$244 Million Overcharges Tied to General Dynamics

A monthlong study by Pentagon auditors of General Dynamics Corp.’s records shows that the nation’s largest defense contractor has overcharged the government $244 million through improper billing for administrative costs, the Defense Department said Thursday.

The special audit followed a decision by Defense Secretary Caspar W. Weinberger on March 5 to suspend all payments to General Dynamics until government investigators could review allegations that the firm had consistently billed the Defense Department for improper overhead expenses.

Meanwhile, Deputy Defense Secretary William H. Taft IV said on Capitol Hill that all of the nation’s top 30 defense contractors are being subjected to special audits of overhead expenses. Taft disclosed the audits to reporters after telling the House Armed Services procurement subcommittee that all Pentagon contractors “had better make sure those (overhead) costs are allowable.”

In cases where outright fraud can be shown, “we intend to put people in jail,” Taft testified.

Nearly half the total discovered in the General Dynamics audit, or about $120 million, comprises expense claims not yet paid by the Pentagon, Defense Dept. spokesman Michael I. Burch said.

The department is still debating how it will recover the remaining $124 million already paid to General Dynamics, but officials are considering either a demand for full repayment or continuing to withhold scheduled payments for overhead expenses as directed by Weinberger last month, Burch said.

The $244 million total in improper charges includes $90 million originally challenged by Pentagon auditors before Weinberger imposed his freeze, the Pentagon spokesman indicated.

General Dynamics said it had received no notification from the Pentagon of the audit findings. In a statement, the firm said that it had “no idea of the origin of the figures quoted in the press briefing nor the period covered by the audit” though Burch said auditors reviewed General Dynamics billings as far back as 1973.

Pentagon officials noted in suspending payments to General Dynamics last month that company officials admitted to Congress that they had mistakenly billed the government for such unauthorized expenses as advertising, entertainment, country club fees and, in one instance, the boarding of an executive’s dog in a kennel.

Shortly after those disclosures, which Burch had described as “nauseating,” Weinberger announced that he was freezing all overhead payments to General Dynamics for at least 30 days and ordering “a complete and comprehensive review of billing procedures at all General Dynamics locations.”

Abandoning Some Claims

General Dynamics chairman David S. Lewis subsequently told the oversight subcommittee of the House Energy and Commerce Committee that his company was voluntarily abandoning $23 million in previously submitted claims that he had decided were questionable.

General Dynamics, which has its headquarters in St. Louis and has three of its divisions in San Diego, was awarded $6.8 billion in government contracts in fiscal 1983. The company manufactures Trident missile-firing submarines, F-16 jet fighters, Tomahawk cruise missiles, Army tanks and other weapons.

Burch said that most of the overhead expenses deemed improper by the latest audit involve “technical-type issues,” such as excessive claims for data-processing costs and workman’s compensation.

Payments Could Lift Freeze

If General Dynamics is willing to pay the contested amount pending settlement of any legal challenges, the freeze could be lifted and monthly payments to the firm for legitimate contract work could resume, he said.

If the firm is not willing to do that, Burch said that the Pentagon might consider withholding additional monthly payments as a way of recovering excess payments.

“We’re not going to play a cat-and-mouse game any more, wherein a company submits a wide range of bills and more or less challenges us to find them (in violation),” Burch said.

He said that the 30-day payment freeze ordered by Weinberger had kept General Dynamics from receiving about $30 million in payments thus far. That amount, when added to $90 million withheld previously, “leaves an owed balance of about $124 million,” Burch said. “We will collect that amount.”