Dubious Boeing Billing Found

The Justice Department has concluded that Boeing Co. improperly billed the Air Force for as much as $106 million in costs incurred in developing its 777 commercial airliner, according to four government officials familiar with the case.

Boeing, the world’s largest aerospace company, has repaid more than $10 million since 1997, with the most recent payment in April 2000. The case isn’t settled, and the U.S. is weighing civil charges, the officials say.

Pentagon auditors routinely question contractors’ charges and negotiate settlements.

This case, however, isn’t routine, those familiar say: During five years, it has grown to involve six government agencies. Air Force investigators have used subpoenas to compel documents and testimony from current and former Boeing employees. And Boeing’s corporate management was involved in the billing decisions.

A Boeing spokeswoman, Debra Bosick, said the company is the subject of a government inquiry. An Air Force spokesman confirmed an investigation of a major defense contractor is underway but wouldn’t identify Boeing as the company involved.

The case “is being looked at for civil, administrative remedies,” said Major Mike Richmond, a spokesman for the Air Force Office of Special Investigations. “It’s not considered a criminal investigation at this point, though that eventuality is not being ruled out.”

The dispute is the subject of an article in the TIG Brief, an in-house magazine published by the inspector general of the Air Force. Although no company is named in the article, the officials said Boeing is the one involved.

A defense contractor “mischarged commercial work to government-shared overhead accounts,” the magazine said. “Subpoenaed documents verified that the contractor also capitalized and depreciated special test equipment in government-shared overhead accounts.”

Bosick said Boeing’s attorneys haven’t heard from the government since December and declined to give more details.

The U.S. attorney in Seattle, where Boeing is based, is reviewing whether to file civil charges for accounting irregularities by two Boeing units, the Defense and Space and Commercial Airplane groups, officials said. Assistant U.S. Atty. David Jennings, who is handling the investigation, declined to comment. The Defense and Space group has since been reorganized and renamed.

Any charges would be filed under the False Claims Act, which provides civil penalties of not less than $5,000 and not more than $10,000 per claim, plus triple damages.

The matter came to light in an August 1995 audit by the Pentagon’s Defense Contract Audit Agency. The audit revealed that Boeing billed the Air Force for work on the 777, including development of specialized test equipment, officials said.

The Pentagon concluded that Boeing billed to the Air Force costs that should have been absorbed by its Commercial Airplane Group.

The costs--for supplies, materials and services connected to its 777 transport--were put in the Defense and Space Group accounts and charged as U.S. defense work, according to officials.

The Justice Department met last month with representatives of other federal agencies to determine whether to file a civil complaint against Boeing in the case, an official said.

Boeing shares rose 3 cents to close at $58.14 on the New York Stock Exchange.