Defense Contractor|Must Pay $37 Million

SALT LAKE CITY (CN) - A defense contractor will pay $37 million to settle federal claims that it sold dangerous and defective nighttime flares to the Army and Air Force, prosecutors said.

Utah-based ATK Launch Systems agreed to pay $21 million in cash and provide more than $15.9 million in repairs to fix 76,000 unsafe flares in the federal government's inventory, the Department of Justice said in a statement.

From 2000 to 2006 ATK delivered illuminating parachute-flares to the Army and Air Force that burn hotter 3,000 degrees Fahrenheit for more than 5 minutes. The flares are used for nighttime combat and search-and-rescue operations.

But ATK's flares could not withstand a 10-foot drop test without exploding, and the the company was aware of the defect when it submitted claims for payment, prosecutors said.

The lawsuit was filed by Phillips & Cohen LLP on behalf of Kendall Dye, a former ATK program manager who alerted federal authorities of the defect. He filed his qui tam whistleblower suit in Salt Lake City Federal Court in 2006, which triggered a federal investigation.

"I am glad that the company, rather than taxpayers, is bearing the cost of fixing the problem with the flares," Dye said in a statement issued by the law firm. "There were simple, inexpensive tests that would have revealed the defect."

The law firm said ATK was aware of the defect as early as 2000, but did not conduct tests that would have ensured the flares conformed with Air Force requirements.

"It was only in 2005, after the Navy, a potential new flare customer, declined to purchase the flares until they could pass the Navy's more stringent drop tests that ATK finally tested the flares," the law firm said. "Those tests resulted in a flare igniting at 10 feet and one igniting at 5 feet - demonstrating that they did not conform to the safety requirements for the flares. Because of the obvious danger, ATK immediately shut down its production line and the military discontinued using the flares. But ATK didn't inform its military customers that it had been aware since 2000 of the potential problem and had decided not to test the flares."

Dye complained about this, urging full disclosure but his supervisors told him to keep quiet, the law firm said. He will receive an unspecified portion of the settlement proceeds.

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