Defense contractors under assault from Washington reformers
Defense contractors are not popular people in Washington these days. Increasingly bitter and personal charges of contractor greed are being heard on Capitol Hill. With fanfare, the administration has tried to crack down on certain abuses of the defense procurement system. But critics doubt any real progress has yet been made.Skip to next paragraph
Subscribe Today to the Monitor
Anti-contractor charges are targeted not just against the industry or particular companies, but specific executives.
Department of Defense Inspector General Joseph Sherick has recommended that two General Dynamics officials -- David Lewis, chairman, and Gordon MacDonald, chief financial officer -- be suspended from further business with the Pentagon.
Mr. Lewis has come under increasing congressional fire for his role in defending General Dynamics bills for overhead to the government. If the Pentagon suspends Lewis and Mr. MacDonald, they would face great pressure to resign because their company's huge government contracts would grind to a halt.
``I'm not sure [General Dynamics] stockholders would stand still very long for no revenue coming in and their investments being put at risk,'' said Pentagon spokesman Michael Burch on May 7.
For their part, the General Dynamics executives threaten to fight any action with a battalion of lawyers.
Among other publicized government actions against contractors:
The Pentagon is investigating 45 of the 100 largest defense contractors for various sorts of wrongdoing, according to Defense Department officials.
House Armed Services subcommittees are auditing bills for overhead from seven major contractors. An interim report on the audit charged the firms had made $110 million in ``questionable'' overhead claims.
The Pentagon is reducing its ``progress payments'' to contractors, beginning this month. Such payments are made so that companies can reduce the amount of money they must borrow to tool up for large weapons systems. The change will save $2 billion over a year, the Defense Department estimates.
The US way of purchasing weapons is complicated, full of side-streets and detours, and there is yet no real indication of the effects of this year's actions. To critics, all is bluster and minor regulation.
They point to General Electric as an example. In March, GE was banned from bidding for new government business after it was indicted for fraudulent billing on missile production. In April, Air Force Secretary Verne Orr said GE had instituted reforms, and lifted the ban for all but the division in question, Space Systems.
In late April, GE was awarded $177 million in contracts for aircraft engine spare parts. The Air Force needed the spares, of which GE is a prime producer.
The Pentagon's efforts to police contractor overhead charges -- which have included such things as executive haircuts and kennel charges -- have so far had little substance and much confusion, say critics. Corporations have forced the Defense Department to alter requirements for industry executives to certify overhead charges as valid, in writing.
``The proposal has kept getting watered down, changed the way we'd like,'' says a defense industry trade association executive.
Ironically, one of the men responsible for the crackdown on questionable defense procurement practices is headed for jail. On May 8, former deputy defense secretary Paul Thayer was sentenced to four years in prison after being convicted for crimes connected with insider stock trading.
Thayer had promise as a defense procurement reformer until felled by his past, point out Washington observers. In June of 1983 he told a group of contractors that he knew from personal experience they could cut 10 to 30 percent from the cost of weapons, by making them right the first time. He tussled with Navy Secretary John F. Lehman Jr. over the expensive F-18 fighter program.
``Thayer had possibilities. The guy wanted to do something about this mess,'' says Gordon Adams, defense project director at the Center on Budget and Policy Priorities.