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Nation’s 19th Largest Defense Contractor Barred From Pentagon Contracts

July 17, 1986

WASHINGTON (AP) _ Litton Industries Inc., which last year did $1.5 billion worth of business with the Pentagon, is going to have to convince the Defense Department to allow it to continue signing the lucrative contracts.

The Pentagon on Wednesday indefinitely suspended Litton, the country’s 19th largest defense contractor, from receiving new Defense business after one of the company’s subsidiaries agreed to plead guilty in a fraud case.

Robert Knapp, a Litton spokesman, said the company would have no response to the suspension beyond restating its intention to satisfy the Pentagon’s concerns.

″The suspension is for a temporary period pending completion of a thorough review of the underlying facts surrounding the ongoing legal proceedings, unless sooner terminated in whole or in part,″ the Pentagon announcement said.

Litton agreed to plead guilty to a 321-count fraud indictment returned by a Philadelphia grand jury on Tuesday and agreed to pay $15 million in criminal and civil fines and restitution.

The fraud charges were leveled at a subsidiary of Litton, the Clifton Precision, Special Services Division in Springfield, Pa. The Pentagon said the indictment and subsequent guilty plea justified a suspension pending further review of the case. Work already contracted to Litton will not be affected.

Clifton Precision was accused of defrauding the government of $6.3 million by inflating prices on about 45 contracts between 1975 and 1984.

The division is small, with annual sales of about $25 million - or about one half of 1 percent of Litton’s overall sales. The unit has about 400 workers.

The suspension applies to the entire corporation, however, banning the award of any new contracts by the Department of Defense.

The indictment alleged the Litton unit defrauded the Pentagon on contracts for radar equipment and other instruments for the F-16, F-106, F-4 and B-52 aircraft, Cobra jet helicopters, Navy destroyers and other warships.

The company inflated costs and pricing data and sought to conceal the scheme from government auditors and investigators, Assistant U.S. Attorney Nicholas Harbist said.

The inflated figures were known inside the unit as ″chicken fat,″ authorities said.

Litton can submit information in opposition to the suspension within 30 days.

The company said in a statement from its Beverly Hills, Calif., headquarters on Tuesday that it would ″take whatever specific additional actions are necessary to reassure the Defense Department that it is a responsible company fully qualified to do business with the U.S. government.″

Litton Chairman Fred O’Green said, ″Only a handful of employees were engaged in the illegal activities. New people have been put into key positions and a program is in place to strengthen cost accounting and bid and proposal practices at the division to be in full compliance with corporate and government requirements.″

The indictment of Litton is the latest in a series of legal actions or disclosures of wrongdoing involving some of the nation’s largest and best known defense contractors.

Since March 1985, federal officials have accused General Electric Co., Rockwell International Corp., General Dynamics Corp. and TRW Inc. of improper billings or handling of military contracts.

Named in the federal grand jury indictment besides the Litton division were Michael J. Millspaugh, former vice president of finance and administration, and Joseph DiLiberto, former purchasing manager.

Millspaugh, who faces a possible 125-year prison term if convicted on all charges, and DiLiberto, who could face 15 years in prison, are scheduled for arraignment next week.

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