navy freezes Contracts at General Dynamics : Firm Fined, Accused of Ignoring Public Trust; Rickover Censured for Accepting $67,000 in Gifts

WASHINGTON —  Navy Secretary John F. Lehman Jr., accusing General Dynamics Corp. of “maximizing profits without regard for the public trust,” Tuesday froze negotiations on contracts worth up to $1 billion at two of the company’s divisions until the nation’s third-largest defense contractor reforms its policies and practices.

Lehman also canceled two contracts totaling $22.5 million and fined General Dynamics more than $675,000 for giving gratuities to Adm. Hyman G. Rickover. He sent a formal letter of censure to Rickover, widely described as the father of the nuclear Navy, who retired in 1982 after a career spanning six decades.

The secretary told a news conference that many of the $67,000 in gifts from General Dynamics were “at the instigation of the admiral” and were “clearly unethical and possibly illegal.”

At the same time, Lehman rejected a recommendation from the Pentagon’s inspector general that General Dynamics Chairman David Lewis and two other top executives be suspended from doing business with the government.

Rejects Suspension

“I do not see sufficient grounds that would make debarment of individuals an appropriate response,” Lehman said. “What we find is a pervasive corporate attitude . . . inappropriate to the public trust.”

Until General Dynamics adopts and enforces “a rigorous code of ethics” and takes steps to resolve millions of dollars in disputed claims, Lehman said the Navy would “hold off further processing” of contracts with the firm’s Pomona Division, where 11,000 Southern California employees manufacture missiles and other weapons, and the Electric Boat Division, which produces Trident submarines in Groton, Conn.

He said his action affects between $600 million and $1 billion in contracts, the largest being a pending $500-million award for the next Trident submarine.

Lehman said he hopes the process will take only a few weeks, and General Dynamics issued a statement from its St. Louis headquarters saying that “we are determined to work quickly and constructively . . . to resolve all of the issues.”

On Capitol Hill, Lehman’s action came under immediate criticism. “General Dynamics is probably chuckling and they are convinced that they now have a wholly owned subsidiary in the form of the Department of the Navy and the Treasury of the United States,” said Rep. John D. Dingell (D-Mich.), chairman of a House oversight subcommittee that has been investigating the company’s Pentagon dealings.

Sen. William Proxmire (D-Wis.) called Lehman’s announcement “business as usual” and “further proof of the Navy’s inability to police itself and crack down on waste, mismanagement and corruption in defense contracts.”

$6 Billion in Business

But Lehman contended that stopping all military work with General Dynamics would be “cutting off your nose to spite your face.” The company did about $6 billion in business with the Pentagon last year, producing not only submarines and missiles but also other weapons such as F-16 jet fighters and M-1 tanks.

The Pomona Division is the industry’s largest manufacturer of tactical missiles, with sales last year of about $1 billion. Lehman said the division does about $500 million in business annually with the Navy, chiefly on the Standard ship-to-ship missile and the Phalanx gun system for close-in shipboard defense.

In a letter to Lewis, the firm’s chief executive officer, Lehman said the freeze in processing of contracts with the Pomona and Electric Boat divisions would remain in effect until the company adopts and enforces the code of ethics for all “officers and employees with mandatory sanctions for violation,” resubmits and certifies millions of dollars in requests for overhead payments and settles $75 million in disputed claims.

‘Sole Source’ Pacts

Lehman said he ordered cancellation of the two contracts--one for $10 million at the Pomona Division for “rework” on the Standard missile and the other for $12.5 million for general engineering support at Electric Boat--because both were “sole source” contracts that should have been put out for competitive bidding. Now, he said, that step will be taken.

He based the cancellations on a Navy Gratuities Board’s finding that General Dynamics had given $67,628.33 in gifts to Rickover from 1961 to 1977. Lehman also said he was demanding that the company pay the Navy $676,283--10 times the value of the gifts and the maximum penalty allowed under the law.

Although he refused to release the board’s report or to give full details of the gratuities, Lehman said the gifts included “trinkets”--earrings, pendants, plastic laminated $50 bills, paperweights and fruit knives. He said he issued the letter of censure “with mixed feelings.”

‘Little Trinkets’

“This fall from grace with these little trinkets should be viewed in the larger context” of Rickover’s role in building the modern Navy, he said.

In rejecting the recommendation of Pentagon Inspector General Joseph Sherick that Lewis and two of the firm’s executive vice presidents--Gorden E. MacDonald and George E. Sawyer--be suspended from further dealings with the government, Lehman said such action would be inappropriate because the problems stem from “a pervasive corporate attitude” rather than individual actions. That attitude, he said, “is based on maximizing profits without regard for the public trust.”