Lockheed to Fight Charges of Inflated Costs for C-5B

In an unusually tough rebuttal of Pentagon allegations, Lockheed Corp. told the Air Force Monday that it would contest all charges that it improperly inflated the cost of its C-5B contract by $500 million by withholding financial information.

Lockheed attacked the competency of Pentagon auditors who last month accused the company of not having disclosed that it intended to seek labor cost reductions in future collective bargaining agreements.

Denies Allegations

“Lockheed unequivocally denies the defective pricing allegations and concludes that the (auditors’) report is factually and conceptually flawed; totally lacking merit; unprecedented, and contrary to the cited public law and its implementing regulations as well as interpretive case law,” the company said in a six-page memo.

The Pentagon disclosed in late August that its Defense Contract Audit Agency had concluded that Lockheed engaged in “defective pricing” on its C-5B contract, a term that can refer to a number of offenses under a government contract. Lockheed responded to that report Monday under a requirement that it contest such allegations within 30 days.

Since the Defense Contract Audit Agency made public its findings that Lockheed had inflated its contract, the company has also been attacked by a congressional committee, which said it is earning excessive profits on the C-5B.

$7.8-Billion Contract

The Air Force and Lockheed negotiated the contract for construction of 50 of the giant cargo planes for $7.8 billion in December, 1982. The amount was based in part on Lockheed’s estimates of its labor expenses. The Air Force charges that Lockheed knew that it would seek a two-tier wage structure from its employees that would reduce labor costs but that the company did not disclose that information during negotiations.

Lockheed workers agreed in 1983 to a wage system that permitted Lockheed to pay newly hired workers less than established workers doing the same jobs.

On Monday, Lockheed contended that “the information in question was so preliminary, tentative, aspirational and speculative” that it did not qualify as financial information of the type required to be disclosed to the government.

Options Exercised

Lockheed noted also that the Air Force had exercised options to buy C-5Bs in fiscal 1984, 1985 and 1986 even after it had been notified of the precise results of the labor negotiations and understood the new wage structure.

“Thus, it must be concluded the fiscal year option prices were considered (by the Air Force) to be fair and reasonable,” the company’s response said.

Lockheed is headquartered in Calabasas but produces the C-5B in Marietta, Ga.