Litton Industries Inc., a major supplier of military electronics equipment, yesterday was temporarily suspended from receiving new Pentagon business after agreeing to plead guilty to charges of cheating the government on defense contracts.
A federal grand jury on Tuesday indicted a division of Litton in Pennsylvania and two former officers of the unit on 300 counts of contract fraud and 21 other charges involving allegedly inflated components for aircraft and warships.
The overcharging was so widespread that employes nicknamed it "chicken fat," prosecutors said.
The parent company, based in Beverly Hills, Calif., was accused of attempting to conceal the fraud from government investigators. It has agreed to plead guilty and pay $15 million in fines and restitution.
The suspension will remain in effect while the Pentagon reviews the case and considers how much responsibility the parent company bears for the conduct at its Clifton Precision Special Services Division in Springfield, Pa., where the contract fraud occurred, according to the grand jury.
Clifton Precision was charged with adding $6.3 million in fraudulent charges on about 45 contracts with the Pentagon between 1975 and 1984.
Although the unit is a relatively small part of Litton, accounting for $25 million in annual sales, the suspension applies to the entire corporation. In the 1985 fiscal year, Litton received more than $1.5 billion in defense orders, making it the 19th-largest Pentagon contractor.
The Navy, which announced the suspension yesterday, said it does not affect contracts that Litton already has received, but those contracts will not be renewed or extended during the suspension period.
Litton received a $221.7 million contract on Monday to reactivate the battleship Wisconsin, the day before the grand jury indictments were returned. The Navy said it was aware of the criminal investigation involving Clifton Precision but did not know indictments were imminent. "No attempt was made by the Navy to accelerate this award because of the investigation," the Navy statement said.
In a statement Tuesday, Litton said it would take whatever additional actions are necessary "to reasure the Defense Department that it is a responsible company fully qualified to do business with the U.S. government. . . . "
"Only a handful of employes were engaged in the illegal activities," said Litton Chairman Fred O'Green. "New people have been put into key positions" at the Pennsylvania unit, and stronger accounting practices are in place, he said.
Pentagon officials said nine of the top 10 U.S. defense contractors are under investigation for possible similar criminal violations.