THE JUSTICE Department took a lot of heat when it announced earlier this year that it was dropping a highly publicized fraud indictment against General Dynamics and several officials, including James Beggs, who had gone on to become NASA administrator and then been forced by the indictment to resign. The good news -- that an agency was willing to admit a mistake -- was dwarfed by the bad -- that it could have made so huge a mistake in the first place. Mr. Beggs in particular seemed a victim of a terrible injustice.

Now the department has moved to shift a portion of the blame. What prosecutors first regarded as criminal fraud turned out not to be, Assistant Attorney General William Weld has testified, because the Pentagon itself helped perpetrate it. A contractor can hardly be said to be defrauding an agency that happily aids in the process complained of. So it was here, said Mr. Weld, the chief of the criminal division.

The indictment said General Dynamics had agreed to produce two anti-aircraft gun prototypes for $39 million, had then had a cost overrun and charged some of it off to other accounts. But further review of the matter made clear that 1) the Army, or at least some Army officials, knew that the prototypes would likely cost much more than $39 million, 2) the contract, quite likely for that very reason, only bound General Dynamics to make its "best effort" to produce the prototypes for that amount and 3) the overhead accounts to which a part of the overrun was charged are often used for just such a purpose.

So this was an inflatable contract, and a lot of people knew it. It's an old tradition: you buy in low, then watch as the costs float up. The Pentagon does it to Congress just as contractors do it to the Pentagon. Though everyone denies it, the victims are mostly witting. The Pentagon's only response to Mr. Weld's testimony last week was to say, through a spokesman, "We don't really enter into those types of contracts knowingly."

Mr. Weld is no ranting critic who thinks of the Pentagon as a great factory of waste. He is a senior member of this administration. His testimony is thus all the more remarkable. "In many investigations," he said, "we have found, rather than venal or improper acquiescence on the part of government officials, a merging and mutual reinforcement of interests -- profit motive on the part of defense contractors and a desire to accomplish the mission on the part of the military. Military officials may overlook or ignore infractions by the defense contractor, not because of an evil intent or for personal gain, but because of a belief in the importance that the project or the new technology has to national security. In the absence of fraudulent intent, the resulting overcharges may not be prosecutable or even recoverable."

Of course that's how it works. That's one reason -- one of the more defensible ones -- why Congress spends so much time second-guessing the Pentagon budget each year. They complain all the time over there about meddling and micromanagement, but they also ask for it.