Boeing pays government $75 million

By STUART GLASCOCK  |  April 29, 1994
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SEATTLE, April 29 -- Boeing Co. paid the U.S. government $75 million Friday in costs it admitted overcharging the Pentagon and the space agency for a decade.

The settlement concludes a six-year investigation into allegations of mischarging on defense contracts between 1980 and 1991. In the settlement, Boeing admitted it mischarged the government for the costs under investigation, said Seattle U.S. Attorney Kate Pflaumer.

'The Boeing Co. this morning paid the U.S. government $75 million,' Pflaumer said at a news conference. 'That $75 million dollars includes costs that Boeing overcharged on various contracts. It also includes, penalties interest and the costs of the investigation.'

Criminal charges were considered but decided against because of a lack of evidence of criminal intent, officials said.

'Boeing denies any intentional misclassification and or intentional misallocation and further denies any efforts to withhold information from auditors,' reads a line from the settlement agreement.

That agreement resolves three separate investigations into allegations of contract cost mischarging by Boeing in violation of the False Claims Act, Pflaumer said. Boeing improperly charged to government contracts millions of dollars in research and development costs, 'which Boeing falsly characterized as overhead associated with Boeing's manufacturing and production efforts,' she said.

Pflaumer claims Boeing improperly shifted costs to the government which should have been absorbed by Boeing. The research involved divisions that were exploring the application of artifical intelligence to computers. In the 1980s, Boeing aggressively pursued artificial intelligence applications to space robots and space station environmental systems.

Also in the settlement, Boeing admitted improperly charging the government millions of dollars in hazardous waste disposal costs, contrary to the company's disclosed accounting practices, Pflaumer said.

Both sides agree the case involves complicated accounting regulations.

A Boeing spokesman said the settlement resolves some of those complicated accounting issues, such as the distinction between purely 'research' activities and those designated as 'development.'

'The issues involved the classification and allocation of certain overhead costs incurred by the company, primarily from 1980 through 1988,' said Boeing vice president and general counsel Theodore Collins.

At issue, he said, were complicated cost accounting issues, including 'costs of activities that could benefit both internal processes and future products for sale.'

Collins categorized differences of opinion over accounting issues as 'fairly common in government contracting because of the complicated rules,' and he noted the complexity of the factual situations to which they must be applied.

'This settlement resolves some unintended cost classification errors but its real significance is that it resolves several long-standing accounting issues and establishes mutually agreed-upon definitions and processes for the future,' Collins said.

'Our payment to the government involves accumulated costs for years back to 1980 and will bring to a conclusion the lengthy and costly investigations and negotiations that have spanned more than five years,' he said.

The United States Attorney's Office, in a letter to the company, noted that Boeing had cooperated in the settlement of the matter.

'The United States is a valuable Boeing customer and this settlement reflects our interest in maintaining a good working relationship,' Collins said.

Boeing has 125,000 employees and had revenues of $25.4 billion last year. On Monday, it announced a first quarter loss of some 10 percent, dropping to $292 million from $325 million during the same period last year.

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