An administrative crisis at the Pentagon’s main business office in Los Angeles has prompted an unusual protest this week in Washington by aerospace contractors, who say they are not being paid for their defense contracts.
Many smaller companies say they are being driven to virtual insolvency by the crisis. Larger prime contractors have had to increase their borrowing by millions of dollars to offset the unpaid bills.
The problems are occurring at the Los Angeles regional headquarters of the Defense Contract Administration Service, a Department of Defense agency that is responsible for paying contractors in nine Western states.
A delegation of industry officials, including representatives from Hughes Aircraft, Northrop and RAND, met in Washington this week with Defense Department bureaucrats to raise objections about the serious delays in payments. Senior Defense Department officials pledged Tuesday to consider hiring a Big Eight accounting firm to resolve the snafus at the Los Angeles DCAS office, industry officials said.
A DCAS spokesman said the problems are 80% resolved and that many of the contractors are “all wet” in their allegations. But executives of major firms and sole proprietors of small businesses say that there has been little if any improvement.
RAND, a think tank in Santa Monica that depends heavily on Pentagon contracts, has had to double its line of credit to cover unpaid bills by the Defense Department.
“It costs us $100,000 per month in additional interest, and that is not reimbursable by the government,” said Robert Judson, RAND’s director of contracts, who attended the meeting in Washington. “We are a nonprofit corporation.”
“We are in a payment situation as bad as we have ever been in,” Judson said. “Things are getting worse. One of the big issues is the disconnect of reality between what is actually going on and what is being reported to headquarters.”
The problem is far worse for small companies that lack the financial resources to weather the crisis or to fly to Washington to protest. International Marine Engineering in Long Beach, for example, may have to close up shop because of past due invoices, according to the company’s owner, Marvin Chappel.
Glo-Ed Inc., a small Southern California computer supplier, has been waiting months for a $225,000 check from DCAS, according to the company’s Jerry Edgar.
“We got a call from the Air Force saying they were in dire need of data cartridges for their spy planes and to please ship them without a contract,” Edgar said. “We did that--but now we can’t get paid.”
The DCAS office in Los Angeles is run by Air Force Brig. Gen. John Serur, who has declined repeated requests by The Times for an interview during the past year. Serur has also refused to meet with contractors who are pleading to get paid.
“He will not talk to a contractor,” Judson said. “He is either in a meeting or on the telephone. We have hand-carried documents there, and Gen. Serur would not give us 15 minutes of his time. Our situation is desperate.”
RAND is not alone in saying that DCAS officials are often indifferent to their payment problems. Donna Winter, owner of Technical Research Associates in Camarillo, has been trying to collect bills from DCAS. She said she has often been disconnected when she has telephoned the agency. DCAS has a special customer assistance line, but disconnects and long waits are not unusual, she said.
To help resolve the problems, Defense Department officials pledged at a meeting Tuesday to conduct a hearing in Los Angeles to look into the nonpayment problem. They also agreed to consider hiring a Big Eight accounting firm to assist the Los Angeles office in resolving the problems.
But after the meeting, industry officials were less than certain that enough would be done because, they said, they doubt that Washington officials know enough about what is going on in Los Angeles. William Cassell, comptroller of the Defense Logistics Agency, DCAS’ parent organization, characterized the meeting as friendly, according to an agency spokesman.
During the meeting, Cassell also cited statistics that indicated an 80% reduction in late payments by DCAS in Los Angeles.
One device that DCAS has apparently used to cut its backlog of unpaid invoices is to reject or lose paper work and demand that contractors resubmit their requests. That resets the clock to zero and makes it look as though DCAS has cleared up its backlog of unpaid bills, even though the invoices are still unpaid.
For example, RAND has submitted the same documents as many as three or four times and has made more than 100 total resubmissions of documents in only the past 2 1/2 months, Judson said.
“We are bordering on administrative gridlock,” he said. “It is pretty grim.”
RAND has written 13 letters to Serur and has not received a response, Judson said. “That is outrageous in the protocol of government,” the RAND official added.
The Pentagon hopes to resolve the entire DCAS problem within two months by creating a new payment center in Columbus, Ohio, that was announced last month. It will take over first from the Los Angeles office but later also from other DCAS regional offices around the country.
However, industry officials are worried that such a large, centralized bureaucracy will be even less responsive to local problems.
Moreover, the transfer of payment responsibilities to Columbus on May 1 is expected to create additional confusion. DCAS has reportedly hired only 150 people for about 2,600 jobs at the Columbus payment center.
A treasurer of a major Los Angeles aerospace firm also said he is worried about a DCAS plan to send all of its payment records to Columbus by truck. “How many days will that take?” he asked.
Forrest Flewellen, a public affairs officer for the new Columbus payment center, said concerns about the facility, which will occupy a former aircraft plant, are unwarranted.
“This is not out in some hangar,” he said. “We are using office complexes. They have magnificent entryways and hallways. We are taking pictures of the offices and will send them out” to Los Angeles.