The Pentagon yesterday issued new guidelines making it illegal for defense contractors knowingly to pad bills for weapons systems with overhead expenses unrelated to their government work.
The guidelines approved by Defense Secretary Caspar W. Weinberger require contractors to swear under penalty of perjury that their overhead claims fall within limits prescribed by federal regulations and "are demonstratively related to or necessary for the performance" of the Pentagon contract covered by the billing.
At the same time, the Pentagon has proposed tightening the regulations to eliminate claims for personal use of corporate jets by company executives and for a wide array of public relations costs, including corporate gifts, company parties and promotional material.
Pentagon auditors estimate that defense contractors claim at least $140 million a year in public relations costs, attempting to add them to the price of weapons they produce for the Defense Department.
"We don't object to public relations costs," said Pentagon spokesman Michael I. Burch. "They're necessary in doing business in the United States, but we don't think that those costs really aid national defense and that we should be paying for them. If the company wants to take them out of their profits, that's fine."
The steps unveiled yesterday strengthen what Weinberger calls a "get-tough policy" against defense contractors whose extraordinary billings for overhead costs, including public relations, have fueled congressional moves to cut the administration's 1986 defense budget.
Last week, Weinberger ordered a review of major defense contractors's billing procedures while freezing for at least 30 days overhead payments to General Dynamics Corp. General Dynamics has been accused of charging the government for boarding an executive's dog, club dues, golfing weekends and personal use of corporate jets by the firm's chairman.
Although the Pentagon honors certain overhead costs as part of every defense contract, it has been lax in enforcing Federal Acquisition Regulations that specify which claims are allowable.
As a result, defense contractors routinely submit bills for items that apparently violate the regulations and wait out the years it takes Pentagon auditors to challenge them and arbitrate the claims. In the meantime, they bank the millions of dollars that the government pays monthly to cover overhead without first scrutinizing the bills.
The new "Certificate of Overhead Costs" to be signed by defense contractors requires them to swear that their bills cover only costs permitted by the regulations.
"They'll have to declare now up front that everything submitted is true and accurate under penalty of perjury, and this is quite a change," said Burch, adding that the punishment for padding bills will depend on whether there was fraud.
Burch said the Pentagon will withhold from monthly payments the amount of any item questioned by auditors until the dispute is resolved through arbitration.
Although regulations governing overhead costs already rule out claims for lobbying, political contributions, promotional advertising and entertainment, the Pentagon has never spelled out permissible public relations costs.
New regulations published in the Federal Register Feb. 21 set limits for the first time, banning many of the costs billed by defense contractors in the past: air shows, conventions, displays, hospitality suites, promotional events, souvenirs, corporate celebrations and image-making films and brochures.