A Columbia defense contracting firm was fined $123,785 today for repeatedly mischarging on secret Defense Department contracts in an effort to avoid losses from cost overruns.
Systems Engineering and Development Co., of the 9100 block of Rumsey Road, pleaded guilty in U.S. District Court in Baltimore to a single felony count of filing a false claim for $11,783 on a contract involving work for the National Security Agency at Fort Meade.
The claim was one of 26 separate instances of defense contract mischarging by the company listed in a government statement of facts that was filed in court.
An NSA spokeswoman confirmed today that the criminal charge involved contract work for the agency.
U.S. Attorney Breckinridge L. Willcox said the case is the "first successful prosecution in the country of a defense contractor whose work is predominantly classified."
He said mischarges were "common" at SEDC between July 1985 and February 1987.
But defense lawyer Andrew D. Levy said SEDC, which changed owners last year, has instituted new accounting and personnel procedures "to ensure that these kinds of problems will never happen again."
Levy and co-counsel Peter Gunst said the government's actual financial loss from the mischarges "was something less than" the amount of the fine.
Prosecutor Gary P. Jordan said in court that SEDC typically charged cost overruns for labor and computer services on fixed-price contracts to contracts that were to cost the government actual expenses plus fixed fees. Those maneuvers let SEDC avoid losses on the fixed-fee contracts, he said.
Judge John R. Hargrove accepted the company's plea and imposed the fine at the same hearing, in line with a plea bargain negotiated by Jordan, SEDC officials and the company's attorneys.
SEDC, which does highly classified work involving information technology and signals processing, could have been fined $500,000 for the offense. The firm, now owned by the Essex Corp., an Alexandria, Va. defense contractor, also could be suspended or barred from government work because of the conviction.
Willcox said defense contractors involved in highly classified "black program" projects have long believed that "fraudulent mischarging would never be prosecuted because of the security implications of a public trial. There's a sense [among them] that they're basically above the law, that they'll never get prosecuted.
"I think we have put that perception to rest," he said. "We will prosecute such cases, and it can be done successfully without compromising vital national security interests."
As is typical in such cases, SEDC's classified work was so secret and sensitive to national security that prosecutors and defense attorneys were subjected to security checks and were given special clearances before they could participate in the case.
Willcox said no individual SEDC officials were charged because investigators could not conclusively identify the originator of the mischarging practices and because the company, not specific employees, benefited from the offenses.
The contract fraud was discovered about two years ago when an SEDC employee called the Defense Department's whistleblower hotline. That call prompted an investigation by agents in the Baltimore field office of the Defense Criminal Investigative Service, which specializes in procurement fraud, and subsequent investigation by federal prosecutors and a grand jury here.