The Justice Department on Friday said that two Lockheed Martin [LMT] business units have agreed to pay $70 million to settle allegations they overcharged for spare parts related to Navy T-34 and T-44 training aircraft.
The business units, Sikorsky Support Services Inc. (SSSI) and Derco Aerospace, were part of Lockheed Martin’s 2015 acquisition of helicopter manufacturer Sikorsky Aircraft from United Technologies Corp. UTC later acquired Raytheon to forge RTX [RTX].
The lawsuit alleges that SSSI failed to disclose costs it claimed on work for the Navy improperly marked up. SSIS purchased parts through a cost-plus-percentage-of-cost (CPPC) subcontract from Derco that were 32 percent higher than Derco paid other suppliers for, DoJ said.
“The district court ruled that Derco’s markup violated federal statute barring CPPC contracting, which Congress prohibited because it gives suppliers incentive to drive up government costs, as well as the terms of the prime contracts between SSSI and the Navy,” DoJ said.
The case began in 2011. Anti-Kickback Act claims and False Claims Act claims against Sikorsky were dismissed in court.
“We are pleased that the settlement will bring this case to a conclusion and there is no finding of wrongdoing by Sikorsky or Derco Aerospace,” a Lockheed Martin spokesperson said.
in Lockheed Martin’s 10-Q report filed with the Securities and Exchange Commission in April in conjunction with its first quarter earnings release, the company said believe it has defenses to the government’s claims and bid for about $52 million in damages, which it added “are subject to trebling.” Based on the settlement, it would appear Lockheed Martin might take a charge related to the outcome.
“If, contrary to our expectations, the U.S. government prevails on the remaining issues in this matter and proves damages at or near $52 million and is successful in having such damages trebled, the outcome could have an adverse effect on our results from operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid,” it said in the filing.