Pentagon Halts Payments to Key Contractor

The Pentagon announced Friday it has decided to stop all payments to the General Dynamics Corp. for work on weapons contracts until it recovers the entire $154 million identified in a new audit as excess claims paid out in past years.

Since General Dynamics collects an estimated $700 million a month for the work it performs on various weapons, it will take the Pentagon less than a month to recover the disputed claims.

The Defense Department decision was disclosed in a one-page memorandum issued to reporters late in the day. Phone calls to General Dynamics’ office seeking comment went unanswered.

In its statement, the Pentagon also disclosed that General Dynamics submitted a list of proposed changes in its internal billing procedures last week, and said that even though the money will be recovered in less than a month, the Pentagon is going to continue withholding claims relating to current administrative expenses until certain conditions are met.

Excess Claims

The memorandum follows the disclosure on Thursday that Pentagon auditors had identified $154 million worth of excess overhead claims in a special audit ordered on March 5 by Defense Secretary Caspar W. Weinberger.

Weinberger ordered that audit at the same time he imposed a 30-day suspension on all overhead payments to General Dynamics. Both actions followed congressional testimony during which it was disclosed the firm had submitted claims for such things as the cost of boarding an executive’s dog at a kennel, country club expenses and questionable travel costs.

Spokesman Michael I. Burch, in disclosing the audit results on Thursday, had noted the payment freeze ordered by Weinberger had cost General Dynamics roughly $30 million over the past month. That “leaves an owed balance of $124 million,” Burch said, adding: “We will collect that amount.”

“Under the circumstances,” the memo states, “the department has determined to withhold additional amounts from the contractor pending satisfactory resolution of these open items.

“The total additional amount to be withheld for this purpose is $154 million. The general and administrative expenses withheld over the past 30 days will be netted against this sum. The additional withholding will be made against current billings submitted by the contractor until the total has been reached.”

In the case of General Dynamics, the Pentagon has said the firm normally receives $700 million a month. Of that, roughly $670 million is for work actually performed on new weapons such as Trident submarines, while the remaining $30 million or so is to cover administrative and overhead expenses.

Continue Freeze

Even though it will soon recover the entire disputed $154 million, the Pentagon said it will continue the freeze on administrative payments until certain conditions are met.

General Dynamics must adjust “current billing rates . . . to conform to auditors’ recommended rates.” The company must also “alter its internal management and accounting practices . . . to assure that claims for unallowable costs will not be made.”