Northrop Grumman and TRW: Satellite Parts and Money Moving Both Ways

In the Northrop Grumman and TRW False Claims Act settlement, Northrop agreed to pay $325 million over allegations that it supplied and billed the National Reconnaissance Office for defective satellite components. The government’s account turned on testing, qualification and what the customer was told about reliability.

The Justice Department announced the settlement on April 2, 2009. Northrop had acquired TRW in December 2002, bringing the business into Northrop Grumman Space and Mission Systems.

The same announcement also described a separate settlement in the opposite direction: the government agreed to pay Northrop on a missile-contract claim.

How Satellite Components Became a False Claims Act Case

The components were heterojunction bipolar transistors, microelectronic parts used in National Reconnaissance Office satellite equipment. The government’s allegations concerned certain transistors manufactured by TRW from 1992 through 2002.

According to the Justice Department, Northrop and TRW failed to test and qualify the affected parts properly and incorporated defective transistors into the satellite equipment. The government also alleged that the companies misrepresented reliability and concealed material facts about it.

The government alleged failures in testing and disclosure, followed by billing for defective parts. Those allegations connect the engineering work to the bill.

For someone working in component testing, quality or program management, that is a recognizable chain of decisions. The test results, the qualification decision and the account given to the customer each answer a different question. We connect those records, the evidence a False Claims Act case turns on, to the equipment supplied and the claims submitted.

Taxpayers paid for satellite equipment while, the government alleged, the contractor withheld facts about whether its components could be relied on.

A Technical Employee Started the Case

An employee of The Aerospace Corporation brought the qui tam case. The source of the allegations worked outside Northrop’s own payroll. That matters in a business where knowledge of a component can reach beyond the company that manufactures and bills for it.

The government investigated the employee’s allegations and joined the whistleblower’s case. The National Reconnaissance Office’s Office of Inspector General conducted the investigation, with assistance from the Defense Criminal Investigative Service and the Air Force Research Laboratory’s Sensors Directorate.

The laboratory’s involvement makes the technical side of this case especially clear. The government needed to understand the parts and their reliability as well as the bills. A person who understands testing can explain why a result matters, what a qualification decision represents and where the customer-facing account diverges from the underlying work.

Defense contracting also helped shape the modern whistleblower system. The Congressional Research Service’s 2009 report, Qui Tam: The False Claims Act and Related Federal Statutes, describes how Congress strengthened private False Claims Act cases in 1986 amid evidence of extensive government fraud, including defense procurement fraud. The Northrop case gives that history a concrete setting: an employee with information about satellite components started a case the government later joined.

Two Settlements in Opposite Directions

Northrop’s separate claim concerned the Air Force’s Tri-Service Standoff Attack Missile program. The government had terminated the development and production contract because of cost and schedule overruns. Northrop sued to challenge the termination.

The Justice Department resolved the missile-contract dispute at the same time as the satellite-parts case. The two agreements put the same parties on opposite sides of the payment:

Northrop had sought more than $1 billion on the missile claim. The government settled that demand while resolving its own fraud allegations against the company.

Same announcement. Money moving both ways.

We find that hard to square with a headline about contractor accountability: the government agreed to pay Northrop the same amount on a separate claim. The False Claims Act settlement amount gives only one side of that exchange.

What the Testing and Disclosure Trail Can Show

The Northrop allegations put product qualification, reliability disclosures and billing in the same case. That connection is useful to an insider whose daily work sits somewhere upstream of the final claim for payment.

We start with the component and the work you know. A testing employee may understand the results and the conditions behind them. A quality employee may understand the basis for qualification. A program or contracts employee may know what the customer was told and which equipment and payments the representations concerned.

Those are different views of the same transaction. We work with you to connect them: the underlying technical information, who understood it, the decisions that followed and the account given to the government. An invoice can identify the charge while leaving the most important part of the story in the engineering records.

The alleged reliability disclosures are especially important here. The Justice Department’s account went beyond the condition of the parts to what Northrop and TRW allegedly said and concealed about them. That puts the company’s knowledge and communications beside the testing itself.

The Earlier TRW Case Concerned Costs Charged to the Government

A separate TRW settlement announced on June 9, 2003 required Northrop Grumman Space and Mission Systems to pay $111.2 million over alleged government-contract overcharges. That case concerned how TRW accounted for work, including satellite development, rather than the reliability of the transistors in the later settlement.

The government alleged that TRW shifted research and proposal expenses into other accounting categories to get the government to pay costs it otherwise would not have reimbursed. Costs associated with entering the space launch vehicle business allegedly escaped limits on independent research and development and bid and proposal spending.

The allegation became particularly concrete with prototype hardware. According to the government, TRW treated the fabrication and testing of a satellite solar array wing as capital equipment instead of independent research and development. The government said the classification avoided its ceiling on research and development expenses.

A former director of financial control at TRW’s Space & Technology Group brought the cases over alleged cost-shifting from 1990 through 1997. That insider’s view was of the accounts rather than the components.

That is the accounting counterpart to the satellite-parts story. In one case, the question was what the company disclosed about a component. In the other, it was what the company called a cost. Both required someone who understood the work behind the description presented for payment.

The Whistleblower’s Share of the Satellite Settlement

Under the satellite-parts agreement, the Aerospace Corporation employee who brought the case would receive a $48.75 million share of the recovery.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know the Work Behind the Approval

If the test results you know tell a different story from the one given to the government, talk with our whistleblower experts about the parts and the decisions behind them. We build the case with you and bring in defense-contracting whistleblower lawyers who understand product qualification and government payments. You bring the technical knowledge; we stay beside you as that knowledge becomes the foundation of your case.