Rockwell Pleads Guilty to Overcharges : Will Pay U.S. $1 Million; Investigation Continues

Rockwell International pleaded guilty Wednesday to criminal charges that it submitted false employee time cards and overcharged the Air Force on a spare parts contract during 1982.

Under a plea agreement, Rockwell will pay $1 million to cover double the amount of the overcharges and the government’s investigation costs. In addition, the firm faces a $200,000 criminal fine when it goes to court for sentencing on Dec. 13 before U.S. District Judge Jerry Buchmeyer.

The Pittsburgh-based company was charged in federal court in Dallas with 20 counts of overcharging the government. The alleged overcharges occurred at the former Rockwell Collins Communications Systems division in Texas on a contract to supply spare parts to a communications system aboard an early warning aircraft.

Six Rockwell employees were involved in filing the phony time cards, but an investigation into possible involvement of other Rockwell officials is continuing, Justice Department officials said.

Losing $1 Million on Program

Assistant U.S. Atty. Ronald Eddins said Rockwell was working under an original $3.6-million contract to supply the communications gear. Three companies bid competitively on the original contract, and Rockwell won when it submitted the lowest bid.

But Rockwell was losing $1 million on the program, Eddins said. It attempted to recoup its losses on the program by inflating its charges on subsequent spare parts under a so-called modification to the original contract, he said.

The original contract was a fixed-price agreement. The modifications were not a fixed-price deal, he said.

“What they did was inflate their bid, and when they were asked to back up their numbers, they phonied up documentation on time, materials, travel and certain discounts the government was entitled to,� Eddins said. “It was the category of mischarging on labor that was most prevalent.�

Rockwell originally bid $2.1 million on the modifications and eventually ended up getting $1 million for the work, Eddins said.

“This is significant because we were able to investigate the case, put facts together and carry it to the point where Rockwell realized it had to put together some kind of plea bargain,� Eddins said. “These cases are very difficult to prove.�

The case also appears significant because critics have long charged that defense contractors use spare parts and follow-on modification contracts to bolster thin or non-existent profits on main contracts.

“You get the contract, and you make the profit on the spares,� Eddins said. “They were just trying to get as much as they could.�

A Rockwell spokesman said that both the federal investigation and an internal company investigation disclosed that no management officials had known about the alleged felony.

Individual Culpability

But Eddins responded: “I wouldn’t say that. That is not necessarily true. The Justice Department still has this investigation open on individual culpability.�

The Defense Department also has the authority to debar or suspend Rockwell or divisions of Rockwell from future defense work. Pentagon spokesman Jim Turner said: “It is too early to say anything� about potential action against the firm.

Rockwell spokesman Sam Petok said the six employees have been “appropriately disciplined� but declined to elaborate.

Rockwell’s admission of guilt in the case is the second time in recent years that the company has paid significant fines for overcharging the government. In 1982, the firm paid $1.5 million in fines after it admitted to switching labor charges from fixed-price Air Force contracts to cost-plus contracts on the space shuttle.