Navy Secretary John F. Lehman Jr. suspended General Dynamics Corp. yesterday from obtaining new contracts at two of its divisions until it repays $75 million in overcharges and establishes a "rigorous code of ethics" for its officers.
Charging the company with offenses including bill-padding and influence-peddling, Lehman also canceled two existing General Dynamics contracts worth $22.5 million.
In addition, he fined the company $676,283 for giving then-admiral Hyman G. Rickover illegal gratuities. For the first time, Lehman totaled their value at $67,628 as he listed gifts including earrings, plastic-laminated $50 bills, fruit knives, teak trays, lunch boxes, shower curtains, paperweights and pendants.
Lehman said he issued a nonpunitive letter of censure to the now-retired Rickover, who had overseen General Dynamics' nuclear submarine contracts at the time he was allegedly given the gratuities "with the intent to obtain as favorable treatment as possible."
General Dynamics, the nation's third largest defense contractor, has as much as $1 billion in pending contracts involved in the suspensions, which include a new Trident nuclear submarine at the company's Electric Boat shipyard in Groton, Conn., and Standard missiles and a rapid-firing shipboard gun produced in Pomona, Calif.
The company issued a statement pledging to "work quickly and constructively" with the Navy to resolve "all of the issues" raised by Lehman's decision, announced at a news conference.
In handing the firm its most severe penalty since charges of improprieties began surfacing a year ago, Lehman rejected the recommendation of Defense Department Inspector General Joseph H. Sherick to suspend General Dynamics Chairman David S. Lewis and two other top company officials from participating in Navy contracts.
Lehman said he decided against singling out the three executives because of a more "pervasive corporate attitude" intent on "maximizing profits and maximizing the interests of stockholders without regard for the public trust."
"The attitude that the customer beware is not appropriate for a defense contractor," he told reporters.
In a letter to Lewis announcing the measures, Lehman cited investigative findings that "call into question the integrity and responsibility of the corporation."
Among charges in his three-page letter were that the company consistently padded bills for weapons systems at the Electric Boat and Pomona divisions with such charges as those for country club dues, lobbying, entertaining, buying sunglasses and boarding an executive's dog.
Even when Pentagon auditors have challenged the billings, Lehman said, General Dynamics disputed the findings and delayed settlements on overcharges amounting to $75 million -- money on which the company has accrued interest dating to 1973.
Lehman said General Dynamics officials retained P. Takis Veliotis as chief of Electric Boat from 1977 to 1981 despite their later acknowledgments that he was "unethical and unreliable, to say the least."
Veliotis was indicted in 1983 for allegedly receiving kickbacks on unrelated ship construction and is now a fugitive living in Greece.
In 1977, he taped a telephone conversation with the company's chief financial officer, Gorden E. MacDonald. It indicated that, to keep the price of its stock from falling, the firm delayed announcing publicly that delivery of its first Trident submarine had slipped by one year.
Lehman, in his suspension letter to Lewis, noted that General Dynamics provided "grossly inaccurate" information on the cost and schedule of its submarines.
"Whether such action was intentional misleading of Navy officials, negligence or merely unwarranted optimism, it was nevertheless continuing evidence of unreliable reporting by General Dynamics Corp. to the government," he wrote.
Lehman said the suspension could be lifted in a "very few weeks" once the company repays the $75 million in overcharges and devises new ethical standards for employes with mandatory penalties for offenders. In addition to the $676,283 fine, the legal maximum of 10 times the value of gratuities, Lehman canceled contracts of $12.5 million at Electric Boat for general engine support and $10 million at Pomona for reworking the Standard missile