Adm. Hyman G. Rickover yesterday renewed his attack on the Navy's shipbuilders, accusing the owners of the nation's two submarine yards of operating a "ruthless money-making scheme" that takes unearned hundreds of millions of dollars from the taxpayers while misleading their stockholders.
General Dynamics Corp. and Tenneco Inc. "have learned that they can get away with it," he told a generally admiring House Appropriations subcommittee.
The result for shipbuilders is a government-created environment that is "conducive to inefficiency," increased federal spending and ultimately a "weakened defense posture," he testified.
The 81-year-old admiral, known as the father of the nuclear submarine, was particularly harsh toward General Dynamics, the largest Pentagon contractor and builder of the troubled nuclear-powered Trident sub. "They don't care if they manufacture horse t---s or ships," he said in reply to a question.
Rickover's views, labeled in his prepared statement as not necessarily the Navy's, drew a response from General Dynamics. "We have no comment to make on what has become [his] annual presentation of arbituary, biased and inaccurate charges," a spokesman said.
To provide some yardstick for shipbuilding costs before the administration proceeds with its planned fleet expansion, Rickover urged Congress to resume construction of nuclear attack submarines in a naval shipyard and to consider buying essential shipyards, such as General Dynamics' Electric Boat division in Groton, Conn., and paying contractors flat fees to manage them.
Electric Boat is the only builder of Trident strategic ballistic-missile submarines but shares construction of nuclear attack boats with Tenneco's Newport News Shipbuilding & Dry Dock subsidiary in Virginia.
"I wouldn't give those so-and-sos [Electic Boat] any more contracts" until General Dynamics straightens out a management "mess" in Groton, Rickover said.
He praised Newport News as "by far the more efficient," saying that it built five attack boats for $98 million each, compared with Electric Boat's $148 million. Now, despite the inflationary disadvantage of getting contracts for five more boats two to four years later than Electric Boat's corresponding awards, Newport News' projected final unit cost will average $25 million under Electric Boat's, he said.
Electric Boat's performance, including defective welds, deeply troubled Navy Secretary John Lehman. In March, saying his action was "essential to the national defense," he transferred a procurement of three attack boats from it to Newport News. In turn, Electric Boat put heavy blame on the Navy. Yesterday, Rickover said the Navy was responsible for only about 10 percent of the extra costs claimed by the yard.
In addition, Rickover said, the General Dynamics subsidiary delivered its sixth attack submarine four years late, while Tenneco delivered its sixth boat only eight months late.
Once, he said, Electric Boat sought $2 million and a two-week extension in the first Trident's delivery date simply for installing a wire cable to prevent a hatch door from falling.
The gist of the admiral's most serious charges against General Dynamics was this:
It repeatly subverts competition with its more efficient rival by submitting "excessively optimistic" bids justified with optimistic forecasts of improvements in productivity. Once the Navy accepts the "buy-in" bids, "a battery of company laywers" with no other mission begins to prepare claims on the Navy so as to inflate ultimate prices and profits to desired levels.
His personally chosen staff of technical experts spends so much time dealing with claims unfairly blaming the Navy that the Naval Nuclear Propulsion Program "has become a claims agency," Rickover said.
He charged that "unsettled claims have been invaluable to shipbuilders and their parent conglomerates as a way to manipulate profit figures" and "cover up potential losses" from stockholders.
For example, he said, the $103 million record profit reported by General Dynamics for 1977 presumed that the Navy would pay every cent of an expected $840 million Electric Boat overrun. But the parent would have reported a loss if it had admitted responsibility for only 13 percent of the overrun, he said. Just a few months later, he said, General Dynamics reached a settlement with the Navy under which it "had to write off and report to stockholders immediately a $359 million loss."
"From a contractor's viewpoint," Rickover said, "it often pays to submit a claim even if he has no case whatsoever. Chances are that he will get a settlement that will more than take care of his expenses."