WASHINGTON — The Pentagon disclosed Friday that it will withhold $154 million in payments to General Dynamics Corp. to make up for what it considers excess payments that it has made to the nation's largest defense contractor.
A recently concluded Pentagon audit of its business with General Dynamics, which makes Trident missile-firing submarines, F-16 jet fighters and other major weapons systems, found $244 million in overcharges. About $90 million in payments to the company had been challenged earlier and had been earmarked to be withheld.
Allegations on Billing
Defense Secretary Caspar W. Weinberger ordered the audit a month ago to investigate allegations that the company had billed the Pentagon for the costs of improper overhead charges.
According to the Defense Department's comptroller, General Dynamics receives an average of $700 million a month from the Pentagon. At that rate, $154 million worth of charges could accumulate in slightly less than a week.
About $670 million of the monthly payment covers work on weapons, and $30 million goes toward the company's administrative and overhead costs.
Under conditions issued by the Pentagon, General Dynamics will not be eligible for renewed payment for administrative and overhead costs until it has submitted bills for at least $154 million, which will be counted against the overpayments that the government claims it has already given to the company.
The company also must alter its internal management and accounting practices so that it can identify overhead expenses for which the Pentagon will not pay. The Pentagon said it would complete a review "shortly" of accounting changes proposed by General Dynamics on March 29.
Under a third condition for resumed payments, the company's billing rates must be adjusted to permit lower payments for work in progress.
On Thursday, after the Pentagon disclosed that its auditors had found that the company had overcharged the government $244 million through improper billing of administrative costs, a General Dynamics spokesman said that the company had received no formal notification from the government and that it had "no idea of the origination of the figures."
On Friday, the spokesman, refusing to comment on the latest Pentagon announcement, said: "We have no information on this."
The Pentagon said that among the issues unresolved in its recent General Dynamics review was whether it should consider reasonable the way the company handled workers' compensation, data processing costs and "excess costs due to corporate acquisitions."
The Defense Department, in the midst of a campaign to locate excess weapons procurement costs, is focusing on overhead costs--fees charged for a company's business operations other than labor and material.
Deputy Defense Secretary William H. Taft IV said Thursday that the Pentagon was conducting special audits of these expenses at the nation's top 30 defense contractors.
A month ago, when Pentagon officials suspended payments to the company, they said General Dynamics officials acknowledged to Congress that bills had mistakenly been submitted for such unauthorized expenses as advertising, entertainment, country club fees and, in one instance, the boarding of an executive's dog in a kennel.
Shortly after those disclosures, Weinberger announced that he would freeze for at least 30 days the Pentagon's overhead payments to the company pending "a complete and comprehensive review" of its billing practices.