Running Critical: THE SILENT WAR, RICKOVER, AND GENERAL DYNAMICS by Patrick Tyler (Harper & Row: $19.95; 364 pp.)

Perhaps nothing has so sapped the momentum of President Reagan’s planned military build-up as the recurring procurement horror stories: $640 toilet seats, $982 nylon stool caps, and $9,606 allen wrenches. But these examples are really minor excesses in a defense purchasing system so distorted by greed, politics and incompetence that it threatens both the nation’s security and its solvency. And it is perhaps the worst case ever--the de facto billion-dollar bailout of General Dynamics--that Washington Post reporter Patrick Tyler covers, in riveting detail, in “Running Critical.”

In 1968, Adm. Hyman Rickover brilliantly used congressional fears of Soviet naval superiority to force a new 688-class, fast-attack submarine on his nominal civilian bosses. The project was the Promised Land for a defense contractor, and, with $10 billion worth of business dangling in front of him, all General Dynamics CEO “David Lewis could think about was doing what was necessary to make it come to pass,” writes Tyler, including making a bid so low that it was opposed by the maritime division comptroller as financial suicide.

The second of two 688 contracts were awarded to General Dynamics in November, 1973, and within a year, shipyard officials estimated a $100 million overrun on the submarines. By the end of 1974, the comptroller figured a likely loss of $800 million, but Lewis did not--could not--acknowledge such numbers. For public disclosure “would have devastated and perhaps bankrupted General Dynamics,” explains Tyler.

So Lewis pursued a dual strategy of confrontation and deception. General Dynamics blamed the Navy for the company’s difficulties, filing one claim after another, including a demand for $544 million, the largest overrun charge ever. Lewis simultaneously kept the increasingly disastrous financial news, with the estimated loss climbing to $1.5 billion, from the Pentagon, the public and even his own board.

Tyler spins a wonderful tale as he relates the deadly serious game of chicken played by General Dynamics and the government. When the Navy Claims Settlement Board was preparing to offer the firm a bare $13 million, Lewis desperately lobbied Assistant Secretary of the Navy Edward Hidalgo to block any official board “finding,” lest General Dynamics be forced to write off its claim as a loss. Lewis eventually threatened to close down production of the 688s and disrupt work on the new missile-carrying Tridents if he didn’t get more money.

The Carter Administration caved in, and Hidalgo literally seized the board’s files. He then went to Congress for a bailout, effectively nullifying the contracts that had been so eagerly signed by General Dynamics and turning the firm’s problem into the taxpayers’ problem. “As a negotiating strategy, it was simple and practical,” observes Tyler, but “as a matter of public policy, it was indefensible.”

In the end, Congress gave General Dynamics $359 million, plus a $300 million advance payment under the rest of the contract and a promise to cover half of any future overruns up to $100 million. Counting tax benefits from the firm’s unreimbursed loss and interest on the government’s advance, the Carter Administration settled a $544 million bill--of virtually no validity--for roughly $1 billion.

While describing the political machinations of General Dynamics and the government, Tyler also details a host of fascinating subsidiary stories, including the bitter private war between Rickover and shipyard director P. Takis Veliotis.

In the end, almost everyone lost, including, most importantly, the American people. Not only did they spend a billion dollars to indemnify General Dynamics for its mismanagement, but they received a faulty product. For the 688 submarine ended up a compromise creation, with neither the speed nor diving capability required to effectively protect American carrier groups in a conflict.

Tyler has produced a truly important book, one that simultaneously informs and enthralls. It demands action by those responsible for this nation’s defense.