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National Aeronautics and Space Administration
Office of Inspector General
Washington, DC 20546

June 25, 2003

RELEASE 2003-042: NORTHROP GRUMMAN AGREES TO PAY $111.2 MILLION TO 
SETTLE FALSE CLAIMS CASE AGAINST TRW, INC.

On June 9, 2003, the United States Government, Richard D. Bagley (the
Relator), and Northrop Grumman Space and Mission Systems Corporation 
(NGSMS), the successor to TRW, Inc., agreed to a Settlement Agreement 
and Release.  Under the Agreement, Northrop Grumman will pay the
United States $111.2 million to settle their civil liability
involving alleged violations of the False Claims Act of 1986.

The agreement resolves two lawsuits filed in November 1994 and June 
1995 by Bagley, the former director of financial control at TRW's
Space and Technology Group, based at TRW's Space Park facility in
Redondo Beach, California.

The complaint alleged that between the years 1990 and 1997, TRW 
employees engaged in five separate schemes that increased the costs
the government paid TRW. The alleged fraudulent schemes were:

-  TRW allegedly mischarged independent research and development 
(IR&D) and bid and proposal (B&P) costs when attempting to enter the 
space launch vehicle business.  TRW exceeded the government's 
ceiling on what it paid for IR&D and B&P costs and brought forth 
these excess costs to the government;
-  TRW allegedly mischarged the costs of fabricating and testing a 
prototype satellite solar array wing as "capital equipment" rather 
than as IR&D.  TRW engaged in this practice in order to avoid 
exceeding the government ceiling on IR&D expenditures;
-  TRW also allegedly engaged in similar mischarging practices with 
respect to the Universal Test Bed and the Eagle Test Bed Programs.  
TRW falsely charged the costs of their fabrication and testing as 
"capital equipment" rather than as IR&D, avoiding the government's 
ceiling;
-  From 1990 through 1997, TRW engineers allegedly misclassified 
private commercial automotive work when they were performing IR&D.  
This caused the government to pay the private costs resulting an 
increase in overhead and G&A costs that were applied to TRW's 
government contracts; and
-  TRW allegedly caused the government to falsely pay for the 
development of a commercial satellite proposal to build a 
telecommunications spacecraft known as Odyssey.  TRW charged the 
costs to its G&A account that caused the Government to pay most of 
those costs.
NASA's affected programs, operations and projects included past and 
current contracts at: NASA Headquarters, Washington, DC; Marshall
Space Flight Center, Huntsville, AL; Langley Research Center,
Hampton, VA; Glenn-Lewis Research Center, Cleveland, OH; Goddard
Space Flight Research Center, Greenbelt, MD; and the Jet Propulsion
Laboratory, Pasadena, CA.  The DOD military service components of the
Air Force, Army and Navy, were also affected by TRW's cost
mischarging schemes to defraud the government.  NASA's damages were
identified by the NASA OIG with assistance from the Defense Contract
Audit Agency (DCAA) to be $11,341,979, and will be returned to the
Agency. 

The False Claims Act permits private citizens to sue on behalf of the 
government to recover federal funds that were obtained by false or 
fraudulent claims.  Under the Act, Bagley is entitled to receive a 
portion of the settlement amount, with the balance of the $111.2 
million settlement going to the Federal Government.  Bagley was a
long term TRW employee who had been laid off in 1993.

Special Agents of the NASA Office of Inspector General, the Air Force 
Office of Special Investigations, the United States Army Criminal 
Investigative Command Division, and the Naval Criminal Investigative 
Service conducted the investigation.  The DCAA, Western Region, La 
Mirada, CA, provided audit support.  David W. Long, Senior Trial 
Attorney and Richard C. Scofield, Trial Attorney, Civil Division, 
Commercial Litigation Branch, Washington, DC, and Susan R. Hershman, 
Deputy Chief, and Assistant United States Attorneys David A.
Ringnell, Hong C. Dea, Kent A. Kawakami, and Howard F. Daniels, Civil
Fraud Section, Central District of California, Los Angeles, handled
the prosecution.

For more information on this release, please call Joe Kroener, Acting 
Executive Officer, NASA Office of Inspector General at (202)358-2558.

Previous Releases: None

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