Pentagon Halts Pay on $1 Billion in Contracts : 9 Pacts May Be Tainted by Bribery

The Pentagon is suspending payments on nine Navy contracts worth more than $1.2 billion because they may have been tainted by bribes paid to a Navy official in exchange for inside information, Defense Secretary Frank C. Carlucci said Friday.

Carlucci, in an unambiguous message to the defense industry that contract corruption will not be tolerated, also said the Pentagon would review all contracts with four major defense contractors--Litton Industries Inc. of Beverly Hills, Hazeltine Corp. of Greenlawn, N.Y., Emhart Corp. of Hartford, Conn., and Norden Systems of Norwalk, Conn., a division of United Technologies Corp. of Hartford.

The four firms employed consultants who allegedly bought secret information from a Navy civilian employee, George G. Stone, who was alleged in court documents unsealed Thursday to be the source of numerous confidential documents passed illegally to industry consultants.

Navy Acts to Suspend Him

Carlucci announced that the Navy initiated steps Friday to suspend Stone without pay.

The Navy is also beginning proceedings to bar a subsidiary of Palo Alto-based Varian Associates and two individuals from all future Navy contracts because of their alleged involvement in fraudulent bidding practices.

The subsidiary is Dallas-based Varian Continental Electronics Inc., a supplier of radio and radar transmitters to the military. The individuals are Joe Bradley, an executive of Varian Continental, and Mark C. Saunders, a defense consultant from Alexandria, Va. (Related story in Business.)

Affidavits Released

Carlucci acted a day after the release in Dallas of two search-warrant affidavits detailing how Stone allegedly sold or gave critical bid information to Saunders. According to the affidavit, Saunders then sold it to military suppliers, including Varian Continental.

Until Friday, Carlucci had taken no action on an estimated 85 contracts under scrutiny by federal prosecutors, saying he lacked sufficient evidence. On Friday, however, he said the Dallas warrants gave him the detail he needed.

“This is very much more specific,” Carlucci said. “And wherever we have specific evidence, we will take action. As I have indicated previously, we do not need to await convictions or even trials, for that matter.”

An additional 42 FBI search warrants remain under total seal in the massive Pentagon corruption inquiry. Carlucci said he would act on the information in the documents as they are unsealed.

But Carlucci rejected a suggestion by House Armed Services Committee Chairman Les Aspin (D-Wis.) that he place a blanket freeze on awarding of all Pentagon contracts for six to eight weeks while the investigation unfolds.

“That would damage innocent people as well as potentially guilty people,” Carlucci said. “It would cause disruption and could lead to unemployment, at least temporary unemployment or to closing down production lines. The kind of action we’ve taken today is much more appropriate.”

Charges outlined in the Dallas warrants were built from hundreds of wiretapped conversations, in which Stone, a division head with the Space and Naval Warfare Command, was overheard discussing confidential details of numerous Navy contracts with consultant Saunders.

Fired by Pentagon in 1982

Saunders is a former Navy contract official who was fired by the Pentagon in 1982 after his conviction on charges of using inside Navy information to profit in the stock market. Stone took his place and the two men became close friends, talking often on the telephone and meeting regularly for lunch, according to the search warrant served on Saunders.

In January of this year, Saunders helped Stone move into a new house, the document alleges, and shortly afterward Saunders told a fellow consultant, Thomas Muldoon, that he had “all the important numbers”--including highly confidential bid data--on a $120-million Marine Corps air defense program.

Saunders’ attorney, David P. Towey, said: “I would be opposed to any steps based simply on the release of a search warrant affidavit that would bar Mr. Saunders from having any dealings with the government. That doesn’t seem to me to be very fair. . . . Mr. Saunders is entitled to due process.”

Up to $50 Million a Year

Varian Continental Electronics, the contractor that the Navy is seeking to suspend indefinitely, is estimated by securities analysts to have annual sales of $45 million to $50 million, about half of which is military related. The company would not disclose how much of its military work is done for the Navy.

Gary Simpson, a spokesman for Varian Associates, the parent company, played down the impact of the possible suspension.

“The important thing to remember is that it has almost no effect on existing work,” he said. “What it does is penalize us in our ability to get future contracts for the period of the suspension for Continental.”

‘Specific Policies’

Simpson added: “We have specific policies and procedures that prevent the kind of activity that is alleged in the affidavit that was unsealed. We would be very surprised if the remarks attributed to our employee prove to be accurate and taken in context.”

Among the firms whose contracts will be reviewed by the Defense Department, Emhart was alleged to have received inside information from Muldoon on one contract, a $100-million upgrade of the Navy’s Anti-Submarine Warfare Operation Center. Emhart still lost the contract to TRW Inc.

Company officials said they needed consultants such as Muldoon to steer them through Pentagon procurement procedures. “Realistically, it’s almost impossible to do business with the Pentagon without having an interlocutor,” said John F. Budd, an Emhart senior vice president.

While the company acknowledged no wrongdoing, Budd said of the firm’s one-time employment of Muldoon: “It didn’t work.”

Internal Review

United Technologies, the nation’s eighth-largest defense contractor last year, said it was conducting an internal review of the contracting activities of its Norden Systems division.

In the first known commercial fallout from the Pentagon corruption probe, Norden executives announced Thursday that the unit was withdrawing from consideration for the Marine Corps air traffic system that is under scrutiny by federal investigators.

No employees have been suspended or reassigned, United Technologies spokesman Larry L. Bingaman said Friday. “UT will continue to be guided by what’s right,” he said.

Norden Systems had total sales of $387 million last year, the vast majority of it defense-related work in electronics and rocket and missile propulsion, Bingaman said. The division has about 5,000 employees.

Employed for a Year

Officials of Hazeltine said Friday that the company employed Muldoon as a consultant on Marine Corps procurements for one year ending in November. But they insisted that his efforts did not win the company any of the contracts for which payment was suspended by Carlucci.

Until informed by investigators, the company was unaware that information supplied to it by Muldoon might have been obtained through criminal conduct, a Hazeltine spokesman said.

The firm, a division of St. Louis-based Emerson Electric, said it had been told by federal investigators that neither it nor any of its employees was a target of the procurement probe.

Hazeltine manufactures anti-submarine warfare and communications equipment for the Defense Department.

‘No Official Notification’

A Litton spokesman said that the company had “received no official notification” of the Pentagon action. “We don’t know what the allegations are . . . or the government’s basis for stopping the payments,” the spokesman said.

The FBI alleged in the Dallas search warrants that Stone passed confidential information to Saunders and Muldoon on the nine programs for which Carlucci suspended payments. The programs are:

--A very-low-frequency communications system for ships and aircraft. No contract has yet been awarded for the $6.3-million program.

--The $58-million Tactical Environmental Support System being built by Lockheed Corp. TESS is a computer-based oceanographic mapping system.

--A $120-million Advanced Tactical Air Command Center, an air traffic and battle management program for the Marines. No contract has been awarded yet.

--An anti-submarine electronic display for aircraft carriers. The Navy could not provide the name of the prime contractor for the $38-million program.

--A $150-million portable, digital communications terminal used on the battlefield to transmit data. The prime contractor is Litton’s Data Systems division.

--Bancroft, a radio used in armored vehicles and tanks. No contract has been let for the $30-million program, but Saunders and Muldoon, according to the affidavit, tried to find bidders interested in inside information on the radio that they allegedly received from Stone.

--A $51-million fiber optic cable system used in several Navy radio systems. Bell Atlantic Research & Development is the prime contractor.

--A digital wide-band radio set, providing secure voice and data transmission. The Navy could not provide the name of the prime contractor on the $49-million program.

--A $712-million system of 20 anti-submarine warfare operating centers being built by TRW Inc. and others

Express Surprise

Officials of TRW expressed surprise at the suspension.

“To the best of our knowledge, we are not under investigation,” said Julie Meier Wright, a spokeswoman for TRW’s Space and Defense Sector. She added that the company did not appear to have any relationship to figures so far named in the investigation.

“We have no idea why this action would be taken,” she said.

TRW’s Federal Systems Group of Fairfax, Va., had been awarded a $36.7-million contract last October to begin work on the ASWOC program, Wright said.

SUSPENDED DEFENSE CONTRACTS

The Defense Department is freezing new contract actions on nine military systems worth more than $1 billion. Here is a glance at the systems and some of the contractors involved:

- ASWOC--Anti-Submarine Warfare Operating Center; a system of 20 shore-based command and control centers that support and coordinate anti-submarine warfare efforts; $712 million. TRW Inc., with about a $30-million piece of this program, is the largest of 100 contractors involved.

- DCT--Digital Communications Terminal; a hand-held programmable unit used for composing, editing, transmitting, receiving and displaying messages in conjunction with standard military radios; $150 million. Contract awarded to Litton Industries Data Systems division.

- ATACC--Advanced Tactical Air Command Central; a series of communications terminals and automated work stations; $120 million. Contract not yet awarded.

- TESS--Tactical Environmental Support System; a computer-based oceanographic mapping system; $58 million. Contract awarded to Lockheed Corp.

- FOCS--Fiber Optics Cables; for digital switches and radio equipment; $51 million. Contract awarded to Bell Atlantic Research & Development.

- MRC-139--A digital wide-band radio set providing secure line-of-sight voice and data links; $49 million. Contract information not available.

- UYQ-21--An aviation electronics display unit for carrier anti-submarine warfare; $38 million. Contract information not available.

- Bancroft--A tactical high-frequency single-channel radio for tanks; $30 million. Contract not yet awarded.

- VLF-LF--Very low frequency; low frequency communications systems and related improvements for ships, aircraft and shore facilities; $6.3 million. Contract not yet awarded.

Source: Department of Defense.