A Columbia defense contracting firm has been fined $123,785 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 yesterday in U.S. District Court in Baltimore to a felony count of filing a false claim for $11,783 on a contract with 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.
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 Systems Engineering between July 1985 and February 1987.
But defense lawyer Andrew D. Levy said Systems Engineering, 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 Systems Engineering typically charged cost overruns for labor and computer services on fixed-price contracts to other contracts that were supposed to cost the government actual expenses plus fixed fees. Those maneuvers let Systems Engineering 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, Systems Engineering officials and the company's attorneys.
Systems Engineering, 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 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, Systems Engineering'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 Systems Engineering 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 a Systems Engineering employee called the Defense Department's whistle-blower hot line. That call prompted an investigation by agents in the Baltimore field office of the Defense Criminal Investigative Service.