A Native Alaskan corporation and local shipyard operator Marisco Ltd. have agreed to pay $1.25 million to settle a federal lawsuit that alleged fraud in their handling of a surplus Navy drydock, the U.S. Attorney's office here announced yesterday.

More than half of the money would come from a special $4 million block of federal funds to be inserted in the U.S. budget under the terms of a deal reached last year between U.S. Rep. Don Young, a powerful Republican congressman from Alaska, and U.S. Sen. Daniel K. Inouye.

Inouye got involved in the case after representatives of Pacific Shipyards International, a competitor of Marisco, complained that the federal surplus drydock, called the Ex-Competent, was supposed to be used in Alaska, not Hawai'i. Having it in Hawai'i gave Marisco an unfair business advantage, Pacific Shipyards complained, according to federal records.

The Ex-Competent was built in 1944 for the Navy and was in service on the West Coast, the Philippines, Guam and finally at Pearl Harbor from 1980 until it was mothballed in 1997. In 2001, it was donated to TDX Corp., a native Alaskan corporation based on remote St. Paul Island in the Bering Sea. TDX obtained title to the massive drydock under a federal surplus property program that allows Native American and Native Alaskan corporations preferential rights to such equipment. Federal law does not grant Native Hawaiians the same rights.

Young took an interest in the dispute after TDX complained that the federal government was unfairly trying to force removal of the drydock to Alaska, federal records show.

Marisco and TDX said it was never their intent to ship it back to Alaska because that would be prohibitively expensive and the market there was too small. The idea was to bring Native Alaskans here to the Marisco facility to learn the ship-repair business, the companies argued in court records.

They lost that argument last year when the 9th U.S. Circuit Court of Appeals upheld an Alaskan judge's decision that the drydock was supposed to be used in Alaska.

As a result, the drydock was towed away from the Marisco facility in September and later auctioned off to a Japan-based buyer.

The auction occurred after Inouye and Young agreed to the language in federal legislation requiring removal of the drydock from American waters and payment of $4 million as compensation to TDX.

Yesterday's action settled a separate whistleblower lawsuit filed by Pacific Shipyards, which the U.S. Justice Department later joined, against TDX and Marisco.

Neither TDX nor Marisco admitted wrongdoing in agreeing to settle the case.

Fred Anawati, head of Marisco, said yesterday that TDX will be paying the $450,000 settlement and 20 percent of the $4 million appropriation when the money becomes available.

Tom Bush, a local attorney representing TDX, said which party will pay how much isn't finalized yet. The agreement with the government calls for immediate payment of $250,000 and payment of another $200,000 within a year, he said.

The $4 million payment to TDX called for in federal law hasn't been appropriated yet, but if and when it is, 20 percent of the money — $800,000 — must be paid back to the federal government, according to Bush.

Reach Jim Dooley at jdooley@honoluluadvertiser.com.