Raytheon Co.'s aircraft unit is under investigation by the U.S. Justice Department over allegations the company charged too much for parts used to build training planes for the Air Force and the Navy.
The Raytheon contract was awarded by the Air Force's former No. 2 acquisition official, Darleen Druyun, who was jailed in 2005 for violating conflict-of-interest laws. The contract was part of a $4.5 billion program, one of 11 in which she was involved that have been reviewed by the Defense Department's inspector general.
Jim Cross, a spokesman for the U.S. Attorney's office in Wichita, Kan. declined comment. Jackie Berger, a spokesman for the Wichita-based aircraft unit of Waltham, Mass.-based Raytheon, confirmed the existence of the Pentagon probe but declined to comment on any settlement talks.
Raytheon, the fifth-largest U.S. defense contractor, is "fully cooperating" with the Pentagon probe, Berger said. "We believe the company's actions have been entirely consistent with all legal requirements."
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An unreleased Pentagon audit, dated April 12, valued the training-plane contract at $1.56 billion. The audit, which didn't cite specific instances of inflated prices, said the price per aircraft increased 23 percent in a year, to $4.8 million from $3.9 million, in part because the Air Force decided to buy fewer planes.
The contract was awarded in two sections starting in December 2000 and covered production of 349 aircraft, training equipment and technical manuals.
Druyun was sentenced in October 2004 to nine months in prison for discussing a job with Chicago-based Boeing Co. at the same time she was negotiating a now-canceled $23 billion aerial-refueling tanker program with the company.
Druyun, along with other Pentagon officials, advocated a streamlined weapons contracting procedure that required less documentation of costs. Raytheon's contract for the training aircraft exempted the company from a federal purchasing rule requiring it to provide certified data on costs to back up its charges.
The contract structure increased the Air Force's "risk of paying excessive prices" for the aircraft, the audit said.
Raytheon has agreed to provide certified cost data in the remaining production contracts under negotiation, according to Jim Smith, vice president for government business at Raytheon Aircraft Co., the company's aircraft unit.
Smith, in a telephone interview, denied that Raytheon's prices were inflated. Still, he said he understood why the Air Force wanted to change the contract structure.
"A breakdown" in communications led to questions on pricing "and, on some parts, the perception of overpricing," he said.
While the new contract demands won't have a financial impact on Raytheon Aircraft, "it's a fairly significant change for us in the way we deal with suppliers," Smith said. "I want to make sure we don't add program costs."
Raytheon Missile Systems is Southern Arizona's largest private employer.