One of the world’s largest defense contractors, Bethesda-based Lockheed Martin Corp., agreed Friday to pay $15.8 million to the U.S. government to settle allegations that it mischarged perishable tools used on numerous contracts, the Justice Department said.
The settlement, announced by Assistant Attorney General Stuart F. Delery, who heads the department’s civil division, resolves accusations arising from a pricing scheme by Tools & Metals Inc. (TMI), a subcontractor that sold perishable tools to Lockheed Martin Corp. for use on military aircraft, including the F-22 and the F-35 fighter jets.
Mr. Delery said the accusations were based specifically on TMI’s inflation of the costs of the tools between 1998 and 2005, which Lockheed Martin then passed on to the U.S. under its various contracts with the government.
In March 2006, Todd B. Loftis, a former TMI president, was sentenced in federal court in Fort Worth, Texas, to 87 months in prison and ordered to pay $20 million in restitution after his December 2005 guilty plea in connection with his role in the scheme.
Loftis had waived an indictment and pleaded guilty to a one-count information charging conspiracy to defraud the government with false and fraudulent claims. He admitted that from 1998 through 2004, as president and chief operating officer at TMI, he, along with others, conspired to defraud the Defense Department and Lockheed Martin Aeronautics by obtaining payments from both through false and fraudulent billings.
In 1998, TMI, acting through Loftis, obtained a sole-source integrated supply contract with Lockheed Martin Aeronautics to supply all of Lockheed’s perishable tools for the manufacture of airplanes including the Defense Department’s F-16, F-22 and other military needs in Fort Worth, San Diego and Marietta, Ga.
Perishable tools are the drill bits, router bits and other small tools that are used in the manufacturing process.
In order to cover up this activity, the government said, Loftis and others under his direction created false invoices using a computer scanner to remove actual pricing data and substitute fictitious data to give the appearance of legitimate pricing. Loftis was able to control the audit sample of invoices as well so as to limit the possibility that a fraudulently priced part would be found. After the audits, Loftis ordered the fraudulently created documents and computer files to be destroyed.
TMI and Loftis realized approximately $20 million in profits on these fraudulent sales to the government, prosecutors said.
“It is troubling that a large defense contractor with long-established contractual ties with the United States failed to undertake appropriate measures to ensure the integrity and validity of the costs it submitted to the United States,” Mr. Delery said.
The federal government brought civil claims against Lockheed Martin under the False Claims Act, accusing the firm of contributing to the inflated amounts paid by the government by failing to adequately oversee TMI’s charging practices and by mishandling information revealing these practices.
The case was jointly handled by the Defense Criminal Investigative Service, the Air Force Office of Special Investigations, the Defense Contract Audit Agency, the Contract Integrity Offices of the Departments of the Air Force and the Navy, the Defense Contract Management Agency, the Justice Department Civil Division and the U.S. attorney’s office for the Northern District of Texas.