programs. That case is seeking $40 million in damages, which would increase to $120 million in treble damages.

“This is not a new lawsuit but merely a more detailed statement of the original case filed nearly a year ago by Mr. Schumer,” John Kuelbs, Hughes vice president and associate general counsel, said Wednesday. “The allegations against Hughes made by Mr. Schumer are groundless.

“We cannot explain in detail why they are groundless, because the explanation would involve Defense Department classified information. Department of Justice lawyers have had access to this classified information for almost a year. To date, they have not joined in Mr. Schumer’s lawsuit. Hughes intends to strenuously defend against this lawsuit and expects to be vindicated if this lawsuit comes to trial,” Kuelbs said.

Pace said the most recent suit does not supersede or amend the earlier case but expands the allegations to include two other programs and a more complete picture of the alleged activity at the radar group.