The Air Force all but destroyed the government's chances of recovering up to $2 billion from the Northrop Corp. on allegations of overcharging and mismanaging the controversial B-2 "stealth" bomber program because the service was aware of the problems and took no action to remedy them, according to a secret, two-year-old Justice Department memorandum.
Justice Department officials investigating allegations against Northrop found in 1988 that the Air Force had been "fully aware" for years that the contractor was providing inaccurate cost and scheduling information about the $62 billion bomber program and knew about cost overruns and schedule delays.
"The Air Force has known of these facts for some time, but has chosen to take no remedial action," wrote U.S. Attorney Howard Daniels of the Central District of California in the Sept. 9, 1988, memo. As a result, the Justice Department would not be able to claim false representation to the Air Force in any case alleging fraud by Northrop, Daniels said.
The Justice Department also found that Air Force monitoring of Northrop's cost-charging practices was "virtually nonexistent" for the service's most expensive weapon.
Rep. John D. Dingell (D-Mich.) revealed the existence of the memorandum yesterday in a letter to Defense Secretary Richard B. Cheney calling for a court of inquiry into the Air Force's handling of the bomber program.
"Air Force officials must be held accountable at the highest levels and, where appropriate, people should be relieved of command," wrote Dingell, chairman of the House Energy and Commerce Committee's oversight and investigations panel. "The Air Force's mismangement of this program, as depicted in the Justice Department's analysis, is cause enough to terminate this program."
Dingell, a long-time critic of the Pentagon's secret so-called "black" programs, said the memorandum also raises serious new questions about military oversight of the controversial black budget.
Air Force officials yesterday refused to comment on the issues raised in the Justice Department memorandum or the Dingell letter. Justice Department officials in California were not available for comment.
A spokesman for Northrop Corp. said, "We conducted our own examination and we find no substance to the allegations. . . that Northrop knowingly overcharged the government on the B-2."
The B-2 bomber is one of Congress's top targets in its efforts to cut the defense budget, with Cheney's request for 75 of the bat-winged bombers one of the most controversial issues in budget debates.
The Justice Department in recent months has begun new investigations of mismanagement and fraud in Northrop's bomber program. Grand juries throughout the country are also probing allegations of wrongdoing in other Northrop programs.
Northrop declined to comment on those allegations.
The B-2 charges were originally made in a suit filed under the federal False Claims Act by a group of former Northrop employees. After reviewing the allegations in 1988, the Justice Department's only public comment was "that there is not a sufficient basis for it to enter the case at this time."
The former Northrop employees have since expanded their civil suit to claim that Northrop overcharged the government by $20 billion. Northrop has asked the court to dismiss the case.
The Justice Department, in its review of the 1988 allegations, found that Northrop's cost schedule control system on the B-2 was a "farce" and that the Defense Contract Audit Agency, which has reponsibility for financial oversight of weapons programs, assigned only two auditors to the Northrop bomber division during the early 1980s.
The government, also probing charges of overbilling on employee time cards, found the Air Force could not evaluate the extent of that problem because personnel charged with monitoring productivity rarely conducted floor checks or visited the assembly plant.
"The key issue here is that it appears the Air Force was not reporting the real cost and schedule problems on the B-2 program either to the secretary of defense or to the Congress," Dingell charged. "This raises the real specter of a conspiracy between the Air Force and Northrop to mislead . . . in an effort to protect their pet program."