Northrop pays $11.4 million to settle allegations it violated a decade-old settlement agreement

by Ben Vernia | December 9th, 2013

On December 9, the Department of Justice announced that it had reached a settlement with Northrop Grumman Corp. to resolve allegations that the company charged deferred compensation costs to government contracts in violation of a 2002 agreement. According to DOJ’s press release:

The Justice Department announced today that Northrop Grumman Corp. has paid the United States $11.4 million to settle a government claim for penalties provided under the Federal Acquisition Regulation (FAR) and False Claims Act allegations stemming from its failure to abide by a 2002 settlement agreement with the Defense Contract Management Agency (DCMA). The government alleged that Northrop charged to its federal contracts certain costs for deferred compensation awards to key employees, even though it had promised not to do so as part of the earlier 2002 settlement.

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Northrop had agreed in its 2002 settlement with DCMA that it would limit the amount of deferred compensation it would include in proposals for subsequent contracts. The government’s contracting officer found that Northrop had failed to honor this commitment and should be assessed a penalty equal to twice the amount of the unallowable costs claimed. Northrop challenged the decision in a complaint filed in the U.S. Court of Federal Claims in Washington, D.C. The Department of Justice responded to the suit with counterclaims alleging that in addition to the FAR penalties, Northrop also had violated the False Claims Act by passing along these unallowable costs to the government in indirect rates applicable to hundreds of 2004 contracts with the government. 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 in thousands of vouchers and invoices.

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