U.S. Contracts Barred for General Dynamics : Ban Comes After Officials Are Accused of Fraud; Indicted NASA Chief to Take Leave of Absence

One day after three executives and a former top official of General Dynamics Corp. were indicted for alleged contract fraud, the Navy barred the giant defense supplier Tuesday from obtaining new contracts from the entire federal government.

A Reagan Administration official said that the former General Dynamics executive--James M. Beggs, now head of the National Aeronautics and Space Administration--has decided to take a leave of absence as director of the nation’s space program. NASA initially said he would not leave his post but the White House pressured him to step aside, at least temporarily.

Could Last Short Time

Under the Navy’s decision, made for the government in its role as executive agent for Pentagon contracts with General Dynamics, the company will not be allowed to sign new contracts or renew or extend existing ones with any federal agency until disposal of the indictment. A Navy spokesman said the suspension could last for only a short time if the indictment ends in a prompt dismissal or plea-bargaining arrangement--or for several years if a trial is followed by appeals.

Peter Connolly, a spokesman at General Dynamics headquarters in St. Louis, read a company statement that said: “We believe the Navy’s action against the company is inappropriate since the issues in the case should not have resulted in indictment against the company or its people.

“The company’s actions challenged in the indictment involve highly sophisticated regulatory and accounting matters. Any differing interpretation of these matters should have been resolved in a civil forum such as the Armed Services Board of Contract Appeals. Had this been done, we doubt that the government’s position should have prevailed.”

Connolly refused to respond to questions.

A Navy spokesman said the suspension could delay production of some Los Angeles-class nuclear submarines, one of the major weapon systems produced by General Dynamics.

But the official, speaking on condition that he not be named, made it clear that the Navy would delay final decisions on the contracts until the company has been reinstated rather than automatically awarding them to the nation’s only other major submarine builder, Newport News Shipbuilding and Dry Dock Co.

“You don’t want to eliminate competition,” he said. “You can’t cut off your nose to spite your face.”

In addition to these submarines, the company builds Trident submarines, F-16 jet fighters, M-1 tanks and Tomahawk missiles. Thus the suspension “could have a substantial impact,” said Capt. Jimmie B. Finkelstein, a Navy spokesman. But another Navy official said that final contract decisions on the next Trident submarine are eight to nine months away.

Exceeds Punishment

The suspension goes considerably beyond punishment meted out to the company for three months beginning last May, when the Navy froze pending contracts at two General Dynamics divisions until the company reformed contracting policies and practices.

General Dynamics was given 30 days to appeal the new suspension, which was signed by Everett Pyatt, assistant Navy secretary for shipbuilding and logistics.

Until Tuesday’s suspension, the company had been having a banner year with the government.

The Washington Analysis Corp., which tracks military contracts, said that General Dynamics had been awarded $6.6 billion in Pentagon business through October, more than doubling its military work over the same period in 1984 and making it the leader in military contracts.

The company reported that about seven-eighths of its business was with the government in the year ending Sept. 30.

Seven-Count Indictment

The seven-count indictment, issued by a federal grand jury in Los Angeles Monday, charges that Beggs took part in the alleged conspiracy while he was an executive vice president of the company before joining the Administration in 1981. Also indicted were Ralph E. Hawes, general manager of the Valley Systems Division in Cucamonga; David L. McPherson, vice president for research and engineering at the Valley Systems Division, and James C. Hansen Jr., who directs the company’s Stinger missile program.

The indictment charges them with conspiring to defraud the Defense Department of $3.2 million in a government contract to build prototypes of the tank-mounted anti-aircraft weapon known as the Sgt. York Division Air Defense (DIVAD) gun. Production of the weapon eventually was assigned to the Ford Aerospace & Communications Corp. before Defense Secretary Caspar W. Weinberger halted the project in August.

U.S. Atty. Robert C. Bonner, who announced the indictments, said Monday that the General Dynamics officials illegally juggled company financial records to recoup millions of dollars in non-reimbursable cost overruns.

While the company’s Pomona Division was responsible for work on the Sgt. York, the suspension was applied to the entire corporation, a Navy spokesman said, because “the indictment is evidence that the corporation failed in its management responsibilities.”

Although there was no formal announcement about Beggs’ future at NASA, an Administration official said he would take a leave of absence. In a statement widely interpreted as pressuring him to step down at least temporarily, White House spokesman Larry Speakes told reporters that President Reagan “believes Mr. Beggs will do the right and proper thing as far as his government service is concerned. Whether it is to continue or not to continue--whatever he does, in our view, will be the right and proper thing.”

A White House political adviser saw few political ramifications from the indictment of Beggs, who had few political ties to the President and whose agency is not closely tied to policies that are at the heart of the Administration.

William R. Graham, deputy administrator of NASA, is expected to take over as acting administrator.

Times staff writer Eleanor Clift contributed to this story.