Mitsubishi Electric faces big defense padding bill

Kyodo

The Defense Ministry plans to demand tens of billions of yen from Mitsubishi Electric Corp. for decades of overcharging on contracts, sources said Thursday.

The amount, which includes penalties, is likely to be one of the largest ever involving a single company for overcharges on contracts with the ministry.

An investigation by the Board of Audit found that Mitsubishi Electric overcharged the Defense Ministry and other entities since around 1970, inflating work hours spent on projects.

For most of the orders, comparable market prices were not available, so Mitsubishi Electric calculated material costs and work hours necessary for fulfilling the orders, and the contract prices were set using those calculations as references.

Mitsubishi Electric was supposed to repay the government if its staff worked fewer hours than planned. The audit found the firm overstated its employees’ work hours for decades.

The company has already destroyed the data on work hours and material costs for many of the contracts in question, so the Defense Ministry has estimated the amount to be demanded based on the remaining data.

The bill padding came to light around fall 2011 based on information from whistle-blowers.