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Contractor Faces Temporary Suspension Following Fraud Plea

November 1, 1985

WASHINGTON (AP) _ Rockwell International Corp. has been temporarily suspended from receiving new Defense Department contracts despite its cooperation with a federal fraud investigation that resulted in a guilty plea.

The action against the nation’s No. 2 defense contractor, announced Thursday by Air Force Secretary Verne Orr, was based on the company’s voluntary guilty plea earlier this week to 20 counts of fraud involving overcharges on an Air Force contract.

″I’ve taken this action to protect the taxpayer’s interests and to send another clear signal that the Air Force simply won’t tolerate this or other kinds of fraud regardless of the size of the contractor,″ Orr said.

The suspension accompanied a formal notification to the firm that the Air Force was proposing ″to debar (the company) from future contracting with the executive branch of the government.″

According to the Air Force, Rockwell now has 30 days to present arguments as to why it should not be barred from doing any business with the federal government. During that period, however, it will be precluded from receiving any new Defense Department contracts.

Orr said he did not believe the suspension or debarment action would be lengthy. But he said he was determined to hold up contract awards until he was convinced the firm had taken steps to ensure such over-charging did not occur in the future.

″I expect this debarment will be temporary; however, I’ll keep it in effect until I’m sure that Rockwell has taken all steps necessary to safeguard against a recurrence,″ Orr said.

If Rockwell is unable to stave off debarment, it could face serious difficulties. The Pittsburgh-based firm received defense contracts totaling $6.2 billion in fiscal 1984 alone. Its major weapon contracts include the B-1 bomber, the MX missile and a vast range of satellite, communications, navigation and missile guidance systems. The firm is also a prime contractor on the space shuttle.

″We have been cooperating fully with the Air Force and will continue to do so,″ Jim Vallela, a company spokesman, said. ″We look to an early resolution of this matter. We are confident we can satisfy the concerns of the secretary of the Air Force and continue to demonstrate our responsibility as a defense contractor.″

On Wednesday, Rockwell agreed to pay up to $1.2 million in fines for overcharging the government in what one prosecutor said was a company effort to inflate bids on spare parts.

Ron Eddins, an assistant U.S. attorney in Dallas, said a two-year federal investigation uncovered $480,000 in mischarges by the company, which included falsified time cards, padded travel expenses and discount prices not passed on to the government.

The plea agreement specified 20 counts of fraud involving overcharges on a $3.6 million contract to provide 13 automated data processing systems for Air Force EC-135 Flying Command Post Aircraft. Eddins said time cards had been falsified to charge the government for work the employees had actually done on other contracts.

In terms of Defense Department contracts, the timing of the suspension could not have come at a worse time for Rockwell. For more than a year, the company has been fighting in partnership with the Plessey Co. of Great Britain for a $4.3 billion Army combat telephone contract.

Plessey and Rockwell have been fighting for the job against another team consisting of the French conglomerate Thomson-CSF and the GTE Corp. The contract was supposed to have been awarded this summer but has been held up in part by an international lobbying campaign conducted by both the English and French governments.

Army officials said privately earlier this week they expected an award within the month, however. The officials refused to speculate on what effect Orr’s decision might have on the timing of an Army contract announcement.

The Air Force said Rockwell has already submitted a proposed ″corrective action plan″ to ensure over-charging does not occur in the future. Neither the service nor Rockwell would discuss details.

Orr gave no indication of what he thought of that plan, although he said the company has fully cooperated with investigators.

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