Two subsidiaries of aerospace giant Lockheed Martin agreed to pay $70 million to settle allegations levied by the Department of Justice (DOJ) of overcharging the Navy for aircraft parts.

Sikorsky Support Services and Derco Aerospace, which were acquired by Lockheed Martin from United Technologies Corp. in 2015, will pay nearly $36.5 million in restitution, the DOJ announced in a settlement agreement Friday.

The case resolved claims brought under the qui tam provision of the False Claims Act by Mary Patzer, a former Derco employee. She will receive nearly $14 million of the settlement total.

The details: From 2006 to July 2012, Sikorsky and Derco knowingly entered into an improper cost-plus-percentage-of-cost (CPPC) subcontract, the DOJ alleged in a press release.

As part of the subcontract, Sikorsky purchased parts from Derco at the cost the latter paid other suppliers, plus a fixed 32 percent markup, the DOJ said.

In turn, Sikorsky submitted cost vouchers to the Navy for reimbursement of the amounts it paid Derco, but failed to disclose the costs claimed were the product of an illegal CPPC subcontract between the two subsidiaries, the DOJ alleged.

“Government contractors must ensure their subcontracting arrangements comply with the law and with their contractual obligations,” said Brian Boynton, head of DOJ’s Civil Division, in the release. “[The DOJ] will ensure that government contractors do not skirt the law and engage in self-dealing that may artificially inflate their charges at the expense of the American taxpayers.”

Lockheed Martin did not immediately respond to a request for comment. The company agreed to settle without a determination of liability.

Jeff Dale is Managing Editor, Editorial Projects and Analytics, at Compliance Week. He previously served as Compliance Week's Digital Editor and has worked as a copy editor at the Boston Herald and city editor at The Hour Publishing Co. in Norwalk, Conn.View full Profile

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