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Army to Seek Northrop Refunds Over Inflated Labor Rates

May 29 (Bloomberg) -- The U.S. Army will press Northrop Grumman Corp. for refunds after the Pentagon’s inspector general found the contractor charged the service inflated labor rates on programs to fight drug trafficking.

The Army Contracting Command will conduct its own audit “as soon as feasible” of Northrop’s billings and the resumes of subcontractor workers to determine how much money should be repaid, spokeswoman Giselle Lyons said in an e-mail.

Allegations in the report “are being further investigated by the U.S. Army Contracting Command,” she said. “The command is implementing the recommendations proposed to help ensure the proper management and oversight of current and future contract actions.”

Northrop, the fifth-biggest U.S. contractor, charged the Army excessive labor rates for almost six years for more than 300 subcontractor employees working in Afghanistan and in the U.S. on counter-narcotics efforts abroad, the inspector general said in a May 13 report labeled “For Official Use Only” and obtained by Bloomberg News.

The report said the command may have paid as much as $123 million in “questionable costs.”

The U.S. paid as much as $91.4 million in such costs after Northrop submitted bills for 360 of 460 employees working for subcontractor DynCorp International who “did not meet the qualifications specified in the contract,” Jacqueline Wicecarver, assistant inspector general for acquisition, said in the report.

Worker Qualifications

The inspector general recommended that the Army “review the eligibility of the 460 DynCorp International employees to determine if they met the labor qualifications specified in the contract and if they did not obtain a refund for improper labor charges or recoup from any currently owed payments.”

Asked if Northrop Grumman was in discussions with the Army about refunding any of the questionable costs, Randy Belote, a spokesman for Falls Church, Virginia-based Northrop, said in an e-mailed statement that“we do not comment publicly on meetings held with customers or the content of the discussions.”

Ashley Burke, a spokeswoman for DynCorp International, said in an e-mail that the company “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.”

DynCorp International is owned by affiliates of New York-based Cerberus Capital Management LP.

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, Justin Blum

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