In announcing the settlement, Assistant Attorney General Peter Keisler warned that Lockheed should be an example to other companies that try to overcharge government agencies.

The case was originally filed in federal court in Orlando, Florida by a former Lockheed employee, Albert Campbell, under so-called "whistleblower" provisions of the False Claims Act.

Campbell accused Lockheed Martin of deliberately inflating the cost of four contracts for the purchase of navigation and targeting pods for military jets and failing to give complete cost data to air force contract negotiators.

The complaint also alleged mischarging of costs on a contract.

The government took over litigation of the case but Campbell will receive 8.75 million dollars as his share of the proceeds of the settlement under the law.

The government also accused Lockheed Martin of purposely inflating a contract proposal for a foreign military sales contract under the Low Altitude Navigation and Targeting Infrared for Night (LANTIRN) programme.

The US government had hoped to sell the equipment to Saudi Arabia, Greece and Bahrain as a means of offsetting a cost over-run on another air force contract.

Keisler said "companies which do business with the United States must deal honestly with the government.

"The Department of Justice will vigorously prosecute cases under the False Claims Act against those contractors who deliberately overcharge Government agencies."

WAR.WIRE