• Payments are held back from 15 contractors found to fall short
  • Agency finds flaws in tracking schedules, purchases, costs

The Pentagon often feuds with defense contractors about billion-dollar weapons that are over budget or underperforming. But it also holds back millions of dollars over flaws in everyday business systems.

United Technologies Corp. tops the most recent target list of 15 companies whose payments are being withheld for inadequate systems to manage subcontractor purchases, estimate costs or keep track of schedules.

As of Aug. 12, the Defense Contract Management Agency was holding back almost $180 million in billings, or as much as 5 percent, from the company’s two military units. That’s up from $130 million in May.

The recent total includes $123.4 million from Sikorsky Aircraft -- the helicopter maker that United Technologies has agreed to sell to Lockheed Martin Corp. -- and $56.1 million from the Pratt & Whitney engine unit.

The withholdings signal steady Pentagon enforcement of a three-year-old regulation calling for contractor compliance with six internal systems that the government says are necessary to measure a company’s progress in meeting cost and schedule goals for weapons contracts.

‘First Line’

“Contractor business systems and related internal controls” are “the first line of defense against, waste, fraud and abuse,” the Pentagon inspector general said in a June report.

Sikorsky has been working closely with the contract agency to develop and implement corrective actions and already has won approval for a plan to improve its purchasing system, spokeswoman Caroline Dennis said in an e-mail. The company also is working to obtain approval of a corrective action plan for its estimating system, she said.

Pratt & Whitney spokesman Matthew Bates said “we are working closely” with the agency “to restore compliance and achieve approval of” the earned-value management system, which tracks progress in meeting cost and scheduling metrics. He said it already has reduced the billings withheld from 5 percent to the current 2 percent as it met other requirements.

Northrop, GE

Five percent is the maximum that can be withheld for shortcomings in any of six business systems under regulations the Pentagon adopted in August 2012. That much is being held back from Sikorsky Aircraft and units of Northrop Grumman Corp., General Electric Co., General Atomics and Boeing Co.

“We have seen a slight increase in the number of companies with non-compliant systems,” David Wray, spokesman for the Defense Contract Management Agency, said in an e-mail.

The number of cases and the amount of withholding in many of them is “extremely small,” said Alan Chvotkin, counsel for the Professional Services Council, a trade group for contractors. He said that’s in part because of the agency’s efforts to “ensure consistent application” of criteria and a requirement that contractors be given an opportunity to take immediate corrective action before funds are withheld.

While the contracting agency is withholding $13,000 from General Atomics for a disapproved purchasing system, it’s also holding back $1.94 million from the contractor’s aeronautical unit for deficiencies in an earned-value system.

The agency is withholding $22.8 million from Northrop Grumman, $21.4 million from Boeing, about $4.5 million from four BAE Systems Plc units and about $3.9 million from three GE units. No funds are currently being withheld from units of Lockheed, the biggest U.S. government contractor.

BAE Systems spokesman Neil Franz said the company “is committed to continuous improvement, efficiency, and compliance with government customer requirements.” GE spokesman Rick Kennedy said the company is working with the Pentagon to address the issues that led to the disapprovals. Boeing spokeswoman Kimberlee Beers said all corrective actions for the company’s disapproved property management system have been completed and approval is expected later this year.

Linden P. Blue, chief executive officer of General Atomics’ aeronautical systems unit, said the company on Aug. 17 received confirmation that the defense contracting agency has accepted the company’s earned-value system.

Northrop spokesman Randy Belote said, “We don’t have anything to add to this story.”

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