The Navy granted General Dynamics Corp. blanket immunity yesterday from contract suspension or disbarment for any past offenses under investigation by federal prosecutors and the Pentagon.
In its unprecedented action, the Navy said the defense contractor had earned the right to bid on and receive billions of dollars in yearly weapons contracts because it has "satisfactorily addressed" problems that set off more than a dozen investigations and an indictment last December on fraud charges.
Assistant Navy Secretary Everett Pyatt said the immunity began yesterday with the lifting of the government's suspension of General Dynamics from federal contracts, imposed after the December indictment. Pyatt said that while the company continues to be investigated, it is undertaking a "major reformation."
"The larger rationale," he said, "was one of fairness" in not penalizing the company for problems that it has corrected. "This has nothing to do with the size of its industrial base or how big they are."
General Dynamics chairman Stanley C. Pace said in a statement that the company is "gratified" by the decision.
Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce subcommittee on investigations that has uncovered numerous irregularities by General Dynamics, called the action "absolutely outlandish" and said that it raises questions about whether the company is "somehow above the law."
"I thought the sale of indulgences went out with the Reformation," Dingell said.
The exemption from administrative sanction extends throughout the government, Pyatt said, but it does not spare General Dynamics from criminal prosecution in the ongoing investigations of allegations that range from deliberately underbidding submarine contracts to charging the Navy improperly for travel and entertainment expenses.
In exchange for administrative immunity, the company agreed to permit government inspectors to monitor and report monthly on 50 corporate activities, including security, cost accounting and labor charges, according to Pyatt, who negotiated the agreement.
Pace, in responding to the Navy's decision, called the provisions required of the company "demanding," but pledged to comply with them.
General Dynamics, the nation's third-largest defense contractor, with $6 billion in Defense Department business last year, also agreed to set up a $50 million escrow account to cover fines or government refunds that could result from any of the three grand jury investigations and 10 to 15 Pentagon probes of the firm, Pyatt said.
Pyatt, who negotiated the agreement because the Navy is the government's lead agency in dealing with General Dynamics, denied that the administrative grant of immunity reflects the futility of barring a contractor with a monopoly on such critical weapons as the Trident nuclear submarine, the F16 jet fighter and the M1 tank.
Pyatt said the agreement grew out of negotiations with Pace after the company was suspended from receiving federal contracts because of its Dec. 2 indictment. General Dynamics and four present and former executives, including NASA Administrator James M. Beggs, were charged with trying to hide cost overruns on an Army contract to develop the Division Air Defense (Divad) gun, also known as the Sgt. York, from 1978 and 1981.
It was the second time General Dynamics was suspended in 1985. In May, the firm was barred from Navy contracts because of improper billings and illegal gratuities. That suspension was lifted 12 weeks later and the firm was awarded nearly $1 billion in Navy work.
In removing General Dynamics' latest suspension, Pyatt said the firm has reformed its accounting techniques to prevent a recurrence of the illegal practices that it allegedly committed in understating the true cost of prototype Divad guns built for contract competition.