U.S. Takes Over Whistle-Blower Suit : Defense: Allegations against McDonnell Douglas involve overcharging. Firm says they are without merit.

The Justice Department said Friday that it is taking over a whistle-blower lawsuit against McDonnell Douglas Corp., accusing the military’s No. 1 defense contractor of routinely mischarging labor costs on some airplane contracts.

The federal government officially intervened Aug. 21 in the lawsuit involving multibillion-dollar contracts for the beleaguered A-12 and C-17 aircraft from at least 1989 through 1995.

“We think there’s justification to take over the lawsuit,” a Justice Department spokesman, Joseph Krovisky, said. “We may throw out some of the original charges in the lawsuit or we may add some.”

The government plans later to file an amended complaint in the case in which Daniel O’Keefe, a former sheet metal worker for McDonnell Douglas, filed suit Oct. 12, 1993, on behalf of the government.

The original lawsuit, filed in U.S. District Court in St. Louis, was unsealed on Thursday, but Krovisky said the judge ruled that only future court filings would be available to the public.

Tom Williams, a spokesman for McDonnell Douglas, said the allegations came from an employee who had been “terminated for cause” in 1993. He refused to say why O’Keefe had been fired.

“We believe these charges are totally without merit and that the evidence will prove this in trial if not earlier,” the company said in a statement. “We regret that the government did not give us the opportunity to discuss and resolve these matters before proceeding.”

The Justice Department said it decided to enter the case after a review showed McDonnell Douglas allegedly “defrauded the United States by routinely mischarging labor costs on a number of Department of Defense airplane contracts, including the contracts for the A-12 and C-17 aircraft, from at least 1989 through 1995,” according to a statement.

According to Krovisky, if the Justice Department prevails, O’Keefe, as a whistle-blower, could share in 15% to 30% of any damages awarded under the False Claims Act.

The A-12 Avenger was to be a new-generation attack aircraft designed to incorporate the most advanced radar-evading “stealth” technology used in the B-2 bomber.

The Navy had planned to buy 620 A-12s for $52 billion.

In January, 1991, just days before the start of the Persian Gulf War, then-Defense Secretary Dick Cheney canceled the A-12 program, citing billions of dollars in cost overruns and delays. It was the largest contract cancellation in Pentagon history.

The Pentagon said later that the two partner contractors on the A-12, McDonnell Douglas and General Dynamics Corp., owed the government $1.35 billion for failing to fulfill the contract. The two companies countersued, claiming the government owed them $1.7 billion. The case is pending.