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US government and defence contractor Northrop Grumman in tit-for-tat settlements news
03 April 2009

US defence contractor Northrop Grumman Corp. agreed Thursday to pay $325 million to resolve allegations it provided and billed the National Reconnaissance Office for defective military satellite parts.

The payment was agreed on to resolve claims that TRW, which it acquired in 2002, provided defective parts for a spy satellite programme in the 1990s.

But in an unusual twist, the federal government also announced last night that it had settled a separate, long-running dispute with Northrop and agreed to pay the aerospace company $325 million - essentially meaning that no money will change hands.

In an e-mail, a Justice Department official said that because the two settlements with Northrop were of equal amounts, "no money is exchanged."

The Justice Department said its investigation found that the company failed to properly test certain parts, known as heterojunction bipolar transistors, made by TRW between 1992 and 2002. It also found that the companies misrepresented and hid certain facts about the parts' reliability.

Robert Ferro, an electrical engineer for the Aerospace Corp., a federally funded research lab that was evaluating a satellite transistor for the Pentagon, had initiated the lawsuit that alleged TRW sold the government electronic components that the company knew would fail. Ferro had been a tester of TRW parts.

The whistle-blower filed the lawsuit in 2002 under the False Claims Act, which allows people not affiliated with the government to sue federal contractors on behalf of the government. If the claimants are successful, they are entitled to 15 per cent to 25 per cent of the total of the settlement amount.

"TRW deliberately suppressed Robert Ferro's findings and sold the components to the government knowing that those parts were likely to fail," said Eric R Havian, an attorney for Phillips & Cohen LLP, which represents Ferro.

"Even after a satellite in space experienced serious anomalies, TRW still refused to reveal the problems found earlier with the components and had the gall to charge the government millions to investigate what went wrong with the satellite," Havian said.

"Today's settlement demonstrates that defense contractors will be held accountable and that the government will aggressively pursue all allegations of misconduct in the procurement process," said Michael F Hertz, acting assistant attorney general for the Justice Department's civil division.

Northrop said that "while the company believes it acted properly under its contracts and had substantive defenses to the claims, it also believes that settlement is in the best interest of all parties as it releases the company from the government's claims, avoids litigation and preserves a valued customer relationship."

Meanwhile, prosecutors said they also settled a contract dispute brought by Northrop concerning its contract with the Air Force to develop and produce the Tri-Service Standoff Attack Missile (TSSAM), a low-cost tactical cruise missile.

That suit, filed by Northrop in 1996, concerned the government's decision to terminate the missile contract due to cost and schedule overruns. The TSSAM Action settled for $325 million and resolved Northrop's claims of more than $1 billion, bringing this 12-year litigation to a close.

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US government and defence contractor Northrop Grumman in tit-for-tat settlements