A former supervisor at General Electric Co. has testified that the Justice Department failed to investigate properly his allegations of fraud on GE defense contracts and tried to pressure him into settling a lawsuit he brought against the company.

John Michael Gravitt, who worked at a GE aircraft engine plant in Evendale, Ohio, sued GE under the False Claims Act, an 1863 statute that allows citizens to pursue fraud on behalf of the public and share in any money recovered. Gravitt made his allegations Thursday before a House Judiciary subcommittee chaired by Rep. Dan Glickman (D-Kan.).

Gravitt's attorney, James B. Helmer Jr., told the panel that the Justice Department has negotiated a "sweetheart deal" with GE to settle the suit and that a Justice attorney had "threatened" to penalize Gravitt if he tried to block the settlement, which is tied up in litigation.

"We think that in fact this was a very good settlement," said Justice Department spokesman Amelia L. Brown. "The allegations about pressure are groundless. No one from the Justice Department made threats. The case was successfully and properly handled by the government."

The department has agreed to settle the suit against GE for $234,000. It said in court papers that this is reasonable because "the scheme did not appear to be intended to defraud the government," and declined to bring charges following a separate criminal probe.

William Schumann, GE's Washington spokesman, said the company acknowledges that thousands of time cards were altered at its Ohio plant, which builds engine parts for the Defense Department and the National Aeronautics and Space Administration.

He said GE agreed to the $234,000 settlement because "we did submit erroneous claims to the government, and it is wrong to do that. But the government was not overcharged, and there was no intent to overcharge the government."

Schumann said some of the altered time cards favored GE and others favored the government, but that the net effect is that GE underbilled the government by $100,000.

In a criminal case last May, GE pleaded guilty to submitting $800,000 in false claims on a Defense Department nuclear missile contract in Philadelphia and was fined $1 million.

The current dispute centers on a statute -- backed by President Abraham Lincoln and aimed at Civil War profiteers -- that encourages citizens to blow the whistle on government fraud. Glickman and Helmer say the Justice Department has never been enthusiastic about the law. The department maintains that such citizen suits brought on behalf of the public are usually ineffective.

Gravitt testified that while he was a GE supervisor, he was instructed to alter employes' time cards so that the government would be charged for work done on private contracts. He said he believed "the method was being used to defraud the government," refused to go along with the practice and complained about it to his superiors.

Gravitt said he believes GE laid him off in June 1983 because of his complaints. Schumann said the dismissal was part of a general layoff and was unrelated to Gravitt's charges.

After Gravitt filed his false claims suit in 1984, the Justice Department joined the suit and effectively took it over.

Helmer testified that the Justice Department tried to settle the civil case in November "without conducting any formal discovery, without securing any formal testimony under oath and without even obtaining the fruits of the grand jury investigation."

In a telephone interview, Helmer said that Vincent B. Terlep Jr., the Justice Department attorney handling the case, told him he had accepted GE's settlement offer of $234,000 without negotiation.

"Terlep told me the government would make sure that Mr. Gravitt was paid $23,400" if he went along, Helmer said, "but if Gravitt objected to any part of the settlement, they would see that he got nothing." The figure suggested was 10 percent of the settlement, to which Gravitt was entitled under the law.

Helmer said Terlep "repeated the threats" at a later meeting, which he said he regarded as "pretty close to a bribe."

Terlep was unavailable for comment, but Brown denied any threats, saying that he may have been "pointing out litigation risks." She said federal investigators had spent 500 man-hours on the criminal probe and that most of the results were shared with the department's civil lawyers.

Gravitt objected to the settlement in federal court in Cincinnati, triggering a complicated appeal over the government's right to settle the suit without his permission.

The Justice Department said the $234,000 settlement involves a $2,000 fine under the false claims law for each of 117 monthly bills submitted by the GE plant. It said that the claims "could technically be seen as false," but that "the United States was undercharged for all of the contracts involved."

Helmer said the government can legally recover $2,000 for each false voucher and that investigators found 3,000 false vouchers in a random sample of more than 10,000. He said the law does not require the government to prove damages to collect on each false time card, which he said could yield more than $35 million. But Brown said the government does not regard each time card as a claim and believes it can recover only on bills submitted for payment.

Glickman said he plans to question Assistant Attorney General Richard K. Willard, who approved the settlement, at a subcommittee hearing Feb. 20.