Northrop Grumman Settles Allegations It Improperly Charged Costs

The Justice Department announced this week that Northrop Grumman Corp. has paid the government $11.4 million to settle a claim for penalties provided under the Federal Acquisition Regulation and False Claims Act based on allegations the company failed to abide by a 2002 settlement agreement with the Defense Contract Management Agency. According to a DOJ press briefing, the government alleged Northrop charged to its federal contracts certain costs for deferred compensation awards to key employees, even though it had agreed not to do so as part of the 2002 settlement.

In the settlement, Northrop had promised to limit the amount of deferred compensation it would include in proposals for subsequent contracts. However, a contracting officer found that Northrop had failed to honor this commitment and assessed a penalty equal to twice the amount of the unallowable costs claimed.

Northrop challenged the CO’s decision in a complaint filed in the Court of Federal Claims (No. 07-482C). DOJ responded with counterclaims alleging that, in addition to incurring the FAR penalties, Northrop had violated the FCA by passing along these unallowable costs to the government in indirect rates applicable to hundreds of 2004 contracts. The government alleged that, as a consequence of Northrop’s knowing misrepresentations, it was induced to pay more than $1.9 million in unallowable costs.

The settled claims are allegations only, and there was no determination of liability. The settlement resulted from a consolidated effort led by the Civil Division’s Commercial Litigation Branch in conjunction with the DCMA and the Defense Contract Audit Agency, Western Region Investigative Support Division.

About George Gullo

George Gullo is an attorney editor in the Government Contracts group at Wolters Kluwer Law and Business. George serves as the principal editor of Cost Accounting Standards Guide and supports all of the group’s print and electronic publications, as well as legal research tools, including the Government Contracts Reporter, Board of Contract Appeals Decisions, and the FAR and DFARS Matrix Smart Charts. With more than 20 years experience in the legal publishing industry, including over 10 years in the government contracts area, George also has a background in legal and business transactions. He is a graduate of DePaul University College of Law and a licensed Illinois attorney.
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