Pentagon Audit Says AlliedSignal Overcharged Military

AlliedSignal Inc. overcharged the military for components bought since 1996--in one instance by more than 200%--because it used flawed pricing data, according to a Pentagon audit.

Poor negotiating by the Pentagon also was to blame, according to the draft report by the Pentagon’s Inspector General, a copy of which was obtained by Bloomberg News. In all, the military overpaid by $4.9 million, or 18%, what was “fair and reasonable” for $32.2 million in purchases through fiscal 1998 that were examined in the audit.

Although the audit didn’t accuse AlliedSignal of any wrongdoing, it said the company provided flawed, inaccurate and outdated information the company generated internally. AlliedSignal disputed the findings.

“We take strong exception to the IG’s charges that the [Defense Department] overpaid AlliedSignal because of [the data] it relied on,” said AlliedSignal spokesman Dennis Signorovitch. “The IG findings are in error.”

AlliedSignal was the sole supplier for the parts in the Pentagon’s latest audit--the fourth by the Pentagon since last year and the second to examine AlliedSignal--and won’t be required to return any of the money.

However, the Inspector General calculated that the Pentagon could save at least $53 million through 2005 with improved monitoring of AlliedSignal data. Those projected savings also would depend on the negotiation of long-term contracts, according to the report.

Also on Friday, speculation that Morristown, N.J.-based AlliedSignal is planning to acquire Honeywell Inc. pushed Honeywell’s shares up $9.13, or 9.5%, to close at $105 on the New York Stock Exchange.

Honeywell spokesman Pearse O’Loughlin declined to comment on the takeover speculation. Officials at AlliedSignal, the No. 1 seller of flight-safety systems, weren’t immediately available.

An acquisition of Minneapolis-based Honeywell, which makes automated controls and aviation systems, would probably be valued at about $15 billion, or $120 a share, analysts said.

AlliedSignal shares fell $2 to close at $58.38 on the NYSE.