Navy Lifts Suspension of General Dynamics
The Navy on Friday lifted a suspension of General Dynamics that it imposed on the major defense contractor last Dec. 4 in the wake of criminal indictments returned against three executives and a former top official.
It also agreed not to suspend the company again if other criminal indictments result from investigations now under way, provided that General Dynamics is already moving to correct the alleged misdeeds.
As part of the settlement that allows the company to bid on government contracts again, General Dynamics has paid the Pentagon $22 million in previously contested contract charges and has pledged to continue implementing a new corporate ethics program with federal monitors at each company plant, Assistant Navy Secretary Everett Pyatt said.
The company also is establishing a $50-million escrow account to cover “potential liabilities” from other continuing criminal investigations, he said.
Pyatt told a news conference that more criminal indictments are expected against the much-investigated firm even before last December’s case goes to trial.
That case, alleging that the Army was defrauded of $3.2 million on a $39-million contract to build two prototypes of the Sgt. York anti-aircraft gun system, resulted in charges against James M. Beggs, a former officer of the company. Beggs has taken a leave of absence from his post as head of the National Aeronautics and Space Administration.
At least three grand juries nationwide are investigating other activities of General Dynamics, Pyatt said, and the Defense Department is conducting 10 to 15 additional probes, including one aimed at alleged overbilling of labor costs at the firm’s Convair division in San Diego.
Pyatt denied that the Pentagon is “giving immunity” to the corporation by waiving suspension in these cases, and he said Defense Secretary Caspar W. Weinberger had given his blessing to the agreement lifting the suspension.
He added: “Suspension is not a punitive process. It is a process to ensure that (when suspension is lifted) the company is doing business in a way we find acceptable. When changes have been made, why suspend (again)?”
Pyatt stressed, however, that if any indictments for future misconduct reveal fraudulent practices that the Navy and General Dynamics have not dealt with before, the company would not be protected from further suspension.
Skepticism in Congress
In Congress, two leading investigators of military contract fraud immediately expressed skepticism about the agreement.
Rep. John D. Dingell (D-Mich.) said the Pentagon’s “action to forgive General Dynamics of all sins is absolutely outlandish. I thought the sale of indulgences went out with the Reformation.”
Dingell said the action “raises a question as to whether General Dynamics is somehow above the law.”
Sen. William Proxmire (D-Wis.) said: “It sounds to me as if the mutual dependence of the Navy and General Dynamics has led to something like general amnesty.”
Pyatt noted that General Dynamics is under the new leadership of Stanley C. Pace, who became chairman and chief executive on Jan. 1, and that Pace has pledged publicly and privately that he will guarantee future ethical conduct by company officers and workers.
He said the new agreement “looks at the firm as a presently responsible firm we are glad to do business with.”
General Dynamics is expected to be a prime bidder when the Navy calls for work in the next few weeks on a new group of nuclear-powered attack submarines, he said.
General Dynamics greeted the lifting of its suspension with new promises of ethical conduct.
‘We Will Comply Fully’
In a statement from corporate headquarters in St. Louis, Pace said: “We are grateful that, as a result of this action by the Navy, we now are in a position to move ahead on our many vital defense production programs. The provisions involved in lifting the suspension are demanding.
“I can assure the Department of Defense, the Congress and the American public that we will comply fully with these provisions. To meet this obligation, I need and expect the dedicated and wholehearted support of the 100,000 men and women of General Dynamics.”
Over the past two years, General Dynamics has been the target of wide-ranging congressional and Pentagon investigations into alleged overpricing of products, from nuclear submarines to aircraft spare parts.
It has been forced to pay back tens of millions of dollars in improper billings on defense contracts, including “overhead” costs charged to the government such as country club fees and the kennel boarding of an executive’s dog.
