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Justice Department Sues McDonnell Douglas Over Labor Costs

September 8, 1995

WASHINGTON (AP) _ The Justice Department is taking the military’s No. 1 contractor to court, accusing McDonnell Douglas Corp. of ``routinely mischarging″ labor costs to multibillion-dollar airplane contracts.

McDonnell Douglas denied the charges and noted that the original allegations came from someone who was ``terminated for cause.″

But that whistleblower alleged in court papers filed Friday that supervisors authorized employees to shift costs from projects that had exceeded their budgets to those that were under budget, violating the contracts with the Defense Department.

``If a contract was under budget on any given day or during any given period, it was targeted as a recipient of charges for labor performed on other contracts,″ said the papers filed in U.S. District Court in St. Louis.

``This practice became so common in the fabrication area that foremen and general foremen merely would tell employees, `You know what to do,′ and the employees understood that they were to charge their labor hours incurred on one contract to work orders of some other contract.″

The whistleblower, former McDonnell Douglas sheet metal worker Daniel O’Keefe, filed suit Oct. 12, 1993, under a provision of law that allows private citizens to sue when the U.S. government is defrauded. That suit was filed under seal.

The Justice Department decided last month to intervene, essentially taking over the case, although O’Keefe would share in any monies obtained from McDonnell Douglas as a result of the case.

``We think there’s justification to take over the lawsuit,″ Justice Department spokesman Joseph Krovisky said Friday. ``We may throw out some of the original charges in the lawsuit or we may add some.″

Tom Williams, a McDonnell Douglas spokesman, said the allegations came from an employee who had been ``terminated for cause″ in 1993. He would not say why O’Keefe was fired, but O’Keefe said in his lawsuit that the company used his back troubles as an excuse to force him out.

The company said in a statement, ``We believe these charges are totally without merit and that the evidence will prove this in trial if not earlier. We regret that the government did not give us the opportunity to discuss and resolve these matters before proceeding.″

McDonnell Douglas was the military’s top contractor last year with $9.2 billion in new defense work, according to the Pentagon.

The suit contends that excess labor charges from 1989 through this year were tacked mostly onto the Navy’s canceled A-12 carrier-based aircraft and the Air Force’s C-17 military cargo jet, which has cost-control problems. Other aircraft contracts involved included the Marine’s AV-8B Harrier Aircraft, the Air Force’s F-15 Eagle Fighter and the Navy’s F-18 Hornet Jets and its T-45 Goshawk Trainer Aircraft, the lawsuit said.

The Justice Department said it decided to enter the case after a review showed McDonnell Douglas allegedly ``defrauded the United States by routinely mischarging labor costs on a number of Department of Defense airplane contracts, including the contracts for the A-12 and C-17 aircraft, from at least 1989 through 1995,″ according to a statement.

Krovisky said that if the Justice Department prevailed, O’Keefe could share up to 30 percent of any damages awarded.

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