TRW SUCCESSOR FIRM TO PAY UNITED STATES $111 MILLION
TO SETTLE FALSE CLAIMS ACT CASE

WASHINGTON, D.C. - Northrop Grumman Space & Mission Systems Corporation (NGSMS), the successor to TRW Inc., has agreed to pay $111.2 million for allegedly overcharging the United States on government contracts. The government alleged that between the years 1990 and 1997, TRW employees engaged in five separate schemes that increased the costs the government paid the aerospace contractor.

Assistant Attorney General Robert D. McCallum Jr. and Debra W. Yang, U.S. Attorney for the Central District of California (Los Angeles) today announced the settlement.

The settlement agreement resolves two lawsuits filed in 1994 and 1995 by Richard D. Bagley, the former director of financial control at TRW's Space & Technology Group, based at TRW's Space Park facility in Redondo Beach, California. The cases were later consolidated. The United States intervened in part of the lawsuit in 1998 and the remainder in 2000, assuming primary responsibility for the entire case. In December 2002, Northrop Grumman Corporation acquired TRW and renamed it NGSMS.

The schemes alleged were:

• In 1991 and 1992, TRW mischarged two costs - independent research and development (IR&D), as well as bid and proposal - associated with its attempt to enter the space launch vehicle business. According to the complaint, if TRW had correctly accounted for those costs, the federal government would not have reimbursed the company or them, because in 1991 and 1992 TRW exceeded the government's ceiling on what it would pay for IR&D and bid and proposal costs.
• TRW mischarged the costs of fabricating and testing a prototype satellite solar array wing as "capital equipment" rather than as IR&D. Again, the complaint alleged that TRW engaged in this practice in order to avoid the government ceiling on IR&D expenditures.
• TRW engaged in the same mischarging with respect to programs called the Universal Test Bed (UTB) and the Eagle Test Bed (ETB). The government alleged that the UTB and ETB were both prototypes of spacecraft buses and that TRW falsely charged the costs of their fabrication and testing as "capital equipment" rather than as IR&D, again in order to avoid the government's ceiling on IR&D costs.
• From 1990 through 1997, TRW Space Park engineers misclassified work that they were performing for TRW's private commercial automotive groups when, in fact, the work they were performing was really IR&D. By misclassifying work in such categories as "long-range marketing" costs instead of IR&D, TRW was able to reduce costs to the company’s commercial automotive groups, and caused the federal government to pay these private costs due to the resulting increase in overhead and general and administrative costs that applied to TRW's government contracts.
• TRW caused the government to pay for the development of a proposal to build a satellite telecommunications program known as Odyssey. TRW had a contract with Teleglobe, Inc. to submit a proposal to a jointly formed private corporation for the construction of the Odyssey satellite system. Instead of charging the costs of preparing that proposal to a direct commercial account as required by government accounting regulations, TRW charged the costs to its general and administrative account, which then caused the federal government to pay most of those costs.

Under the qui tam or whistleblower provisions of the False Claims Act, a private party is authorized to file suit against the alleged wrongdoer on behalf of the government. Subject to certain statutory provisions, if the lawsuit results in a monetary judgment or settlement, the private party is entitled to a share of the proceeds. Under the settlement terms, Mr. Bagley will receive $27,244,000.

The successful resolution of this matter is the result of a lengthy investigation by the Air Force Office of Special Investigations, the National Aeronautics and Space Administration Office of the Inspector General, the Army Criminal Investigative Command, the Naval Criminal Investigative Service, the Defense Contract Management Agency and the Defense Contract Audit Agency.

The case is entitled United States ex rel. Bagley v. TRW Inc., No. CV 95-4153-AHM.

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