During the eight months that the Pentagon has been investigating charges of corrupt practices by General Dynamics Corp., it has awarded $5 billion in new business to the huge weapons manufacturer.
That apparently contradictory practice illustrates the limits of any Pentagon effort to discipline a defense contractor holding exclusive contracts to produce strategically important military equipment.
Pentagon officials say they have little choice but to deal with General Dynamics, despite charges that it has improperly billed the government for a range of expenses, including kennel fees for an executive's dog. As the nation's largest defense contractor, General Dynamics is the only supplier of such mainstays of the U.S. arsenal as the Trident nuclear submarine, F16 fighter and M1 tank.
Critics contend that the fault is the Pentagon's because it allows major arms makers to become monopoly suppliers of weapons deemed vital to national security.
"General Dynamics has a stranglehold on the government," said Rep. John D. Dingell (D-Mich.). "The Pentagon can't ensure that normal contract procedures are observed when it totally relies on the company for weapons that are necessary for national defense. There appears to be literally no government control."
Two recent Defense Department moves underline the difficulty of reining in powerful contractors:
* Last week, the Pentagon announced plans to recover $124 million in excess overhead payments made to General Dynamics in the past dozen years. Auditors pinpointed the overpayments after company officials acknowledged improperly billing the government for liquor, country club dues, a chili cookoff, personal travel and entertainment.
In the month that it took auditors to uncover the overpayments, however, General Dynamics landed $544 million in new defense work.
* On March 28, the Pentagon banned General Electric Co. from obtaining new defense contracts pending resolution of an indictment charging it with filing false claims for labor payments on a missile warhead commissioned by the Air Force.
But officials concede privately that the ban will not cover militarily critical equipment of which GE is sole supplier -- equipment that makes up the vast majority of its more than $5 billion in annual defense work.
"The Pentagon keeps messing with brush fires rather than putting out the conflagration," Defense Department whistle blower A. Ernest Fitzgerald said. "It's all public relations. If you want to let the contractors know you're serious, you have to make them hurt financially."
Dingell, chairman of the House Energy and Commerce oversight and investigations subcommittee, says he believes that the most effective penalty would be to break up monopoly supply arrangements and to sever contracts with offending firms.
In July, he urged that General Dynamics be replaced as the Navy's contractor for $5 billion in work on two nuclear submarines following reports that the company had given $1,125 earrings to the wife of then-Adm. Hyman G. Rickover. The admiral had overseen the submarine contracts at the company's Electric Boat shipyard.
A clause in the contracts provides for termination if the contractor is found to have given gratuities to government employes in pursuit of favorable treatment.
The Navy began an investigation of General Dynamics in August and set up a special Gratuities Board to examine the case. As its investigators toiled over the past eight months, the Navy not only retained General Dynamics as its contractor for the Trident and SSN-688 submarines, it also awarded $450 million in business to Electric Boat and $1.15 billion to other company divisions.
At the same time, the Air Force has contracted with the company for $2.3 billion in new work, mostly for assembly of the F16 jet fighter. And the Army, whose M1 tank is built by General Dynamics, has given the firm $1.15 billion in work.
"Sometimes they're the sole bidder for work that has to be done," Defense Secretary Caspar W. Weinberger recently said of the General Dynamics awards. "We do need these things and we need them quickly."
Eleanor Spector, deputy assistant secretary for acquisition, said cutting off General Dynamics from new defense work is "not cost-effective." To find an alternate supplier for such weapons as the F16, she said, the Pentagon would have to delay delivery and equip a new company at costs of $1 billion.
"The time and expense to bring somebody else on to produce that airplane is just not worth the taxpayers' effort," she said. "That's why we must go to General Dynamics if we want it."
Spector said that although competition is a worthy ideal in weapons procurement, it is often impractical to have more than one supplier for expensive equipment bought in small quantity, especially if it takes years to develop, with high start-up costs.
She said monopoly suppliers can be adequately controlled by policing their claims and disallowing improper charges.
There are dissenting voices in the Pentagon. Navy Secretary John F. Lehman Jr., one of the most aggressive advocates of competition, said, "If you're single-sourced, your leverage is minuscule."
"We have never had a case where the price did not come down dramatically as soon as the second source started producing," he said.
Lehman acknowledged that the Navy has "no place else to go" other than General Dynamics for production of the Trident, the nation's largest nuclear-missile submarine. But he said that he has encouraged Newport News Shipbuilding and Drydock Co. to build the Trident, and that he expects that the company will be ready to compete within the next two years.
In the meantime, Lehman said, to halt General Dynamics' contracts at Electric Boat, as Dingell has urged, would be "cutting off our nose to spite our face over a few trinkets" allegedly given to Rickover's wife.
"It would create chaos from a management point of view," he said. As many as 25,000 workers would lose their jobs. The costs of finding another company to finish the submarines would be "enormous," he said. And the Navy would have to postpone delivery of submarines it needs.