Northrop Grumman

THIS DEFENSE contractor remains trusted by the U.S. government despite a number of actions for overbilling and providing false information. For example, Northrop pleaded guilty in 1990 to 34 counts of providing false statements to the government during its work on the Air Launched Cruise Missile and Navy Harrier Jet programs. The guilty plea was the culmination of pervasive management and production problems that also dominated Northrop's work on the MX missile program.

By the time the company delivered its first Internal Measurement Unit (IMU) for the MX missile in May 1986, 203 days late, the company had been rated “marginal” in an Air Force audit. The House Armed Services Committee reported that Northrop falsely certified that parts met specifications, billed the government for its own mistakes, allowed altered worker time cards, and set up illegal shell corporations to speed parts purchasing. The shell corporations also provided an end-run around quality certification procedures. While the U.S. Air Force withheld payments, the Department of Justice pursued a criminal investigation. Of Northrop's practice of ignoring the external audits that identified problems, Representative Ron Wyden (D-OR) told the New York Times, “that just strikes me as incredible incompetence.”

When whistleblowers claimed a year later that Northrop defrauded the government of more than $2 billion on Stealth bomber contracts, the federal government declined to join the suit. How much and how permanently Northrop cleaned up its operations are debatable. On the one hand, the company's public relations says the company earned a number of quality awards in 2003. On the other hand, Northrop's acquisitions the prior year generally brought with them lawsuits over defense contractor fraud, along with signs of production inefficiency.

By late 2003, the company was faced with absorbing 30 percent of a $22 million cost overrun on the new CVN 77, a nuclear aircraft carrier built at the company's recently purchased Newport News, Virginia, shipyard. The Newport News facility's additional problems included a civil lawsuit alleging that the facility had, before Northrop acquired it, billed the government for $72 million in tanker research and development that was actually performed for a commercial customer between 1994 and 1999. The government sought up to $216 million in damages; the case was settled for $60 million in early August 2003.

During the summer 2003, Northrop apparently made an aggressive effort to settle its own and its subsidiaries' problems with the government. In June, the company agreed to pay the federal government $111 million to settle charges that TRW, which Northrop had acquired in late 2002, overcharged for a number of space-related contracts. In late August, Northrop agreed to another $20 million in fines for selling defective aerial drones to the U.S. Navy.

The TRW prosecution, one of largest whistleblower cases ever, began when Richard Bagley, formerly chief financial officer at TRW's Redondo Beach, California, unit, sued the contractor on behalf of the federal government, an act allowed by the federal False Claims Act. The U.S. government credits whistleblower suits under this act for allowing it to recover more than $1 billion in 2002 alone.

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