UPDATE 1-Northrop Grumman settles whistleblower case

WASHINGTON, June 23 (Reuters) - Northrop Grumman Corp NOC.N, the Pentagon's No. 3 supplier by sales, agreed to pay $12.5 million to the U.S. government to settle claims it failed to test properly certain commercial parts it supplied for navigation systems in warplanes, submarines and space equipment, the Justice Department said.

Spurred by a Northrop quality assurance manager-turned- whistleblower, the government alleged Northrop’s Navigation Systems business unit failed to make sure the electronics would work at the temperature extremes required for military and space uses, the department said in a statement Wednesday.

Those affected by the alleged misconduct include the U.S. Navy, Army, Air Force, Defense Logistics Agency, National Aeronautics and Space Administration, Coast Guard and the Forest Service, the department said.

The agreement resolved claims made in a qui tam or whistleblower lawsuit filed in May 2006 against Northrop in the U.S. District Court for the Central District of California by Allen Davis. Davis was employed as a quality assurance manager at Northrop’s Navigation Systems Division facility in Salt Lake City, Utah. He maintained that Northrop failed to comply with testing requirements set out in a November 1998 protocol for the use of commercial parts in military systems.

After investigating, the United States alleged the failures to test continued from November 1998 until February 2007. Davis’ share of the settlement amounts to $2,375,000 under whistleblower provisions of the False Claims Act.

“Northrop Grumman has fully cooperated with the government’s investigation in this issue and is pleased that the matter is now behind it,” Randy Belote, a company spokesman, said in a one-sentence statement.

Davis said in a statement put out by his attorneys: “I pursued this case because we owe the men and women of the armed forces our best efforts to provide them with the best equipment possible. They are risking their lives every day and depend on the equipment we build to stay safe.”

Eric Havian, one of the whistleblower’s attorneys at Phillips & Cohen LLP, San Francisco, said the case had been sealed until the settlement was announced.

“Northrop charged the government for tested parts and delivered untested ones,” he said. “The government allows defense contractors to use commercial parts in military equipment only if those parts are tested to withstand the extreme temperatures and wear that can occur in combat situations. The military pays contractors extra money to cover the costs of those tests.”

The case was investigated as part of a four-year-old initiative to crack down on fraud by government contractors, the Justice Department said. In October 2006, a “National Procurement Fraud Task Force” was rolled out to promote the early detection, identification, prevention and prosecution of procurement fraud associated with the increase in government contracting for national security and other government programs. (Reporting by Jim Wolf; editing by Andre Grenon)