Defense Secretary Caspar W. Weinberger yesterday froze for at least 30 days all payments to General Dynamics Corp. for overhead costs -- a figure estimated at $40 million monthly -- while the Pentagon reviews whether the nation's largest defense contractor has improperly billed taxpayers for corporate entertainment and personal expenses.
Weinberger, in a speech to the American Legion, unveiled the move as part of a wider crackdown on defense contractors that charge the government for "general and administrative costs" added to the price of weapons systems. The move came as Weinberger battled to justify his defense budget in Congress amid charges that much of the money is wasted.
In the General Dynamics case, he specifically ruled out government payments for "improper expenses" revealed at a congressional hearing last week. Company officials were accused of charging for boarding an executive's dog, country club dues, golfing weekends and a chili cookoff.
Weinberger also said that he has asked the Justice Department to look into possible criminal violations by General Dynamics' officials. A spokesman said later it is illegal to submit false or fraudulent claims to the federal government.
"We found that General Dynamics' testimony was nauseating," said Defense Department spokesman Michael I. Burch. "Some of the claims made were preposterous and completely out of line, did in no way benefit national security," he said.
General Dynamics, in a statement from its St. Louis headquarters, said it believes it will be able to "satisfy the Defense Department's concerns" and promised to immediately withdraw all charges "that are determined not to be bona fide."
The company, which had $7.2 billion in government military sales last year, said about 8 percent of its total monthly billings to the Pentagon cover overhead costs.
In his speech, Weinberger said the Defense Department would suspend payments for General Dynamics' administrative costs until Pentagon auditors complete their review of the rate at which the government reimburses the company. He said the review would take at least 30 days.
Defense contractors are permitted to add a percentage of their overhead costs to the price of a weapons system after negotiations with the Pentagon.
But congressional critics complain that guidelines for determining what is an allowable overhead item are vague, opening the way for contractor abuses and runaway weapons costs.
Burch said the defense secretary agrees that the system of allowing overhead costs "needs to be tightened down. He agrees that the way contracts have been written in the past are wrong."
In what his spokesman described as a "get-tough" policy, Weinberger said he has ordered defense auditors to review the overhead cost rates set for all major contractors to assure that they prevent charges for improper expenses.
Contractors, moreover, will be required to certify under penalty of perjury that their claims for overhead expenses do not include political contributions, entertainment or "other expenses that are not made directly for the benefit of the government and are required for the performance of the contract involved," Weinberger said.
"He's only going to pay for things that benefit the country," Burch said. "He's not going to pay for those frivolous overhead expenses."
Burch said auditors will look into reports that the Boeing Co. billed the Defense Department for nearly $127,000 in political contributions in 1982. The aerospace company agreed to withdraw bills for about half of the donations, but justified the rest as legitimate, along with $36,000 in payments to such community events as a Boy Scouts golf tournament and a Hanukkah dinner thrown by the Jewish National Fund.
Many of the problems condemned by Weinberger have been cited for years by the Defense Contract Audit Agency. Critics say the agency's findings often have been ignored by defense contracting officers.
Auditors have questioned $50 million of the $143 million in overhead expenses charged by General Dynamics from 1979 to 1982.
In the latest example of questioned billings, they challenged $330,983 charged in 1982 for the company's promotional "giveaways" of such items as necklaces, tie clips, hats, knives, branding irons and medallions emblazoned with weapons insignia, according to an audit cited by congressional sources.
Burch said it was the batch of bills from 1980 and 1981 now being audited that triggered the General Dynamics crackdown because "we've got enough information now that we felt that we could suspend these payments to a major contractor until we're satisfied that only proper charges are being submitted."
Until now, the Pentagon has attempted to negotiate with General Dynamics to eliminate improper charges, Burch said.
Congressional critics say defense contractors have little incentive to resolve audit disputes quickly because the Defense Department routinely pays up to 95 percent of bills for overhead and other costs on a monthly basis. Usually, these charges are not disputed until years later.
General Dynamics, for instance, has received $120 million of the $143 million in overhead expenses billed from 1979 to 1982, according to congressional officials, despite its recent admission during a hearing that some billings were improper.
In similar fashion, the company has been paid $10 million of the $22 million in corporate aircraft charges, which include more than 100 personal flights by company chairman David S. Lewis, according to Pentagon auditors.
Defense contracting officers often fail to support the auditors who are only empowered to question costs, according to critics.
They said that General Dynamics was paid 75 percent of its aircraft charges for 1976 and 1977 even though Pentagon officials were unable to determine the purpose of the flights because the company had destroyed its passenger lists.
Congressional sources said that the Naval Investigative Service is examining General Dynamics' corporate aircraft claims as well as some of the entertainment expenses it has added to the price of nuclear submarines.
General Dynamics, the nation's largest defense contractor for the past three years with total Pentagon sales of almost $20 billion from 1982 through 1984, makes Trident submarines, SSN688 attack submarines, M1 tanks, F16 jet fighters, Tomahawk cruise missiles, and Stinger defense missiles.
Rep. John D. Dingell (D-Mich.), who held a subcommittee hearing on General Dynamics, said he expects "a significant amount of money to be returned to the treasury . . . . I want to see this fraud rooted out of these overhead accounts and the guilty parties dealt with.