The Justice Department charged yesterday that Goodyear Aerospace Corp. fraudulently overbilled the Pentagon by more than $7 million during three years when it was the military's sole supplier of inflatable bomb parachutes.
The charges are in a $21 million civil suit filed by the Justice Department in New York against Loral Corp., a defense electronics firm that purchased Goodyear Aerospace from Goodyear Tire & Rubber Co. in March 1987, after the alleged offenses took place.
The alleged Goodyear overcharges are also being reviewed by the Pentagon's Defense Criminal Investigative Service to determine if criminal charges should be brought against company officials, according to knowledgeable sources. A source familiar with the allegations predicted that yesterday's lawsuit would be "the tip of the iceberg" in terms of government charges against the company.
A Loral spokesman said yesterday that Loral was "aware of the potential for the suit" when it purchased Goodyear Aerospace and that this was "reflected" in the $588 million it paid for the firm last year. Without commenting on the allegations, the spokesman said Loral is "confident that appropriate management procedures" are now in place at the former Goodyear division, which is now called Loral Systems Group.
Although the alleged overbillings are not large by defense contracting standards, the bomb parachute case has been closely watched at the Pentagon as an example of the effects of relying on a monopoly supplier.
The product in the Goodyear case is a parachute called the ballute -- a balloon-like device that is used to slow the descent of bombs dropped from low-flying aircraft to give the pilots time to fly away before the bombs explode. They were used most prominently during the April 1986 U.S. raid against the desert headquarters of Libyan leader Col. Moammar Gadhafi.
Between 1982 and 1985, Goodyear Aerospace received $180 million in sole source, noncompetitively bid Army contracts to produce ballutes for 500-pound bombs, as well as ballute contracts for 1,000-pound bombs. The ballutes were produced at a Goodyear plant in Georgia.
The Justice Department suit charges that Goodyear "knowingly" filed "false or fraudulent claims" with the government that overstated its labor costs by more than $3.4 million, concealed an additional $1.5 million in labor efficiencies from Pentagon auditors and "unlawfully" induced a key subcontractor to lower its costs on one contract in exchange for $700,000 in inflated payments on another sole source contract.
In addition, the suit charges, Goodyear failed to disclose that another of its main subcontractors, Irvin Industries, had twice offered to lower its prices "substantially" in exchange for a larger slice of the parachute contract. Goodyear ignored the offers, failed to inform the Pentagon about them and "instructed Irvin not to put these proposals in writing," costing the government more than $1.4 million, the suit charges.
The Justice Department's charges grew out of a 1986 civil antitrust suit filed by Irvin Industries alleging that Goodyear had dropped its prices to the Pentagon by more than 45 percent -- from $608 per parachute in 1985 to $332 per parachute in 1986 -- when, under congressional pressure, the Pentagon opened competitive bidding for the ballute contract for the first time in September 1986.
Irvin alleged that this and other sharp price reductions showed that Goodyear had either engaged in monopolistic practices -- dropping its prices below cost to freeze out potential competitors such as Irvin -- or had been grossly overcharging the Pentagon.
"We believe we have developed a winning case in our antitrust action against Goodyear and we intend to prosecute that case vigorously," said Lanny Davis, a lawyer for Irvin.
Since filing its antitrust suit, Irvin has also filed a False Claims suit against Goodyear, a claim that will now be pursued by the Justice Department. Over the past year, Irvin, which is based in New York, also has beat Goodyear for the 500-pound bomb ballute contract and now produces them for as low as $310 per unit, Davis said. The company also has beat Goodyear for two other ballute contracts for 1,000-pound and 2,000-pound bombs at rates substantially less than Goodyear was charging, he said.