Loral Dispute Drags in Army

A development stemming from a troubled Army procurement could have a broader effect on procurement litigation than the latest Hill bills

A company's lawsuit against Loral Federal Systems charges six Army officials with assisting in contract fraud by failing to stop a troubled modernization contract.

Pentagen Technologies International Ltd. asked a New York District Court Aug. 3 to allow the company to include senior Army officials and Assistant U.S. Attorney David Koenigsberg in its false claims action against Loral, prime contractor on the Army's $474 million Sustaining Base Information Services program. It is not clear when the court will rule on Pentagen's request.

Pentagen contends that because Loral Federal, formerly IBM Federal Systems Co., was unable to perform under the terms of the contract, the Army should have modified or rebid it.

In court documents, the company also alleged that "IBM/Loral is knowingly presenting a false claim each time it receives money under the contract because it is knowingly not performing."

Pentagen, a small New York company,, got caught in the Army program quagmire through legal battles it has had with CACI International Inc., one of Loral's subcontractors, during the past few years.

Both have gone several rounds in Virginia and New York courtrooms trying to settle a dispute over alleged copyright infringement by CACI of a Pentagen software methodology.

The contract could mean more to the future of government contract disputes than procurement reform bills under evaluation by Congress. Devon Hewitt, an attorney with Shaw, Pittman, Potts & Trowbridge in McLean, Va., described Pentagen's move as "unusual and unprecedented." The company's effort to use false claims as a way to resolve a purely contractual dispute could have strong implications, she explained.

The case represents an ever-growing, expanding use of false claims and illustrates how it can be used not just against a contractor, but the government as well.

In its latest legal maneuver, Pentagen has taken a gamble by identifying Army officials responsible for the program: Richard Sturgis, contracting officer; Col. Charles Mudd, program manager; Lt. Col. Richard (Curt) Mattingly, deputy program manager; Col. Kevin Cogan, former program manager; Col. Edward O'Keeffe, deputy program executive officer for standard Army information systems, and O'Keeffe's boss, Charles Austin.

In documents filed with New York's Southern District Court, Pentagen said, "Because each failed to cause the contract to be either terminated or modified, each conspired in the Defense Department plan to assist IBM/Loral in making false claims."

The company alleged that Army program officials and assistant district attorney Koenigsberg "knew, or should have known, of the falsity of IBM/Loral's claims under the SBIS contract." Koenigsberg has been investigating Pentagen's allegations since the company first filed a complaint in April 1994.

At press time, program officials did not know Pentagen had identified them in the case. An Army attorney, in fact, had not even seen Pentagen's latest motion, which was sent to the court Aug. 3, and requested that Washington Technology send a copy.

As WT reported last month, the two-year-old program started getting out of control shortly after the Army's contract award in June 1993.

The original program plan called for IBM/Loral to deliver 89 applications by the third year of the contract partly by achieving 40 to 50 percent software reuse in the first year and a target of 80 to 90 percent by mid-1996. Three months after the contract award, IBM/Loral withdrew its reuse goals.

Two years into the contract, Loral has not delivered a single application for formal Army testing. In fact, the Army has cut the number of applications from 89 to 53 and does not expect Loral to build all 53 applications.

But officials contended that they did not relax the contract requirements on Loral. The 53 will be developed over the course of the Army's overall computer modernization effort, which extends to the year 2002.

How many applications will Loral develop under its contract? No one knows. Army officials said they do not have a target number or percentage of the 53 applications that they would like Loral to build. Mudd said that as the current program manager , though, he remains responsible for ensuring that the Army ultimately gets the 53 applications even after he leaves.

Military program managers typically serve at least two years, which would end Mudd's oversight of the Loral work next summer.

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