KATRINA: Northrop Makes Pitch for Storm Aid

The Northrop Grumman Corporation, the largest builder of warships in the world, was on a charm offensive here Tuesday. Armed with slides and charts, Philip A. Teel, who runs Northrop's shipyards, led a phalanx of executives who laid out their case for another $200 million from Congress to cover losses from Hurricane Katrina.

By Pentagon standards, a request measured in millions of dollars, rather than billions, may seem like small change. But Northrop's effort is emerging as a test case of whether such a large company should receive extra help from taxpayers or bear its financial difficulties on its own.

Unusual alliances are squaring off on the issue. Some quarters in Washington, including those typically friendly to military contractors, say that helping Northrop could set a bad precedent. Among those lining up against Northrop are the White House, the Navy and some fiscally conservative Republicans.

Northrop, however, has plenty of political muscle on its side. Powerful senators from the gulf region, including Senator Thad Cochran, the Mississippi Republican who heads the Senate Appropriations Committee, are fighting on its behalf.

At the moment, after prevailing in the Senate, Northrop has the upper hand. But it has failed to persuade a majority in the House, leaving the final settlement to be worked out behind closed doors by lawmakers from both houses of Congress.

Northrop executives say the company needs the money to cover cost overruns on Navy shipbuilding contracts that its insurer is refusing to pay. If Congress does not act, Northrop says shipbuilding at its Gulf Coast yards in Pascagoula and Gulfport, Miss., could be slowed by months, if not years.

"This is not a threat," said Mr. Teel of Northrop in a morning news conference here. "I'm telling you what the implications are. Unprecedented events require unprecedented actions."

The White House issued a policy statement late last month saying that the government should not pick up shipbuilding costs "that are routinely borne by private insurance." To do so, it said, would create an incentive for insurers to deny claims on the assumption that the government would step in.

The White House and the Navy also contend that providing the money would make future shipbuilding contracts more difficult to negotiate effectively. If Northrop prevails, their logic goes, companies could more easily pass the responsibility for cost overruns to the government.

"The precedent is not good," Delores M. Etter, the Navy's assistant secretary for research, development and acquisition, said in a recent interview in DefenseNews. "It opens us up for lots of companies to potentially come back and have us cover expenses."

The current $109 billion Senate supplemental spending measure for Iraq, Afghanistan and Katrina expenses would provide up to $500 million for Northrop to cover the cost of business disruptions. The company's insurer, the Factory Mutual Insurance Company, has denied payment on the ground that Northrop's policy did not include coverage for hurricane flood damage.

Northrop, in the meantime, has filed suit against the insurer in federal court. To win political support, Northrop executives also met with the Congressional shipbuilding caucus, which includes over 100 members of Congress.

The company estimates that Katrina cost it an additional eight million labor hours on the 12 ships currently under construction.

An effort to strike the Northrop payment from the Senate measure failed last week by a 51-to-48 vote in floor debate. Senator Tom Coburn, an Oklahoma Republican and a fiscal conservative, led the opposition; he calls the Northrop payment "corporate welfare."

Efforts to aid Northrop in the House have failed, leaving the $92 billion supplemental spending bill headed to a conference committee for reconciliation with the larger Senate spending proposal. President Bush has threatened to veto any supplemental measure exceeding $94.5 billion, making the Northrop aid provision particularly vulnerable.

John Hart, a spokesman for Senator Coburn, said the "push-pull of the debate is between the Mississippi delegation and the rest of the party." Northrop is also being aided by Senator Trent Lott, a Mississippi Republican whose father once worked in the Pascagoula shipyard.

Northrop executives have said that if they prevail in court and receive money from their insurer, they will repay the government. But the Defense Contract Management Agency, the Pentagon's auditor of shipbuilding contracts, has countered that if Northrop gets the government money, there is little chance it would ever collect from its insurer.

"If the government pays the costs," Donald P. Springer, the agency's auditor for Northrop, wrote in a report, "there is a risk that insurers will deny coverage on the basis that there has been no loss suffered by Northrop Grumman."

• 124 War & Disaster Profiteering