The Justice Department is conducting a criminal investigation into charges that Martin Marietta Corp. systematically overcharged the government for travel expenses incurred while working on contracts for the Department of Defense.

At issue is whether the Bethesda-based company received rebates from its travel agency for airline flights but failed to pass those discounts on to the Defense Department.

Martin Marietta officials yesterday confirmed that the investigation was under way, and said "the company was cooperating with it."

A spokesman further acknowledged that the probe dealt with "the accounting practices" of a subsidiary that "at one time managed the central travel function" of the company.

Beyond that statement, however, the company spokesman declined to comment, saying that the investigation was still in progress.

The subsidiary involved is Maxim Inc., which Martin Marietta said was created to sell services to Martin Marietta's own travel agency, IVI, a large Chicago firm.

IVI, in turn, created a special subsidiary, Performance Travel Inc. (PTI) to sell travel services to Martin Marietta, as well as the public at large, according to an internal corporate memo obtained from the Project on Military Procurement, a Defense Department watchdog group.

This "novel business relationship" was set up "to lower travel costs without giving money back to the government," according to the March 1984 memo sent to Martin Marietta's general counsel, Frank Menaker.

Menaker had requested the memo from assistant general counsel William Vetter to give an "overview of Maxim."

IVI, like other travel agencies, would receive commissions from the airlines for writing tickets for their flights.

Rules of the Airline Transport Conference (ATC) -- an association to which all airlines belong in order to provide uniformity in ticketing practices -- do not allow travel agencies to pass these commissions back to their customers.

However, under the relationship with Maxim, IVI would pay Maxim for services rendered -- such as the office, travel staff and computer assistance Maxim provided.

"This arrangement is neither illegal nor a violation of the ATC rules, although it's certainly very imaginative in getting around the rebate restrictions," the memo said.

The Defense Department "might dislike it, but the arrangement provides us with some arguments to use against the idea that payments from IVI to Maxim are simply rebates on PTI tickets," it concluded.

IVI officials declined to return phone calls.

However, Richard Incandela, its president, earlier told United Press International that IVI had severed its relationship with Martin Marietta last May "by joint agreement" when the travel agency learned of an investigation by the Defense Department's inspector general's office.

The inspector general has since referred his findings to the Justice Department, sources said.

Martin Marietta is one of the nation's largest defense contractors, having won more than $2.26 billion in contracts last year.

Martin Marietta has won about $1 billion in contracts so far this fiscal year, which ends Sept. 30.