UPDATE 1-URS unit pays $1.8 mln to settle whistleblower suit

* EG&G pays $1.8 mln to settle whistleblower lawsuit

* Suit accused EG&G of overbilling U.S. Air Force (Adds background on related indictment)

LOS ANGELES, May 26 (Reuters) - EG&G Technical Services Inc, a subsidiary of URS Corp URS.N, has paid about $1.8 million to settle a lawsuit accusing it of overbilling the U.S. Air Force for aircraft parts and services, U.S. prosecutors said on Tuesday.

EG&G, a Maryland-based national defense contractor, paid the settlement on May 12 and the case was dismissed a week later. The company did not admit wrongdoing in settling the case, prosecutors said.

James Steffes, an EG&G employee responsible for ordering and maintaining aircraft parts, accused the company in the 2007 suit of conducting a 7-year-long scheme on behalf of itself and aircraft parts broker Danco Aerospace Consulting Inc, prosecutors said.

Between 1997 and 2004, EG&G paid Danco for more than $776,000 in parts that were already in inventory or were never delivered, then submitted fraudulent bills totaling more than $860,500 to the Air Force under a contract that included a fixed profit, prosecutors said.

Steffes will receive $317,729 for filing the qui tam, or whistleblower, action, the government said.

Last month, Douglas Edward Phillips III, 52, who owned and managed Danco, was indicted by a federal grand jury in Nevada on criminal charges of conspiracy to defraud the government and theft stemming from the same alleged incidents.

Phillips is accused of conspiring with Richard Thomas Barkley, a logistician for EG&G, to falsify invoices and steal funds from the Air Force, prosecutors in Nevada said. (Reporting by Gina Keating; Editing by Richard Chang)