Pentagon action against wayward firms too mild for some critics
March was a bad month to be a big Pentagon contractor. With Congress increasingly restive about military spending, the Department of Defense got tough with some of the largest weapons manufacturers in the US. The loudest cracking of DOD's whip came last Friday, when General Electric Corporation was barred from winning new military contracts until questions of fraud in its missile program are resolved. This suspension followed actions against General Dynamics, McDonnell Douglas, and other defense-oriented corporations.Skip to next paragraph
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Both the Pentagon and Congress are struggling to make fundamental reforms in the US defense procurement process. Air Force Secretary Verne Orr acknowledged last week: ``National support for building military strength has been severely battered by public perception that we pay too much for the goods and services we acquire.''
This public perception of the Pentagon as spendthrift has been helped along recently by a number of embarrassing revelations. On the heels of the now-legendary $7,600 Air Force coffee pot came a congressional charge that DOD was buying toilet seats for $640. In late February General Dynamics Corporation admitted it had billed the government for millions of dollars in entertainment expenses.
This last disclosure prompted the first move in the Pentagon's March offensive against contractors. On March 5, Defense Secretary Caspar Weinberger announced he was suspending overhead cost payments to General Dynamics for 30 days.
Shortly thereafter, in an attempt to prevent the US from paying in the future for contractor's chili cook-outs and dog-boarding expenses, the Pentagon tightened billing guidelines. Contractors are now required to swear, under penalty of perjury, that their bills for overhead contain nothing unrelated to contract performance.
The next move by the military involved a similar situation. On March 20, the Navy announced that McDonnell Douglas had received $24 million from the government for legal fees incurred during a private fight with the Northrup Corporation. Navy Secretary John Lehman demanded the money be returned and said he would not pay Northrup for the $23 million in costs it had incurred during the fight.
Then last Friday came DOD's action against General Electric. GE, the the fourth-largest Pentagon contractor in 1983 with $4.5 billion in contracts, has been indicted by a federal grand jury in Philadelphia on charges that it billed the government for $800,000 in work on missile warheads that was never done.
GE cannot have any new Pentagon business until these criminal charges are resolved -- or until Air Force Secretary Orr simply chooses to lift the ban.
The Pentagon also demanded that General Electric and Pratt & Whitney, a division of United Technologies, refund $208 million in what DOD considers to be ``excess profits'' earned on aircraft engine spare parts.
Is this crackdown significant, or a budget-season public relations effort? Pentagon officials say it represents real toughness. They point out, for instance, that the GE case represents the first time a contractor has been so banned.
Critics say much of the contractor campaign amounts to wrist slapping. Sure, they say, General Dynamics has had ``progress payments'' on its overhead costs suspended for a month. But progress payments represent only around 10 percent of General Dynamics's bill to the military. Millions of dollars in other payments from the Pentagon are still rolling in.
``Hogwash and cosmetics,'' said US Rep. Jack Brooks (D) of Texas about the Pentagon crackdown earlier this month.
When Mr. Weinberger assumed the post of defense secretary back in 1981, he said that one of his top priorities was a thorough reform in the Pentagon acquisition process.
Since then, says the fiscal 1986 DOD report to Congress, the use of fixed-price contracts and independent cost estimates has increased.
New multiyear contracts, which cut down on per-unit costs, saved $1 billion last year, the report says. Expanded competition for contracts in 1984 saved enough to renovate the battleship USS Missouri.
But still the abuses surface. Reforming military procurement, say many experts, is about as easy as using a rowboat to tow a battleship out to sea.
``Weinberger wants to get tough. But he has to deal with thousands of contracts that have already been let,'' says a Pentagon official.
Congress, under increasing political pressure to cut the military budget, may consider further defense procurement initiatives of its own.
A bill introduced last week by Sen. Dan Quayle (R) of Indiana, chairman of a subcommittee on defense acquisition policy, would require the Pentagon to have, whenever possible, multiple production sources for major weapons.
In addition, Senator Quayle's proposed Defense Procurement Act would require the DOD to determine what major weapons systems should cost before contracts are let and would mandate higher educational standards for military acquisition program managers.
Senate Armed Services Committee chairman Barry Goldwater (R) of Arizona backs the legislation, meaning that it may well be folded into this year's big defense authorization bill.