Northrop Cost Estimates Are Under Investigation : Defense: The government is looking into an ex-employee’s allegation that the firm inflated figures on a secret Army weapons system.
A federal raid on Northrop facilities in El Segundo last week resulted from allegations raised by a former employee that the firm improperly inflated its cost estimates to develop a secret Army weapon, known as the Bat, sources close to the investigation said Tuesday.
The U.S. Attorney’s office in Los Angeles confirmed Tuesday that agents from the Federal Bureau of Investigation and three other agencies searched Northrop facilities in El Segundo, where the Bat is being developed. Prosecutors said they could not discuss the subject of the probe.
Northrop officials said they have not been informed of the issues under investigation. They have declined to discuss the nature of documents that the federal agents seized, but noted that employees were told of the raid on the same day it occurred.
The Los Angeles-based aerospace firm has been the repeated target of federal investigations and pleaded guilty in 1990 to federal charges. But a number of other probes were quietly withdrawn, including one that involved a high-profile raid on the F-18 jet fighter program in May, 1990. The Justice Department later notified the firm that it was not the subject of any investigation in that matter.
The Bat allegations involve whether the firm added an unauthorized “management reserve” prior to negotiating the contract, then adjusted its cost estimates to reflect that additional cost, according to the source. Those allegations are similar to ones that surfaced last year on the Northrop MX program, which is also under investigation for such management reserves.
Federal regulations prohibit arbitrary reserves built into cost estimates, which are often characterized by law enforcement authorities as a “pad” in the contract. But the matter is controversial, because the industry asserts that executives have the right to exercise their judgment by ordering increases in cost estimates made by lower-level engineers.
The allegations about the management reserve on both the MX and the Bat programs come from a former Northrop employee, who has agreed to work with federal authorities, according to the source.
