TRW to Pay for Allegedly Cheating Pentagon : Aerospace: $3-million settlement resolves charges of double billing made by former executive in top-secret program.

TRW has agreed to pay $3 million to settle charges brought by a former executive who alleged that the company defrauded the Pentagon on a top-secret production program at its Redondo Beach complex, it was learned Wednesday.

The suit, brought under the federal False Claims Act, is believed to involve the most highly classified program ever subject to civil fraud charges--so secret that the ultimate customer of the product was never disclosed and participants in the case had to receive special government security clearances.

Under terms of the settlement, TRW will pay $2.5 million to settle the allegations, brought by retired TRW manager Frank Breene, and $500,000 to Breene’s attorney, Dean Francis Pace of Century City. Of the $2.5 million, about 70% will go to the federal government and 30% to Breene.

Filed in Los Angeles federal court in 1990, Breene’s case alleged that TRW charged the government twice for certain labor performed on three contracts involved in the secret program.

TRW officials declined to comment on the settlement, which Pace disclosed to The Times. The False Claims Act allows individuals to sue on behalf of the government and share in any damages. The Justice Department elected not to intervene in the Breene case, which under the law increased his share of the damages.

The secrecy surrounding the case was unprecedented. Pace took depositions from government contracting officers whose names were kept secret, escorted into offices and introduced only as John Doe, Pace said.

The court appointed two security officers to review and abridge about 40,000 classified documents involved in the case. When Pace was cleared to participate, it marked the first time that an outside attorney had entered such a super-secret military program to litigate a case, he said.

Although Pace said he could not disclose much about the contract, court documents showed that TRW’s defense communications division was involved and supplied equipment to a prime contractor whose identity was withheld. The TRW division, which has since been merged into another division, built payloads used on secret military satellites.

Pace said the secrecy surrounding the TRW program appeared to inhibit the government’s ability to properly oversee the program--reflecting a lesser degree of control on secret programs generally.

Breene alleged that TRW falsified its bids on three contracts.

The bids had two components, a “bench” portion that included the fabrication, assembly and testing of the equipment, and a second “support” portion for such workers as supervisors, test engineers and others who did not perform hands-on labor.

Breene alleged that TRW included costs for the support labor in the bench portion of its contract bids and again in the support portion.

The contracts were “cost plus,” in which the government paid for TRW’s costs and an incentive-based profit.

An internal TRW investigation found some improper bids but claimed that the practice did not extend back to the contracts cited in Breene’s case. Pace asserted that the TRW letter to the government that disclosed the internal investigation in 1990 was itself a false statement.

Breene, 66, retired in 1989 after 26 years at the aerospace firm. As hardware acquisition manager, Breene said 300 workers reported to him at the program’s peak. He said the improper contract bids were arranged by business managers “who had known about this for a long time and had chosen to go along with it.”