General Dynamics under Pentagon's gun again. Indictment of 4 executives is latest of company's contract troubles
General Dynamics is in trouble once again. In the past year, the company has been accused of padding its federally paid expense accounts and of purloining classified government budget documents. It may lose some lucrative Trident submarine business. And now, it has been indicted for fraud in a contract competition it lost anyway.
The latest controversy, centering on the recently canceled DIVAD (division air defense) antiaircraft gun, shows how complicated bookkeeping sleight of hand can be in the defense business. It involves small accounts that can be easily abused and turned into ``slush funds,'' according to Gordon Adams, a defense expert at the Center on Budget and Policy Priorities, a Washington-based public-policy research group.
Basically, National Aeronautics and Space Administration chief James M. Beggs (a former General Dynamics vice-president and director) and three other General Dynamics employees are accused of hiding a $7.5 million cost overrun on a $40 million contract to develop two DIVAD prototypes. They allegedly accomplished this by taking the overrun, which the government would not have paid for, and charging it off to two other accounts.
One of the hiding places was an account that keeps track of weapons-related research and development. The other totes up costs involved in preparing bids for Defense Department contracts.
The US government reimburses all large defense contractors for these categories of expenses, on the theory that it helps maintain a strong US military-industrial base. By one estimate, the company R&D account in the Pentagon's books costs the agency about $2 billion a year.
But the accounts in question are dandy places to hide questionable charges, say several weapon procurement analysts. They involve relatively small change, and receive cursory, late government scrutiny.
``These are just accounts which are not designed to have lots of oversight,'' says Steve Daggett, an analyst at the Center for Defense Information.
The accounts involved here are not the same as those that contained the questionable overhead payments, such as kennel charges and country-club memberships -- that made so much news earlier this year. General Dynamics was involved in the overhead controversy -- a dog belonging to one of the company's executives ran up the kennel bill in question. But the DIVAD indictment involves charges that, if true, are a more clear-cut case of criminal activity than the overhead fudging, say procurement specialists.
The DIVAD case apparently began with the Pentagon. ``A regular Defense Contract Audit Agency audit uncovered it,'' says a Department of Defense official, who asked not to be named.
The case was then turned over to a joint Defense Department-Justice Department team for prosecution. The indictment, naming the four current or former company officials and General Dynamics itself, was handed down Monday by a federal grand jury in Los Angeles.
Through September, the Defense Contract Audit Agency had questioned some $17 billion in contractor bills, according to the Pentagon. ``They do seem to be tracking down more [fraud],'' says Mr. Daggett of CDI.
General Dynamics itself has been the largest US defense contractor over the last decade. Once a model for relatively good relations with the Pentagon, in recent years it has come to symbolize many of the procurement problems that beset the Defense Department.
In the late 1970s, Adm. Hyman Rickover, then head of the Navy's submarine force, charged that General Dynamics was artificially inflating the costs of attack subs. The investigations and lawsuits sparked by this claim have yet to be resolved.
Ironically, last year the Navy concluded that General Dynamics had improperly given Admiral Rickover some $67,000 in gifts over the course of their relationship.
In the fall of 1983, P. Takis Veliotis, head of General Dynamics' marine division, was indicted for allegedly receiving kickbacks on ship contracts. Mr. Veliotis fled the US, claiming he was a bystander to a companywide sub fraud effort.
Last October, George Sawyer, General Dynamics vice-president in charge of land programs, was also indicted. Mr. Sawyer was charged with illegally having job discussions with General Dynamics officials when he as an assistant Navy secretary.
Also this fall, the Defense Investigative Service lifted the security clearance of General Dynamics' Washington office, charging it had illegal possession of classified Pentagon budget memorandums.
And the Navy now wants Newport News Ship-building to compete with General Dynamics for Trident submarine contracts. Currently, General Dynamics is the only US company capable of building the big subs; Newport News may be offered a multisub contract, however, in an effort to introduce competition into the multibillion-dollar program.