Northrop Grumman Pays $31.65 Million for Fraudulent Overbilling of Air Force Contracts

Northrop Grumman Systems Corporation agreed to pay $31.65 million to settle civil and criminal charges for systematically defrauding the U.S. Air Force by overbilling labor hours on battlefield communications contracts between January 2011 and October 2013. The settlement included $27.45 million for False Claims Act violations and $4.2 million in criminal forfeiture, resolving allegations that the defense contractor knowingly billed the Air Force for thousands of hours that employees stationed in the Middle East never actually worked on the Battlefield Airborne Communications Node (BACN) and Dynamic Re-tasking Capability (DRC) contracts.

Federal investigators uncovered a systematic fraud scheme where Northrop Grumman employees deployed to a Middle Eastern air base inflated their billable hours while engaging in personal activities including golfing, skiing, shopping, and dining. Employees routinely “charged exactly 12 or 13.5 hours per day, seven days a week” regardless of actual work performed. One employee candidly summarized the fraudulent practice in internal communications: “work[ed] about 6-8 hours and charge[d] 13.” At a single site, employees overbilled the Air Force by over $5 million through this scheme, stealing taxpayer funds while Northrop Grumman management either facilitated or failed to prevent the systematic theft.

The investigation was conducted by the Air Force Office of Special Investigations, Defense Criminal Investigative Service, Federal Bureau of Investigation, and Defense Contract Audit Agency, demonstrating the scale of resources required to detect and prosecute defense contractor fraud. The case was prosecuted by Assistant U.S. Attorneys Michelle L. Wasserman, Billy Joe McLain, Mark W. Pletcher, and Phillip L.B. Halpern from the Southern District of California.

This settlement represents just one of multiple fraud cases against Northrop Grumman, revealing a pattern of systematic contractor abuse enabled by weak Pentagon oversight and the perverse incentives of cost-plus contracting. The company’s willingness to settle for $31.65 million without admitting wrongdoing exemplifies how major defense contractors treat fraud penalties as a minor cost of doing business rather than a deterrent. The settlement amount likely represents only a fraction of the total overbilling across all Northrop Grumman contracts during this period, as investigations typically uncover only the most egregious cases where employees documented their fraud in writing.

The case demonstrates how cost-plus contracts create systematic incentives for fraud, as contractors profit from inflated labor charges with minimal risk of detection or meaningful penalties. Northrop Grumman’s $31.65 million settlement is negligible compared to the company’s annual revenue of over $30 billion, ensuring that fraud remains a profitable business strategy even when occasionally caught and prosecuted. The absence of criminal charges against individual executives or managers who oversaw the fraudulent billing practices reflects the broader failure to hold defense industry leadership personally accountable for systematic theft of taxpayer funds.