Northrop Found to Overcharge U.S. on Counter-Drug Work

Northrop Grumman Corp. (NOC) charged the U.S. Army excessive labor rates for almost six years for more than 300 subcontractor employees working on counter-narcotics programs in Afghanistan and the U.S., according to the Pentagon’s inspector general

The Army Contracting Command may have paid as much as $123 million in questionable costs, according to the May 13 report, labeled “For Official Use Only” and obtained by Bloomberg News. The title: “Northrop Grumman Improperly Charged Labor for the Counter Narco-terrorism Technology Program.”

As much as $91.4 million of the “questionable costs” was paid after “Northrop Grumman submitted labor charges performed by 360 of 460” employees for subcontractor DynCorp International “that did not meet the qualifications specified in the contract,” Jacqueline Wicecarver, assistant inspector general for acquisition, said in the report.

Randy Belote, a spokesman for Falls Church, Virginia-based Northrop, said in an e-mailed statement that the company has been cooperating with the inspector general “for some time on their investigation into the conduct of one of our subcontractors on” the counter-narcotics contract.

“We have no further comment at this time,” he said.

Ashley Burke, a spokeswoman for DynCorp International, which is owned by affiliates of New York-based Cerberus Capital Management LP, said the company can’t comment on the full report, not having reviewed it.

‘Complied Fully’

“On the issue in general, I can say that DynCorp International has cooperated with investigators throughout their inquiry into this issue, has complied fully with our obligations under the subcontract, and nothing improper was submitted by DI to our customer,” she said in an e-mail.

The investigation began after an October 2012 whistle-blower complaint to a hotline alleged improper billings for labor in the U.S. and abroad on the Army-managed effort to fight narco-terrorism in other countries.

The audit said DynCorp “knowingly applied incorrect rates” that were passed on by Northrop.

DynCorp was a subcontractor for at least four jobs from October 2007 to March 2013 on which Northrop submitted invoices for a total of $153.5 million. Dyncorp provided spare parts, maintenance and training for Afghanistan’s Ministry of Defense, National Army Air Corps and counter-narcotics air squadron.

‘Relied on Northrop’

Officials of the Army Contracting Command said in written comments in the report that their personnel failed to verify that the employees “met minimum labor qualifications” because “they relied on Northrop Grumman” to do so. Nor did Army personnel review the Northrop invoices before they approved payments, the service said.

The Army in a web posting said Northrop and other contractors provided “the necessary goods and services required to support DoD, other Federal agencies and partner nations engaged in counter-drug and counter narco-terrorism operations throughout the world.”

The inspector general’s office posted only the report’s title on its website. Bridget Serchak, a spokeswoman for the inspector general, declined to provide the report or any information about it and recommended that an inquiring reporter file a Freedom of Information Act request.

No Degree

The audit recommended that the Army review the resumes of the employees for whom Northrop filed labor charges, and if they were unqualified, “obtain a refund for improper labor charges or recoup” funds “from any currently owed payments due” Northrop Grumman. “Northrop Grumman officials submitted labor charges for key employees who did not meet ‘‘the required labor qualifications,’’ according to the audit.

At a minimum, a program manager should have a bachelor’s degree in engineering, computer science or business systems and a minimum of 12 years’ relevant work experience in military design, the inspector general said.

‘‘Northrop Grumman identified a DynCorp employee as a program manager and billed 5,729 hours over 36 months ‘‘totaling almost $1.2 million,’’ the audit found. ‘‘However, the employee did not meet the program manager qualifications because he did not have a bachelor’s degree,’’ it said.

In another example, Northrop over a five-year period billed 16,270 hours totaling almost $2 million for a DynCorp employee it identified as performing six roles, including quality assurance manager, depot mechanic and senior general engineer.

‘‘The employee’s work history and education only qualified him for 161 of the hours,’’ and he didn’t meet the labor qualifications for the remaining categories, the inspector general found.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net Larry Liebert

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