Federal agents who raided a suburban Johnstown defense contractor and the homes of its two owners are attempting to determine whether the company inflated its payroll in order to run up higher expenses in federal contracts.

Teams from the Internal Revenue Service, FBI and Defense Criminal Investigative Services carried out a search Jan. 22 at Kuchera Defense Systems and its affiliate, Kuchera Industries, in Windber, Somerset County, seeking evidence in a probe of possible contract fraud.

The raid came after investigators' interviews with a former Kuchera executive who left the company near the end of 2007.

In late April, both Kuchera companies and their owners, brothers Ronald and William Kuchera, were placed on a list of firms and individuals to be excluded from contracts with the U.S. Navy. The company is appealing that order. An attorney for the Kucheras said they are appealing the suspension.

Navy records termed the suspension "indefinite" in length and cited an ongoing investigation as the reason.

The Kuchera firms are among a group of defense companies with ties to U.S. Rep. John P. Murtha, D-Johnstown. As chairman of the House Appropriations defense subcommittee, Mr. Murtha has steered millions of dollars in contracts to companies in his district.

He has received an estimated $60,000 in campaign contributions from the Kucheras since 2002, placing them among the top 20 donors to Mr. Murtha's campaign and leadership PAC. Mr. Murtha, who has denied any wrongdoing, has not been named as a suspect in the Kuchera investigation or another ongoing probe into the now-defunct PMA Group, a defense lobbying firm whose staff and clients were heavy contributors to his campaigns.

Ronald Kohan, who worked for several years as director of human resources for the Kuchera firms, said he had told federal investigators that the firms had moved employees from Kuchera Industries, which does various assembly work on circuit boards, to Kuchera Defense, which had several earmarked contracts, including cost-plus contracts. Cost-plus contracts guarantee a vendor full reimbursement of overhead costs on a contract plus a set percentage of profit.

Mr. Kohan said the personnel move would have effectively raised the amount for overhead costs on Kuchera Defense's government contracts, allowing the company to claim a higher reimbursement for its costs.

Mr. Kohan, who said he joined the company in 2005 and was dismissed two years later, said he told agents of one such personnel move in January 2007.

One summary of government contracts examined by the Post-Gazette shows Kuchera Defense Systems with a $2.29 million Navy research and development contract. It also indicates that the company has 500 employees.

"They never had more than 225 employees there," Mr. Kohan said.

Sources close to the investigation confirmed that Mr. Kohan's assertions are among those being examined by investigators. Company officials have denied wrongdoing.

Dennis McGlynn, attorney for the Kuchera firms, suggested that Mr. Kohan is a disgruntled former employee and noted that the companies' contracts are heavily audited.

"We find it very interesting that those claims would be made as to inflated costs when all of these contracts are heavily scrutinized by various federal agencies, including the Department of Defense, DCAA [Defense Contract Audit Agency] and all of the branches of the military," Mr. McGlynn said.

Among the locations raided in a coordinated strike in Somerset and Cambria counties was William Kuchera's hunting preserve in the Cambria County township of Croyle, 20 miles from the plant. At the time, investigators discovered signs posted along the perimeter designating the site as a government test facility.

The ranch was the site of a $100,000 fundraiser in August for Mr. Murtha's 2008 re-election campaign.

In an interview this year, Mr. Murtha described Kuchera as "a company which has done marvelous work in the district; they have 300 employees, they hired handicapped people, a lot of handicapped people."

Mr. Murtha said he was unaware of any wrongdoing by the firm.

"I don't have any idea what they're looking for there. I know that they came in hard on them and I have no idea what they found or what they're looking for," he said.

Among things federal agents were searching for was any possible link between Mr. Murtha's powerful seat on Defense Appropriations and the sudden success of Kuchera.

The firm started in 1985 as a two-man operation by the brothers and burst into prominence in the Johnstown region after landing multimillion dollar subcontracts with giant defense firms, such as Raytheon, that located there at the behest of Mr. Murtha.

Mr. Murtha's interest in the firm is underscored in an April 28, 2006, e-mail sent by Karl Harris, director of the Electro Optics Lab of Pennsylvania State University. The lab has been a major project of Mr. Murtha, whose portrait once hung in the lobby of its building in Armstrong County.

"I have been told to help Bill Kuchera for nearly two years," Mr. Harris wrote to another EOC employee three years ago. "Mark Critz [a Murtha district aide] may not have been aware of that -- it came directly from Mr. Murtha ... ."

In an interview last week, Mr. Harris said the e-mail was "in error" and that he did not receive direct requests from Mr. Murtha to help Kuchera.

Two years earlier, Mr. Harris had advised a Navy project manager to reconfigure a federal money line intended for research on electric crystals to include $500,000 to support a Kuchera project to develop a robotic inspection vehicle for use in the Middle East.

Another $200,000 from the same line of funding was assigned to a joint venture between Kuchera and Iron Bay, a Wheeling, W.Va.- based model airplane manufacturer, to develop an unmanned surveillance airplane.

The $700,000 total was more than the money that actually reached the prime bidder for the funding line, Piezo Partners, of Pullman, Wash. That company was designated to receive $400,000 for a crystal development project, but later halted its involvement.