Lockheed Martin has paid a $10.28 million settlement to resolve a dispute with the US Department of Justice over allegations of inflating overhead costs related to the C-27J airlifter.

Justice officials agreed to drop the case before filing a complaint in court, but harshly criticised Lockheed's behaviour in a public statement issued by Sally Quillian Yates, US attorney for the northern district of Georgia.

"It is troubling that a large defence contractor with long-established contractual ties with the United States failed to follow basic accounting rules and submitted claims for costs for which reimbursement was not permitted," Yates wrote.

The alleged "mischarging" by Lockheed "created a significant unintended subsidy", Yates added.

Lockheed, however, does not acknowledge wrongdoing by agreeing to settle the "long-standing" dispute with the US government.

"The case involved a disagreement on how certain types of costs should be accounted for under government cost accounting regulations," Lockheed says. The company blames the complexity and differing interpretations of the accounting rules for the dispute.

The government alleged that Lockheed charged development and marketing costs for the C-27J to the US government. The costs were billed under inflated overhead rates for military programmes, the government says.

Lockheed co-developed the C-27J with Alenia Aerospazio - now Alenia Aeronautica - beginning in 1996.

Nick Schwellenbach, lead investigator for the Project on Government Oversight watchdog group, praised the investigation by the Defense Criminal Investigative Service that led to the settlement agreement.

He notes that the defence contractors have criticised the Pentagon's call for reducing overhead rates as an attack on industry profitability.

"I don't think they're going after profits. I think they're trying to go after things like this," Schwellenbach says. "I think this happens more often than we know, but it's hard to prove. The is a rare victory of the government and the taxpayers."

Source: Flight International