10. THE DOD'S COST-PLUS CONTRACTING SYSTEM TAXPAYER SWINDLE

The welfare mother who drives a Cadillac and uses several aliases to defraud the government of thousands of dollars always makes good front page copy; the multi-billion-dollar corporation which uses illegal bookkeeping techniques to defraud the government out of millions of dollars and then fires employees who report the fraud doesn't seem to be as newsworthy; and the federal contracting system that encourages overruns, inefficiency, and fraud is even less newsworthy.

Rockwell International, one of the nation's largest space and defense contractors, fired at least two employees for reporting contract fraud to NASA's Inspector General. These two, along with other former and current Rockwell employees, all allege that Rockwell illegally transferred cost overruns to get the government to pay.

Like other defense suppliers, Rockwell has two types of contracts with the government. The first, fixed price contracts, are negotiated in advance with a set price, and any cost overruns must be absorbed by Rockwell. The second, cost-plus contracts, are like open-ended price tags, with the government covering all expenses no matter how high they go. The B-1 bomber is a fixed price contract, for example, while the Space Shuttle is a cost-plus contract.

What the employees revealed was that Rockwell was shifting the billing for extra time and money spent on fixed contract to the cost-plus contracts. Employees were told to bill work done on the B-1 (fixed) to the Space Shuttle (cost-plus).

The U.S. Justice Department began to investigate and then suddenly dropped the case for several years. When it finally was re-opened Rockwell lawyers agreed to an out-of-court settlement. A month later, the cases were settle with no admission of guilt on Rockwell's part. Rockwell agreed to pay the government $500,000 and to invest $1 million in a computerized timekeeping system that supposedly will ward off abuses.

Government watchers were incensed that the Justice Department would settle for so little. It was once estimated that Rockwell's fraudulent charges amounted to as much as $5 million. Some critics pointed out that it was fortuitous for Rockwell that William French Smith was U.S. Attorney General. Smith was formerly a partner in the firm of Rockwell's longtime legal counsel, Gibson, Dunn & Crutcher.

The bottom line is that despite occasional press exposes of a fifteen-cent bolt that costs hundreds of dollars when it enters the Defense Department contracting system, the fraud-susceptible cost-plus system continues. The 1.6 trillion taxpayer dollars President Reagan wants to give the Pentagon over the next five years is overly plump for cost-plus plucking.

SOURCE:

COMMON CAUSE, March, 1983, "Whistleblower!," by John Hanrahan.