Army Urged to Pursue a Refund From Northrop -- Four Years Ago

(Bloomberg) -- More than four years ago, the Pentagon’s watchdog warned that Northrop Grumman Corp. may need to refund as much as $101 million for improper labor charges on a project to combat the narcotics trade that supports terrorism. The Army still hasn’t completed its assessment.

The unresolved dispute is a case study of the obstacles to making defense dollars stretch further by tackling alleged “waste, fraud and abuse,” as presidents from Ronald Reagan to Donald Trump have promised to do.

The Defense Department’s inspector general alerted the Army in a May 2014 audit that workers from DynCorp International used by Northrop on a Counter Narco-Terrorism Technology Program lacked qualifications. It concluded that Northrop Grumman “did not properly charge labor rates” for work performed for almost six years through March 2013. Army records show Northrop retained the contract through 2016 and received at least $681 million.

The support contract that spawned the dispute called for providing “critical equipment, material and services” for Army counternarcotics efforts. Northrop subcontracted to DynCorp for spare parts, maintenance and training for Afghan Army and Ministry of Counternarcotics efforts.

Illustrating the complexities of acting on such findings, the Army Contracting Command says its review was delayed until December 2016 by a Justice Department investigation that didn’t result in criminal or civil charges.

Continuing Review

The Army then began a separate administrative review that continues with no end in sight. “We must complete our analyses before we can determine if Northrop Grumman owes any refund,” command spokesman Ed Worley said in an email.

The command requested additional data from Northrop and in December 2017 asked for an audit from the Defense Contract Audit Agency. Northrop turned over thousands of gigabytes of data, which the Army is reviewing. The service told the inspector general that “due to the magnitude of the data being reviewed,” command personnel “did not have a projected completion date,” the watchdog office said in a recent status report.

Tim Paynter, a spokesman for Falls Church, Virginia-based Northrop Grumman, declined to comment. Mary Lawrence, a spokeswoman for DynCorp International, which is now owned by private equity firm Cerberus Capital Management LP, said in an email that “we are not allowed to comment” on the contract dispute.

From October 2007 through March 2013, Northrop Grumman officials submitted labor charges of almost $153.6 million for 493 DynCorp employees. The inspector general recommended that the Army review the eligibility of 360 of 460 employees to determine if they met the labor qualifications and to verify the resumes for the remaining 33 employees after Northrop couldn’t provide them.

Relying on Northrop

Army contracting officers “did not verify contractor employees met minimum qualifications because they relied on Northrop Grumman” to do this, according to the audit.

In one example cited, Northrop Grumman identified a DynCorp employee as a program manager and billed 5,729 hours over 18 months totaling almost $1.2 million.

“However, the DynCorp employee did not meet the labor qualifications specified in the contract because he did not have a bachelor’s degree” and wasn’t qualified to be a program manager, the inspector general said.

In a phrase invoking the familiar presidential exhortation on how to save defense dollars, the inspector general said in the status report that it’s “imperative for DoD contracting officers to validate that contractors and subcontractor’s employees are qualified to accomplish the required work in an effort to avoid waste and abuse of government funds.”

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