James Holzrichter Michael Behn - Chapters Site · Letter: From DCAA to Northrop’s George Luper, Director, Government Relations January 22, 1988 6 “…NCDSD has found that the

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1

United States ex rel. Robinson and Holzrichter

v.

Northrop Grumman

Presented By

James Holzrichter

Michael Behn

2

Progress Payment Certification: One of 807 from Northrop

to United States

Typical: October 11, 1988

9. Paid costs eligible under progress payment clause…

“ I certify that the above statement with attachment has

been prepared from the books and records of the above

named contractor in accordance with the contract and

the instructions hereon, and to the best of my knowledge

and belief, that it is correct…”

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2

4

Letter: From DCAA to Northrop’s

George Luper, Director,

Government Relations

January 22, 1988

“In accordance with Deputy Assistant Secretary

of Defense for Procurements, 10 December

1987 memorandum, we need immediate

answers to these questions concerning key

elements necessary for NCDSD’s material

accounting system to be acceptable for

Government contract costing purposes.”

5

“a. What is currently wrong with your system?

b. How and when are you going to correct it?”

Letter: From DCAA to Northrop’s

George Luper, Director,


January 22, 1988

6

“…NCDSD has found that the Material Management

and Accounting System is generally compliant with the

M/MAS key elements criteria.”

Letter From Duane Emling

To Michael W. Paulini, U.S.

Divisional Administrative

Contracting Officer,

May 9, 1988

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7

Memo From Jack McNaughton

To Russell Bercier

March 27, 1989

“This situation is untenable in light of potential progress

payment withholds.”

8

A Walk Through Northrop’s Long-Secret Files

9

Memo: Duane Emling, Manager,

Material Accounting, Finance

June 20, 1986

“Integrity of the Inventory Management System

is questionable, at best…”

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10

Memo: Ken Chapman, Manager,

Material Accounting Systems

January 6, 1987

“Per your verbal request, the following represents the

action that I believe should be taken to alleviate the

problems contained in our material system:”

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January 6, 1987

“Production Accountability

• Scrap

• Inventory Transfers

• Engineering Change Orders

• As Required Material

• Residual

• Issues

• Adjustments

• Shop Order Requirements

• MBOM vs. EBOM

• Borrow/Pay Back”

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January 6, 1987

“As you can see, the tasks outlined above encompass

all material systems…”

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13

Q: So did you find the Inventory Management System to be unreliable?

A: The Inventory management System had data problems.

Q: And did those data problems make it more difficult for you to gather up the data you needed within Northrop’s Finance Department?

A: Yes.

Q: So the Inventory Management System was not adequate for your purposes. Is that correct?

A: The accuracy of the system was not acceptable.

Deposition Ken Chapman, March 22, 2002

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January 6, 1987

“We have had most of these problems for at

least ten years and to enhance these systems

in two years is a major undertaking.”

15

Memo From Duane Emling to Ed Foley,

VP Finance, and McNaughton

March 29, 1989

“Attached is an example of what happens when insufficient resources are

applied to the issue of system integrity. For the illustrated part the following

issues are identifiable:

1. Negative on-hand balance.

2. Insufficient on-hand/on-order to cover requirements.

3. Issues 5 times acceptances.

4. Scrap 4 times acceptances.

5. Cycle counts 6 times acceptances.

6. Issues, scrap, and cycle counts overstated by 200,000 pieces.

7. Error corrected by cycle count adjustment rather correction of actual error.”

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16

Internal View Graph Presentation

August 5, 1987

“*AVAILABLE DATA HAS INSUFFICIENT INTEGRITY*”

17

“Comment:

No matter what programs we install to deal with

material accounting, they are useless if the data is

generally invalid.”


August 5, 1987

18

B-1/135 UPDATE

“ PROBLEMS EVERYWHERE”


August 5, 1987

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19

Memo From Duane Emling

To Russel Bercier

December 22, 1987

“…I found two major discrepancies between the On

Order conditions showing in the PM and PT systems.”

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Memo From Duane Emling

To Russel Bercier

December 22, 1987

On Order

P/N PT PM

151-000571-102 1072 0

019-005536-002 1681 97

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Deposition Wallace Solberg, Division

Manager & Chief Executive

Officer, Northrop

“…we were afflicted by the GIGO problem.

Q. The which problem?

A. The GIGO problem.

Q. Which problem is that?

A. Garbage in, garbage out.”

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Memo From McNaughton

To Wallace Solberg

October 23, 1987

“Arthur Young and Co. Compliance Review Activity

The consulting division of Arthur Young & Co. was engaged by

DSD to perform a compliance review of material systems,

procedures, and practices.

A final report highlighting twelve findings and documenting a first

level of the DSD material planning and control system environment

was distributed to Council members, Burks Terry and yourself.”

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Report: Arthur Young Audit Report to

Northrop

January, 1989

“Severe remedial action is necessary”

24


Northrop

January, 1989

“The real issue that must be tackled is the

change required in the system of people,

practices, policies and management

attitudes”

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25

Memo Horrocks to Watts

January 30, 1988

“The Division President [has

told management that]

‘systems are a necessary evil

and have no effect on the

economic well being of the

organization’”

26

Memo Horrocks to Watts

January 30, 1988

“The work we’re doing is about as enthusiastically

received as results of an AIDS test”

27

Memo Duane Emling, Northrop

to Michael Paulini, DoD

December 1, 1988

“This criteria element requires the contractor to

have a system description describing the operation

of its MMAS system. With the assistance of Arthur

Young and Company, NCDSD has fully

documented its existing MMAS system.”

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What Northrop Was Saying to the United States Government

29

“THE MANUFACTURING TRACKING

SYSTEMS ARE SUFFICIENT”

“THE PROCESS IS EFFICIENT, ACCURATE

AND EFFECTIVE”

Presentation Northrop to United States

May 6, 1985

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“…NCDSD has found that the Material Management

and Accounting System is generally compliant with the

M/MAS key elements criteria.”

Letter From Duane Emling

To Michael W. Paulini, U.S.

Divisional Administrative

Contracting Officer,

May 9, 1988

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31

Memo George Luper, Director of


to Robert Carey, Supervisory

Auditor, U.S. Defense Contract

Audit Agency (DCAA)

November 29, 1988

“1. Inventory Accuracy

NCDSD has clearly demonstrated the general

accuracy of its inventory system to DCAA…”

32

Memo Duane Emling

to Michael Paulini

December 1, 1988

“NCDSD concludes that is has generally

completed an acceptable demonstration of its

MMAS system.”

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Northrop’s Cover-Up

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Memo From Duane Emling to Foley,

Lindsay, and McNaughton

March 29, 1989

“NCDSD should begin discussing this issue before the

customer begins asking for answers.”

35

Memo From Jack McNaughton

To Wallace Solberg

October 6, 1988

“I personally have some doubt that our present

systems with defined enhancements are adequate to

withstand a continued rigorous DCAA system

review….”

36

Memo: From Emling to Foley, Lindsay,

and McNaughton

April 4, 1989

“Another report indicates a rapidly growing

number of data imbalances…”

13

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Memo: From McNaughton

To Bercier and Emling

May 3, 1989

“With millions of dollars of potentially unsupportable

attrition data at stake, and concurrently the prospect

and risk of the Division’s MMAS system not able to

support accurate attrition reporting of millions of

dollars more, I consider this situation grave.”

38

Internal Northrop Presentation

February, 1986

“PARs – OR WHAT WILL THE CUSTOMER ACCEPT AS

REASONS

(WE CAN’T TELL THE TRUTH)

IN OTHER WORDS, WE SHOULD TRAIN THE CAMs TO

VIOLATE THE SYSTEM WITHIN THE GUIDELINES OF

THE SYSTEM DESCRIPTION”

39

Distribution List MCS Steering Committee

February 1986

“D. Emling …

A. Selen …

S. Licata …

J. McNaughton …

W. Solberg …”

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40

Minutes From MCS Steering

Committee Meeting

March 7, 1986

“… He suggested that the Steering Committee not

release possibly damaging information with such a

wide distribution.”

41

Memo: From McNaughton

To Wallace Solberg

October 23, 1987

“…objectives of [Material Management Council]

activities are to: …

Position DSD to be able to respond positively

and proactively to DCAA’s imminent material

systems audit plans and investigations…

management approval will be sought to proceed

in executing the necessary retroactive transfer

adjustments.”

42

DCIS Investigative Report (Interview of CH-05)

(Petra Schiller, Supervisor of

Material Verification)

August 27, 1988

“CH-05 explained that Northrop discovered it could

not accurately track ordered parts which were later

scrapped or returned to the vendor.”

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43


August 27, 1988

“…the computer reported more parts

purchased than were really delivered or

ordered.”

44


August 27, 1988

“…(DOD) was overcharged for parts because some

of the parts that Northrop billed the DOD for were

never actually purchased by Northrop.”

45


August 27, 1988

“CH-05 said management at Northrop is very

concerned that the DOD may become aware of the

‘financial reconciliation’ program. CH-05 elucidated

by stating the primary purpose of the program is to

fool the DOD when it reviews Northrop’s business

records. CH-05 said Northrop is trying to juggle the

books of different programs in an attempt to mislead

the government inspectors and auditors.”

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46

Memo: From Susan Licata, Manager of

Material Systems, to Duane

Emling and Ken Chapman

October 23, 1987

“The reconciliation process should be

summarized by noting the appropriate

adjustments to input and output

(Attachment D). Any resultant

discrepancies between On-Hand and the

physical count shall be allocated back to

the oldest PA’s and written off as scrap.”

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“Example

Calculated

PA On Hand Actual Scrap

4743 10 0 10

Recommended adjustments will be turned

over to Team One for input to the system.”

Memo: From Susan Licata, Manager of

Material Systems, to Duane

Emling and Ken Chapman

October 23, 1987

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Letter: From D. Emling to M. Paulini

May 31, 1988

“Northrop Corporation, Defense Systems Division

(NCDSD), herein submits the plan to conduct a

detailed demonstration/audit of NCDSD’s Material

Management and Accounting System (MMAS).”

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Letter: From D. Emling to M. Paulini

May 31, 1988

“Each of the selected part numbers will be traced

through the entire MMAS system.…During the

conduct of these traces, it will be necessary for

NCDSD to cycle count the selected parts. DCAA

will be invited to participate in the cycle count. Any

data corrections identified will be included in the

documentation package. Such corrections will be

reviewed with DCAA prior to input to the system.”

50

Memo: From Duane Emling to

R. Davenport

December 16, 1987

“Clean Up”

What can be done to clean up any bad data

which may exist in the report before DSD has

to turn the report over to the auditors?”

51

Memorandum From: S. Licata

To: D. Emling

August 8, 1988

“Having completed subject on 15 of 50 parts, the

following discrepancies are noted for further internal

review and/or correction. These discrepancies are

over and above those reported to the DCAA during

the walk-through.”

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52

Memorandum From: S. Licata

To: D. Emling

September 2, 1988

“Of the 30 parts covered to date, 22 do not

balance out.”

53

Letter From: Duane Emling

to: Michael W. Paulini,

October 13, 1988

“…herein submits the results/findings of the

completed audit…

DCAA participated in all cycle counts…”

54



October 13, 1988

“On-hand Cycle Count Results Accuracy

‘A’ Parts 99.9%

‘B’ Parts 99.7%

These results are all within the inventory

accuracy guideline of 95% specified in the

key element criteria.”

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October 13, 1988

“The results of the compiled data indicate

that key element criteria pertaining to

inventory and BOM accuracy have been met.

These statistical measures support the main

objective of the audit—demonstrating

material accountability.”

56

“INCORRECT COUNTS

39%”


Northrop

January, 1989

57

“INCORRECT COUNTS

15%”


Northrop

January, 1989

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Memo: From Duane Emling

June 18, 1987

“I have prepared an initial analysis of each of

the 10 potential deficiencies. These are

included as Attachment D. This analysis was

prepared in a very positive manner. It was

intended to demonstrate that DSD’s systems

are compliant with current regulations.”

59

Deposition: Duane Emling regarding

that same Memo

July 26, 1996

“Q. …When you prepared this draft response

to the DCAA MRP survey, did you attempt to

prepare it as accurately as possible? Let me

rephrase it. Did you strive to make the

statements in this document accurate?

A. They would have been accurate, not

necessarily complete.”

60

Deposition: Duane Emling regarding

that same Memo

July 26, 1996

“Q. Why not complete?

A. Because, as I said, as the cover letter

says, they are couched in very positive terms

so it’s a document that demonstrates how our

systems are compliant. It doesn’t address

issues that might exist with respect to non-

compliance.”

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E. Foley and G. Luper

March 25, 1986

“CAS 401 Cost Impact Audit”

“The recommendations contained in this audit

report are both proper and reasonable

considering the amount of material DSD

procures each year. We really should take

action to begin to account completely for

material. It really is in our best interest.”

62


E. Foley and G. Luper

March 25, 1986

“Action:

I believe that we are probably better off to

directly attack the audit…”

63

Letter: From George Luper to

Contracting Officer Karen Boyle

May 26, 1987

“Audit reports are suppose[d] to reflect facts and

documentation not supposition or slander. When question-

able methods are used to perform an audit, wild and com-

pletely false accusations such as this should certainly not be

published. This demonstrates an adversarial position with no

regard for the potential harm which could be inflicted upon

NCDSD’s reputation.”

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64

Letter: From J.W. Topham to

Supervisory Auditor Robert J.

Carey

August 11, 1988

“NCDSD objects to continual

harassment on topics that have been

addressed and documented over and

over again.”

65

Letter: From Duane Emling to

Robert Carey

October 4, 1988

“Northrop Corporation Defense Systems Division

(NCDSD) has reviewed your audit report. We are

stunned with your evaluation of our Material

Management Accounting System.”

66

Proposal Development Handbook

March 11, 1989

“The famous bank robber Willy Sutton was asked,

“Why did you rob the bank.”

He responded, “Because that is where the money is”

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67

Deposition: Karen Sarley

July 2, 2002

“THE WITNESS: Yesterday when I saw these

documents for the first time I was hurt. I was

questioning my own feelings about relying on people

and assuming people were truthful and honest.

But today I’m more angry than anything else, I

guess. Because these people were not only lying to

us, meaning the people within the office there, they

were lying to their own government and to the people

of the United States…”

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69

Wall Street Journal Feature Article

April 19, 2004

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70

United States ex rel. Robinson and Holzrichter

v.

Northrop Grumman

Presented By

James Holzrichter

Michael Behn

71

The ZSR-62 Fraud

72

MIL-STD-1521 Definition of Critical Design

Review

December 21, 1981

“This review shall be conducted for each CI when

detail design is essentially complete. The purpose

of this review will be to (1) determine that the detail

design of the CI under review satisfies the

performance and engineering specialty

requirements of the CI development specifications”

25

73

Deposition Testimony William W. Ledger

April 8, 2002

“The critical design review up there had just

finished. Ed Hecht and some individuals came in

through the one secured entrance, and as he was

walking by my cube, which sat right on the main

aisle, I heard him say, okay, we lied our teeth off,

now it’s time to make these lies come true.”

74

Deposition Gary N. Iversen

November 29, 2004

Q: So when the government is assessing what

the progress is on a given contract, they are

looking at the totality of various contract or

customer requirements. Correct? Such as

what’s it costing, correct? They’re looking at

lots of different things together, right?

A: Sure.

75

Deposition Gary N. Iversen

November 29, 2004

Q: What’s the schedule, are we on schedule or not,

correct?

A: Correct.

Q: Okay, Is the appropriate amount of work needed to

complete going into the contract. Right?

A: Correct.

Q: And they’re looking at the technical engineering

issues, correct?

A: That’s what the government program manager

does. That’s their job.

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76

Q: So all these various aspects of a complicated program do join together, right?

A: They do join together.

Q: Engineering costs, scheduling, identifying problems, correcting problems, they all merge together, correct?

A: They all merge together…

Deposition Raymond L. Sheen, November 29, 2004

77

ZSR-62 Program Management Plan Northrop

November 7, 1985

Management Control Systems (MCS)...

“MCS is the primary method for measuring and

controlling cost and schedule to achieve overall

program requirements”

78

Internal Northrop Presentation

February, 1986

“PARs – OR WHAT WILL THE CUSTOMER ACCEPT AS

REASONS

(WE CAN’T TELL THE TRUTH)

IN OTHER WORDS, WE SHOULD TRAIN THE CAMs TO

VIOLATE THE SYSTEM WITHIN THE GUIDELINES OF

THE SYSTEM DESCRIPTION”

“PRACTICAL MCS TRAINING”

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79

MCS Training Manual

“WHAT NOT TO SAY ON A PAR!”

80

MCS Training Manual

“Cost variance was caused by

accounting system”


81

MCS Training Manual

“Schedule variance is caused by

behind schedule condition”.


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82

MCS Training Manual

“Material scheduled cannot

realistically track on schedule”


83

MCS Training Manual

“Material cost analysis indicates

an overrun”


84

ZSR-62 Program Management Plan Northrop

November 7, 1985

“Critical Design Review (CDR). The CDR is

scheduled 5 months after completion of the PDR,

when the design is complete,…Manufacture of the

FSD (full scale development) models will

commence upon approval of the CDR.”

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85

Deposition: James L. Howe

January 16, 1997

“A. I started making assignments … devise a power

supply …”

“A. I had to dig it out … the specs.”

“A. … I determined that the specs were practically

worthless.”

86

Documentation: Subcontractor Review and

Comment Sheet

February 19, 1986

“Doc. Title:

Test Requirement Document for CPU ROM”

General Comments

1. Excessive TBDs. Preliminary data should be used

to make this document credible.”

87

Memo: To W. Dobricky (240A)

regarding ZITS Testing

March 4, 1988

“ Receiver specifications are

TBD at this time.”

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88

Notes: Unknown author handwritten

notes outlining lessons learned

“Premature release of design to

production…”

“Playing factory before it’s time”

“Failure to maintain design and production

documentation current.”

89

Note: From G. Kotecki to R. Marquis

August 31, 1990

“Incomplete electrical information. Designs were

started with known shortages of information such as

incomplete schematics, parts lists, and component

sheets.”

90

“…Commander of the F-117 Test Force, Deputy Director

of the B-2 Program, Program Director for Aerospace

Surveillance and Radio Systems, Deputy for Strategic

Systems USAF, Acquisition Professional Staff Member

for the House Armed Services Committee, and Chief

Technical Officer for the Office of the Secretary of

Defense Airborne Reconnaissance Office.”

Col. Roger Mosley Report to United States

Department of Justice

January, 2005

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91



January, 2005

“I conclude that the ZSR-62 contract with Northrop

Defense Systems Division (hereinafter “DSD”) would

have been terminated for cause and that the United

States of America was induced through misrepresenta-

tions to continue funding this program.”

92



January, 2005

“At the time of the Oct 85 CDR, DSD misrepresented its

progress on the ZSR-62 design, and did not meet the

essentially complete standard, as required by MIL-STD-

1521A.”

93



January, 2005

“Even though DSD was required to use a management

control system (MCS) to evaluate schedule and cost

progress on the ZSR-62 contract, it was instructing its

cost accounting managers and others to misrepresent

the compliance of the system and the data within the

system. It is my opinion that Northrop engaged in

significant misconduct and fraud.”

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94



January, 2005

“Had the actual technical progress on the ZSR-62 been

known at the time of the CDR, October 1985, particularly

in light of pervasive project misrepresentations and

fraud, the ZSR-62 contract would have been terminated

for cause by the B-2 program office before there was a

delta CDR.”

95



January, 2005

“Every dollar paid to DSD after CDR was obtained by

fraud. Had the fraud been known to the United States,

DSD would not have been paid $253 million for post-

CDR claims.”

96

Deposition: Karen Sarley,

U.S. Divisional Administrative

Contracting Officer

July 2, 2002

“Q. Could you, for the record, just describe your

feelings about the information in the documents that

you learned of yesterday for the first time?

…objection, form and foundation.”

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97

Deposition: Karen Sarley

July 2, 2002

“These were important parts that we were making,

costing a lot of money, costing taxpayers a lot of

money. I think it’s despicable.

Q. And that is your view based upon the documents?

…objection, form and foundation

THE WITNESS: That’s right.”

98

What They Said / Where They Ended Up

Wallace Solberg: Vice President & General Manager

Admits MMAS system was “garbage in, garbage out”

Promoted from head of Defense System

Division to head Northrop’s largest division

Elected to Northrop’s Board of Directors

•

•

•

99


Jack McNaughton: Vice President of Administration

“I personally have some doubt that our present

systems… are adequate to withstand … DCAA

system review…”

Seeks Solberg’s approval in “executing the

necessary retroactive transfer adjustments”

Remained Vice President at Northrop

until retirement in 1989

•

•

•

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100


Duane Emling: Director of Material Accounting, Finance

Admits responses were “couched in very positive

terms. . .we didn’t necessarily say what was wrong

with the system”.

“The recommendations contained in this audit report

are both proper and reasonable…I believe that we

are probably better off to directly attack the audit.”

Repeatedly represents to U.S. that Material

Management Accounting System is excellent

•

•

•

101


•

•

Duane Emling: Director of Material Accounting, Finance

Obtains fully satisfactory performance

evaluation for “minimiz[ing] penalties

imposed by customer based on review of

material accounting system”.

Remained at Northrop as a Director of

Material Accounting until leaving in 1996.

102


Sue Licata: Manager of Material Systems, Finance

“discrepancies between On-hand and the

physical count shall be allocated back to

the oldest PA’s and written off as scrap…”;

…“these discrepancies are over and above

those reported to DCAA during the walk-

through…”

•

•

35

103


Sue Licata: Manager of Material Systems, Finance

Manager of budgeting and expense

control

Voluntarily leaves Northrop in 1994

•

•

104


•

Amy Selen: Manager of Administration, Product Assurance

Tells 38 senior managers “We can’t tell

the truth… We should instruct our

CAMs [cost accounting managers] to

violate the system within the system

guidelines”…

Maintained manager position

Voluntarily leaves Northrop in 1990

•

•

105


•

George Luper: Director of Government Relations

Northrop has “clearly demonstrated

the. . . accuracy of its inventory

systems to DCAA”…

Promoted to Director of Administration

Leaves Northrop in 1994

•

•

36

106


Rex Robinson: Test Engineer

Directly informs five senior managers,

including Solberg, of widespread

fraud;

Including false claims of progress for

the ZSR 62

107


Rex Robinson: Test Engineer

• Begins receiving terrible performance reviews

• Removed from classified projects

• Laid off by Northrop

• Never again able to find work in his field

• Lived off the charity of friends and family

• Dies of cancer in 2003, penniless, in a trailer, in the New Mexican desert.

108


Jim Holzrichter: Internal Auditor

Directly informs two managers,

including Amy Selen, of widespread

fraud, including cover up of actual

accounting data, excess inventory

and other fraudulent schemes

37

109


• Followed by Northrop investigators (including to bathroom)

• Ostracized by Supervisors

• Office and personal affects removed

• Told not to further damage the company

• Cut off from computer system

• Constructively discharged

• Unable to obtain work in his field


110


• Lived in homeless shelter (Jim, wife and four kids)

• Finds part time work (gas station and delivering newspapers)

• Now employed supervising a newspaper delivery route


111

Northrop’s Defenses and Other Practical Problems

38

112

Progress Payment Certification: One of 807 from Northrop

to United States

Typical: October 11, 1988

“Paid costs eligible under progress payment clause…

I certify that the above statement with attachment has

been prepared from the books and records of the above

named contractor in accordance with the contract and

the instructions hereon, and to the best of my knowledge

and belief, that it is correct…”

113

Q: One of Northrop’s other experts in this case, Raymond Sheen, testified earlier this week that a contractor could not certify its progress bills if it did not have any Inventory Management System. Do you agree with that?

A: I’ve never seen that situation where there’s not even an informal one.

Q: I don’t think he had either.

A: My view would be [that] it would be highly unlikely that one could. I guess it’s possible that it was such a simple contract with one product that it didn’t require a system, but by and large I would expect you to need an inventory system.

Deposition Avram Tucker, July 10th, 2003

114

Q: I don’t think he had either.

A: My view would be [that] it would be highly unlikely that one could. I guess it’s possible that it was such a simple contract with one product that it didn’t require a system, but by and large I would expect you to need an inventory system.

Q: Can [a] contractor progress bill having just a highly accurate procurement system but no Inventory Management System?

A: It would be unlikely that they could, but it’s possible that they don’t even make transfers and the products are always used on the same program it was purchased for, and in those circumstances I think that they would be able to bill or they may be able to.


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115

Q: Right. Regardless of what type of system they have, they must have something beyond just an accurate procurement system to comply with those provisions, correct?

A: Again, we’ve talked about exceptions to that, but I think as a general proposition some type of inventory system would be required for a sophisticated contractor working with the government.


116

Q: Do you know how a contractor could comply with generally accepted accounting principles without having an inventory management system?

A: I think all the contractors had inventory management systems so I would assume that they comply. But you need an inventory management system to comply with GAAP.

Deposition Gary N. Iverson, July 7th, 2003

117

Q: Now, in terms of defense contracting environment, can a contractor certify progress billings without any inventory control system?

A: I’ve never had the experience… I don’t think so, but I’m not positive of that and I’ve never seen that, never had that experience.

Q: So it not, is it fair to say that it’s not your opinion that a defense contractor can certify progress billings without any inventory control?

A: Yes.

Deposition Raymond Sheen, July 7th, 2003

40

118

Memo: Duane Emling, Manager,

Material Accounting, Finance

June 20, 1986

“Integrity of the Inventory Management System

is questionable, at best…”

119

Memo: From Duane Emling

To Russell Bercier

June 22, 1987

“Based on our initial evaluations of the IM System, it is our

conclusion that the basic level of data accuracy is

insufficient to support a successful completion of DSD’s

agreement with DCAS. We do not believe that generation

of additional reports or other physical enhancements to the

system will be sufficient to demonstrate material

accountability by P.A.”

120

Memo From McNaughton

To Wallace Solberg

October 23, 1987

“IM System Data Integrity

A significant problem currently exists in the inventory

management database… ”

41

121

Q: So did you find the Inventory Management System to be unreliable?

A: The Inventory management System had data problems.

Q: And did those data problems make it more difficult for you to gather up the data you needed within Northrop’s Finance Department?

A: Yes.

Q: So the Inventory Management System was not adequate for your purposes. Is that correct?

A: The accuracy of the system was not acceptable.

Deposition Ken Chapman, March 22, 2002

122

Res Judicata

Does Not Apply

123

Res Judicata Does Not Apply

• In the history of this litigation, Northrop failed to assert Res Judicata as an affirmative defense.

• Under both Seventh Circuit and Judge Guzman’s rulings in other cases, the defense is waived.

42

124

“Res judicata is an affirmative defense which, unless

raised by the defendant in his answer, is considered

waived. Fed.R.Civ.P. 8(c). Defendant did not raise res

judicata in his answer…”

Marcus v. Sullivan, 926 F.2d 604 (7th Cir. 1991)

125

“Rule 8(c) provides that ‘[i]n a pleading to a preceding

pleading, a party shall set forth affirmatively…estoppel

…[and] res judicata…’ Fed.R.Civ.P. 8(c). Thus, ‘[r]es

judicata is an affirmative defense which, unless raised

by the defendant in his answer, is considered waived.’”

Administrative Committee v. Alexander 2001 WL 32874 (N.D.Ill.), Jan. 12, 2001, Judge Guzman

126

Judge Guzman has already stated he views the

res judicata defense in this case as involving

“shades of gray, and within those shades of

gray lie possibilities for reasonable inferences,

which means a jury trial.”

Judge Guzman: United States of America ex rel. Robinson v Northrop Grumman Corp.,

April 26, 2004

43

127

Unfavorable Publicity

Documents

James Holzrichter Michael Behn - Chapters Site · Letter: From DCAA to Northrop’s George Luper, Director, Government Relations January 22, 1988 6 “…NCDSD has found that the