Companies say they don't bear sole blame for high-cost weapons. Usual way of pricing won't wash in defense, some add

Defense contractors are under siege. Pilloried by Congress and scolded by the Pentagon, they are in essence hiding under their desks, waiting for the criticism to pass.

They admit they have made mistakes. But a wide range of weaponsmakers complain that their companies are scapegoats, the easy ones to blame for defense procurement problems.

``We have in the Pentagon a group of people who have discovered it is very useful to be contractor-bashers,'' says Weyman Jones, a Grumman Corporation vice-president.

In recent weeks the expos'es of contractor activities have seemed endless. General Electric Company billed the government for missile work that was never done; other companies charged to the United States overhead costs that included $10,000 for executive haircuts and $12,000 for a paper-airplane contest; General Dynamics gave now-retired Adm. Hyman Rickover such gifts as jewelry and a plastic-laminated $20 bill.

The now-famous defense executive's dog that was boarded at government expense has been the subject of jokes on Johnny Carson and a profile in the New York Post.

At one point a Pentagon spokesman described the testimony of a General Dynamics official as ``nauseating.'' If anything, Congress has been less kind in its rhetoric. Last week, senator after senator denounced contractor greed during the debate over the Defense Department authorization bill.

For the most part, contractors have responded to this criticism by hunkering down and trying to make themselves as small a target as possible. With large chunks of their business at stake, say industry sources, they are not eager to publicly defend even those actions they feel are defensible.

Boeing Corporation, for instance, recently put together a one-hour briefing on why it proposed charging the Air Force $2,548 (later reduced to $80) for a pair of pliers. It offered the briefing to interested members of Congress, but declined to show it to interested members of the press.

Company officials are still reluctant to talk about the briefing on the record. Why? ``We're very reluctant to do anything that appears to point fingers'' at the Pentagon, says a Boeing spokesman.

In other words, Boeing views government requirements as a main cause of high-priced military equipment. Much of the pliers' $2,548 price stemmed from the way management-support costs for a 66-item parts kit were allocated. In addition, each pair of pliers required several hours of hand labor to meet military specifications.

So, while members of Congress consider high-priced parts outrageous examples of what Sen. David Pryor (D) of Arkansas calls ``war profiteering in peacetime,'' to the industry they are something else. ``Accounting anomalies,'' says a defense industry lobbyist who asked not to be named.

Congress and the Pentagon are also upset about the expense accounts that contractors submit for government reimbursement. It is problems with these ``overhead costs'' that have led in recent weeks to cancellation of Navy contracts with General Dynamics and suspension of certain Army payments to Hughes Helicopter Inc.

Contractors admit they've made mistakes in this area. They say the Pentagon needs to clarify exactly what is and isn't allowable. ``I don't know any way to justify giving diamond earrings to Admiral Rickover's wife,'' says Grumman vice-president Jones.

But they also say that many of the charges that are considered outrageous when billed to the Pentagon are considered normal in private business.

``In free enterprise, it's good business practice to entertain your customer . . . and put the cost of it in your product price. In defense work that's considered illegal,'' Boeing vice-chairman Malcolm Stamper said in a speech last week.

Defense contractors are simply going to have to learn to live with the fact that ``free enterprise and defense contracting are not one and the same,'' Mr. Stamper told members of the Aerospace Industries Association.

Still, a number of defense contractors are not pleased with some of the military procurement reforms now pending in Congress.

In particular, efforts by Congress to write into law what overhead charges aren't allowable amount to needless ``micromanagement,'' says John Stocker, a vice-president of the Shipbuilders Council of America.

Mr. Stocker says the US may well need to reexamine what sort of things it allows contractors to put on their expense accounts. But he says that Pentagon officials, with a much greater knowledge of the procurement system, are the ones who should make this reexamination -- as indeed they already are. -- 30 --

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