Compaq Pays Up for Digital's Defense Overcharge

SAN FRANCISCO (07/26/2000) - U.S. PC maker Compaq Computer Corp. Wednesday announced it has agreed to pay the U.S. government US$4.5 million related to overcharging on a contract with the U.S. Department of Defense (DoD) incurred by Digital Equipment Corp. Compaq acquired Digital in 1998.

The $4.5 million charge settles a six-year investigation carried by the U.S.

Department of Justice (DOJ) into DoD claims that Digital inflated labor costs on a PC LAN (local area network) installation contract for the department.

Both Compaq and the DOJ described themselves as "pleased" to have resolved the dispute in separate statements issued Wednesday.

"Cases like this demonstrate the Justice Department's continuing commitment to ensuring that government contractors do not overcharge the United States on goods or services," David Ogden, acting assistant attorney general for the DOJ's civil division, was quoted as saying in the department's statement.

First taken on in 1991 and concluded five years later, the DoD contract was valued at around $235 million and involved Digital providing the department with hardware, software and services for the installation and maintenance of computer networks both in the U.S. and in Europe, Compaq said in its statement.

In 1995, Digital made a voluntary disclosure concerning "certain improper or questionable billing practices" related to the contract, Compaq said in the statement. "Compaq believes that all the charges investigated and reasonably alleged by the government were identified in Digital's 1995 voluntary disclosure," the PC vendor said in the statement.

Digital's 1995 report "inflated its labor charges on some work performed in Orlando, Florida, and Frankfurt, Germany," the DOJ said in a statement.

"The government's subsequent investigation concluded that Digital's overcharges on the PC-LAN contract extended beyond what had been reported by the company," the department said in the statement. "The settlement announced today resolves all pending False Claims Act claims arising out of Digital's Voluntary Disclosure Report."

Digital's inflation of charges in the DoD contract related to converting the costs of charges such as shipping and warehousing into labor hours and improperly billing travel time as a direct cost, the DOJ said in its statement.

Neither party would provide any comment additional to that contained in their respective statements.

Compaq, based in Houston, Texas, can be reached at +1-281-370-0670 or via the Internet at

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