Pentagon Holds Back Funds From Sikorsky Over Business Systems

  • Lockheed unit must verify it has plans to fix the problem
  • Almost $210 million withheld, mostly over estimating bid costs

The U.S. Defense Department is withholding almost $210 million in billings from Lockheed Martin Corp.’s Sikorsky Aircraft unit until it demonstrates it has a plan to correct flaws in two internal business systems.

To protect taxpayers, a Pentagon rule that took effect in 2011 requires all new contracts to include provisions withholding payments if persistent deficiencies are found in any of six primary business systems. Sikorsky currently has the most money withheld of any company tracked by the Defense Contract Management Agency, which must validate the company’s corrective action plans before the money can be released.

It’s another sign of weaknesses in internal controls at Sikorsky, the helicopter maker Lockheed bought from United Technologies Corp. in 2015. The shares of Lockheed fell last month when the company warned of a “material weakness” in accounting at Sikorsky.

Chris Williams, a spokesman for Lockheed, the biggest U.S. defense contractor, said the two cases of business-system weaknesses at Sikorsky cited by the Pentagon aren’t related to the accounting issues. He said the Defense Contract Management Agency recently approved Sikorsky’s corrective action plans for both systems it found wanting.

“We are executing on those plans and expect both systems to be re-certified in 2017,” he said.

‘Significant Deficiencies’

The contract management agency has been withholding funds since April 2014 for unresolved “significant deficiencies” with Sikorsky’s system for estimating bid costs, with the amount reaching $195.3 million as of Jan. 31. Additional funds, totaling $14.1 million at the end of last year, have been withheld since last April for deficiencies with the “earned value management” system used to track spending and compare actual costs and performance against projections to spot potential overruns.

While Williams of Lockheed said the total currently withheld “is substantially less” than the value cited as of Jan. 31, the agency indicated it remains at almost $210 million.

Mark Woodbury, a contract agency spokesman, said Sikorsky’s corrective action plan for the estimating system was accepted for review in April. The agency hopes to find “the system acceptable upon completion of our ongoing verification and validation to determine whether the significant deficiencies are corrected,” he said. That could happen by April, Woodbury said.

The agency accepted the corrective action plan for the earned-value system in August but doesn’t have a timeline for when it would complete verification.

“If significant deficiencies are corrected, the system will be determined acceptable,” Woodbury said. “If not corrected, Sikorsky will be requested to submit an updated corrective action plan.”

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