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February 4, 2003

U.S. sues Newport News
The ill-fatd "Double Eagle" attempt to build a series of double hulled tankers is still having repercussions for Newport News Shipbuilding, Inc. The United States has now filed suit against the yard alleging that it knowingly mischarged the U.S. Navy on costs it incurred for work under commercial contracts from 1994 to 1999, the Justice Department announced yesterday. The lawsuit alleges that the Newport News, Virginia-based company charged the Navy for independent research and development (IR&D) costs for double-hulled tankers that Newport News was building for commercial customers under existing contracts. Since November 2001, Newport News Shipbuilding has been a wholly-owned subsidiary of Northrop Grumman Corporation.

According to a Department of Justice statement, the shipbuilding company is alleged to have charged the Navy for more than $72 million of costs related to the design and development of the commercial tankers, which were passed through as overhead on major Navy shipbuilding contracts. The government's complaint states that Newport News Shipbuilding mischarged the costs even after being warned in 1995 by senior staff and by its outside consultant, Arthur Andersen & Company, that its charges to IR&D could make it subject to suit under the False Claims Act. Under the False Claims Act, the United States may recover three times the amount of its losses plus civil penalties.

"This suit illustrates the determination of the United States to recover funds inappropriately billed on defense contracts," said Robert D. McCallum Jr., Assistant Attorney General for the Department's Civil Division.

The investigation of Newport News Shipbuilding's cost mischarging was conducted by agents from the Defense Criminal Investigative Service, the Naval Criminal Investigative Service and auditors from the Defense Contract Audit Agency.

The suit, which was filed in federal court in Alexandria, Virginia, is entitled U.S. v Newport News Shipbuilding, Inc., Civil No. 1:03-CV-142.

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