Two Lockheed Subsidiaries Settle Charges of Overbilling U.S. Navy

Two subsidiaries of aerospace giant Lockheed Martin have agreed to pay $70 million to settle allegations that they overcharged the U.S. Navy for aircraft parts, according to the U.S. Department of Justice. The case was originally brought on behalf of the U.S. government by a whistleblower who worked at one of the firms involved.

The case centers on activities at Sikorsky Support Services Inc. (SSSI) back in the 2000s, when the company was a division of United Technologies. At that time, SSSI held a contract to supply aircraft maintenance and parts for the U.S. Navy's T-34, T-44 and T-6 training aircraft. To obtain parts, it subcontracted with another division of United Technologies, Derco. The legal problem arose from an internal agreement that these two divisions of the same company had with each other: one division of United Technologies (Derco) bought the parts, then sold them to a different division of United Technologies (SSSI) at a 32 percent markup. The DOJ alleged that SSSI knowingly used Derco's inflated invoices to bill the Navy, ultimately charging the taxpayer 32 percent more than the market price of the parts. 

In 2011, whistleblower Mary Patzer filed a civil suit against Sikorsky Aircraft, SSSI and Derco, alleging that this billing arrangement violated the False Claims Act. The Department of Justice intervened in the case in 2014 and took over the lawsuit. DOJ's legal team claimed that SSSI and Derco's top managers engaged in "a deliberate scheme to defraud the United States through the use of an illegal cost-plus-a-percentage-of-cost subcontract." In its complaint, the government claimed that Derco's then-president was aware that this arrangement was illegal, and pursued it anyways - even though the supply contract with the Navy made clear that there could be no markups on "the actual price of parts, material and shipping costs." 

Sikorsky, SSSI and Derco contested these allegations, but the district court ruled in favor of the U.S. government, finding that the 32 percent markup violated a federal statute barring this form of subcontracting price structure. Last week, the two sides reached an agreement to settle the matter for $70 million. 

“The U.S. Attorney’s Office is committed to preventing fraud and protecting taxpayer money,” said U.S. Attorney Gregory J. Haanstad for the Eastern District of Wisconsin. “Government contractors must put compliance with the law ahead of profits. This settlement makes the United States whole for the inflated costs arising from SSSI’s and Derco’s illegal subcontract deterring future violations of the law.”

When Lockheed Martin purchased Sikorsky Aircraft from United Technologies in 2015, it acquired Derco and SSSI, and it inherited their ongoing litigation. The events alleged in the lawsuit predated Lockheed's involvement with either company.