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Northrop to Pay $5.2M in B-2 Paint Fraud Case

Thursday, December 9, 2010

The Northrop Grumman Corp. has agreed to pay $5.21 million to settle allegations that it misled the Air Force concerning the test results of a failed topcoat system that the company developed for the B-2 bomber program.

The penalty will be paid by Dec. 21, according to the settlement finalized Wednesday (Dec. 8) afternoon and announced by the U.S. Attorney’s Office in Los Angeles. The office coordinated the investigation of the alleged violations of the federal False Claims Act.

Case Chronology

Federal authorities gave this account of the case:

From 1998 to 2002, Northrop developed and implemented a special new topcoat, called the Advance Topcoat System (ATS), for the Air Force’s B-2 bomber.

During development and testing of the ATS, Northrop found cohesion problems in the conductive coating of the ATS—problems that the company tried to fix.

Despite the problems, however, Northrop proceeded to apply the ATS to a B-2 bomber in January 2002 and allegedly failed to fully disclose the cohesion problems to the Air Force. Even though Northrop knew of the problems, it then applied a similar version of the paint to a second bomber in June 2002.

In July 2002, during a test flight of the first bomber, strips of the ATS peeled off the aircraft. The entire coatings system had to be removed from both bombers and the original paint re-applied to both aircraft at Northrop’s expense.

The operation of the aircraft was not affected by the coatings failure, authorities said.

Problems Not Disclosed

“Our contention was that they didn’t disclose fully the problems that they were having with the paint at the time,” said Assistant U.S. Attorney Kent A. Kawakami of the U.S. Attorney’s Civil Fraud Division.

The size of the peeled coating strips varied “from just a few inches to much more than that,” Kawakami said. He could not say how much of the aircraft was affected by the problem, but he added: “Any kind [of delamination] was not going to work.”

The coatings project was part of two contracts that ran from 1998 to 2002, Kawakami said. The coatings contract was worth “much more than” the $5.2 million assessed, Kawakami said, but he noted that the fine was for damages only and that the company eventually fulfilled the contract.

Northrop cooperated with the investigation and will pay $5.21 million to settle the matter without an acknowledgment of wrongdoing, federal authorities said. The company did not respond Thursday to a request for comment in the case.

Procurement Fraud Initiative

The government investigative team in the case included agents from the Air Force Office of Special Investigations and the Defense Criminal Investigative Service.

The case falls under the umbrella of the National Procurement Fraud Initiative, which began in 2006. The NPF Task Force was established to promote the early detection, identification, prevention and prosecution of procurement fraud associated with the increase in government contracting activity for national security and other government programs.

2009 False Claims Case

In 2009, Northrop Grumman paid the United States $12.5 million to settle allegations that it knowingly submitted false claims to a number of government agencies in connection with electronic parts the company purchased for use in the manufacture of navigation systems for military airplanes, helicopters, submarines and certain equipment used in space.

That agreement resolved claims made in a whistleblower lawsuit filed against Northrop in May 2006 by Allen Davis, a former quality assurance manager at Northrop’s Navigation Systems Division facility in Salt Lake City. Davis’ lawsuit alleged that Northrop failed to comply from November 1998 until February 2007 with testing requirements set forth in a November 1998 protocol for the use of commercial parts in military systems.