Justice Dept. Joins Teledyne Suit Filed by Whistle-Blower

The Justice Department on Wednesday joined a whistle-blower lawsuit filed against Teledyne, alleging that a subsidiary of the Los Angeles-based defense contractor systematically inflated its cost estimates on defense contracts.

The practice allegedly defrauded the government of more than $100 million in recent years, making it one of the largest whistle-blower suits on file, according to attorneys familiar with the case.

The case against Teledyne, first disclosed by The Times in June, 1989, involves allegations that senior management of the Teledyne Systems unit in Northridge padded cost estimates and then withheld the internal documents that showed lower estimates. A federal grand jury is believed to be conducting a criminal probe of the same allegations.

In August, 1989, Teledyne removed the president of the systems unit, Harry Halamandaris, and assigned him to a new job on the firm’s corporate staff as an assistant to an executive vice president.

Teledyne spokesman Berkley Baker issued a statement saying: “We believe the action is neither legally nor factually supportable and we will defend ourselves vigorously.” Baker said the company would not discuss specific allegations.

The whistle-blower suit unsealed Wednesday was brought by Klaus Kirchhoff, formerly a senior pricing specialist at Teledyne Systems, which produces specialized military computers and test equipment for aircraft and satellites. The suit was originally filed in May, 1989.

The lawsuit, filed under the Federal False Claims Act, also names as co-plaintiffs a nonprofit group known as Taxpayers Against Fraud and Max Killingsworth, who is a plaintiff in another whistle-blower suit involving Northrop. Taxpayers Against Fraud was established by John R. Phillips, a partner in the Los Angeles law firm representing Kirchhoff, Hall & Phillips.

Phillips said Wednesday that the alleged scheme by Teledyne padded its defense contracts by as much as 40%.

Kirchhoff worked at Teledyne Systems from May to September, 1988, quitting when he became convinced that the pricing practices he was involved with were illegal, he said in an interview.

Those practices involved obtaining labor estimates from the various engineering, administrative and production departments throughout the division, the suit alleges, and compiling them into an overall estimate of cost for a proposed contract, which would be presented to senior management.

Then, senior Teledyne executives would order the estimates increased, ostensibly to offset expected reductions during negotiations with the Air Force or as a “management reserve.” Neither practice is permitted under federal acquisition laws, according to the suit.

Kirchhoff said the biggest padding of costs occurred in estimates of labor hours for engineering, since engineering is difficult to estimate in any case and the government would presumably have difficulty spotting excessive estimates.

He added: “It was assumed that since I came from another company in the aerospace industry, I knew that this went on.” Prior to his job at Teledyne, Kirchhoff said he worked at Northrop for six years but never witnessed improper practices.

Kirchhoff sought a transfer two months after starting the job, but it was denied, he said. He finally quit in September before he had arranged a new job, he said.