Justice Department Says Pentagon Was Defrauded on Sgt. York Gun : General Dynamics Sued Over Mischarges
The Justice Department sued General Dynamics on Wednesday for defrauding the government, alleging that the firm’s Pomona division mischarged the Pentagon by millions of dollars during 1979 and 1980 on a contract to build a prototype anti-aircraft gun.
The suit, which is likely to be among the largest civil suits in history against a major defense contractor, is an outgrowth of criminal indictments handed down last December against four current or former General Dynamics officials. The legal actions spring from allegations that General Dynamics and its executives shifted cost overruns from a fixed-price contract on the Sgt. York gun to various overhead accounts that are reimbursed by the government.
Although the civil suit, which was filed in U.S. District Court in Los Angeles, does not ask for specific monetary damages, the related criminal suit last December said that the mischarges amounted to $3.2 million.
A Justice Department source said the civil damages are likely to exceed that amount. That’s because the government is bringing some of the charges under the False Claims Act, which provides double damages and a $2,000 civil fine for each false claim. Assistant Atty. Gen. Richard K. Willard said the civil suit also seeks damages under common law covering fraud, breach of contract, unjust enrichment and payment by mistake.
General Dynamics spokesman Peter Connolly said: “We think, when all the facts are presented, the cases will be resolved in the company’s favor.”
Connolly said that three current General Dynamics executives under criminal indictment are on paid leave of absence to prepare their defense. James Beggs, who was head of the Pomona division during the alleged misconduct and who recently resigned as chief of the National Aeronautics and Space Administration, is preparing his own defense, Connolly said.
The earlier criminal indictment alleged that the four individuals conspired to hide nearly $7 million of cost overruns in 1978 and $6 million in 1979 on the development of the Sgt. York system. By “fraudulently mischarging” the Army, the company was able to cut its non-reimbursable losses by $3.2 million, according to U.S. Atty. Robert Bonner.
The civil suit is the first legal salvo against General Dynamics. The firm, the nation’s second-largest weapons contractor in 1985, has been the subject of more than half a dozen federal and congressional investigations over the past three years on alleged infractions such as its officers accepting bribes, income tax evasion, stock market manipulation and overcharging the government on submarines, aircraft and missiles.
The Sgt. York was a radar- and computer-controlled anti-aircraft gun that was mounted on an armored tank. General Dynamics held a $39-million contract to produce two prototype units in competition with Ford Aerospace & Communications. Ford eventually won the program, but it was canceled last year by Defense Secretary Caspar W. Weinberger, who said the gun performed inadequately in tests.
Allegedly Shifted Costs
The charges filed Wednesday allege that General Dynamics obtained payments that it was not entitled to by shifting costs from its $39-million fixed-price development contract on the Sgt. York to one of three other accounts--independent research and development, bid and proposal and general and administrative overhead.
Typically, the government reimburses defense firms for costs that they incur in the general conduct of defense business in addition to costs under specific contracts. The civil suit charges that in 1979 and 1980, General Dynamics inflated its independent research and development and its bid and proposal accounts with costs from the Sgt. York program.
The submission of the allegedly false claims to the bid and proposal and research and development accounts caused those two accounts to be inflated in subsequent years, further adding to costs in 1981 and 1982, the suit contends.
General Dynamics also submitted Sgt. York costs to its general and administrative overhead account in 1980. All of the mischarges also resulted in an increase in indirect expense on all of its government contracts, the suit says.
