In an interview and in a letter to the Defense Department, Harkin accused the space systems unit of Lockheed Martin Corp. of using "an apparent accounting trick" in an attempt to gouge taxpayers of perhaps $100 million. He cited three confidential reports done by Pentagon auditors. He says they found that the unit's accounting methods on the sale of facilities in California's Silicon Valley and elsewhere were "flawed, unreasonable, and inequitable to the government."

Lockheed Martin, the nation's largest defense contractor, says its actions are proper. But, officials say, there is "an honest disagreement" between Pentagon auditors and the company over accounting methods. "We are in negotiations with" Pentagon auditors "about that disagreement," says James Fetig, chief spokesman for Lockheed Martin, "and we are committed to reaching a mutually acceptable agreement on the issue."

Lockheed Martin's space systems unit is based in Denver. It has $5.5 billion in business with the Pentagon and NASA.

Harkin is a leading critic of wasteful defense spending. He says that the Pentagon paid for improvements on the buildings, depreciation, and repair and maintenance expenses under its defense contracts with Lockheed Martin. When the company sold the facilities, however, it allocated all proceeds to the land and none to the buildings, Harkin says. That meant the Pentagon could not receive any of the proceeds. Regulations prohibit it from sharing in gains on land sales.

Harkin says Lockheed Martin considered the buildings worthless. He says it now is proposing "to charge government contracts with over $95 million in losses for the supposedly worthless buildings."

He says Pentagon auditors described the losses as "fictitious." He says that the buildings were valued at millions of dollars on tax rolls, that Lockheed Martin had made $22 million in improvements on some facilities as late as 1999 and that it now "plans to lease back some of the 'worthless' buildings at a cost of over $11 million." That expense will be charged to its defense contracts, he says.

Lockheed Martin maintains that the buildings had no value. Officials say various buyers wanted only the land and have torn down the buildings or plan to do so. The buyers are putting up new office facilities on the sites, Lockheed Martin says.

Harkin worries that the case is not unique, that other contractors may be attempting to use the same scheme. Senior defense officials say they are taking the case "very seriously" and plan to look into it.

© Copyright 2001 USA TODAY, a division of Gannett Co. Inc.

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