Overrun Silent, Overrun Deep

By Evan Thomas

Probing submarine contracts and an admiral's gifts

Hyman Rickover, father of the nuclear navy, friend of congressional committee chairmen, was accustomed to getting his way with defense contractors. Once, according to congressional investigators, while visiting General Dynamics' Electric Boat shipyard in Groton, Conn., the crusty admiral admired a horn-handled fruit knife and idly declared that he would like to have a dozen of them. Shipyard executives hopped to. The handle was shipped off to a General Dynamics' lab, where analysis revealed that it had been made from the horn of a rare Southeast Asian buffalo. More buffalo horn was sent for, and a dozen fruit knives were manufactured for the admiral at a boatyard normally devoted to building submarines.

Almost any Rickover whim, it appears, was the contractor's command. When Rickover, who wore cheap metal tie clasps, saw one that he liked better on the tie of a General Dynamics employee--even when it was gold--he simply reached over and made a quick trade.

Revelations about the gifts do more than tarnish the reputation of Rickover, 84, who retired in 1982 after 59 years in the Navy. To executives at General Dynamics, such favors were part of the cost of doing business and keeping the cantankerous admiral happy. But to congressional budget cutters eyeing the Defense Department for excess fat, they are part of a broader investigation into charges that General Dynamics fleeced the Government of hundreds of millions in cost overruns. Those and other allegations have drawn the attention of investigators from five congressional committees, the Navy, the Justice Department and the Securities and Exchange Commission.

Navy Secretary John Lehman disclosed last month that the Navy had evidence that during the 1970s and early '80s Rickover received gifts worth "tens of thousands" of dollars, not only from General Dynamics but also from General Electric, Westinghouse and Newport News Shipbuilding & Dry-dock Co., all big Navy contractors. Among the presents: a $695 pair of diamond earrings mounted on 18-karat gold and a $430 jade necklace. Rickover says those baubles went to his wife, but that he passed most of the other "trinkets"--gold pendants, desk sets, ship models--on to Congressmen and then wives.

"I took," Rickover admitted on the CBS program 60 Minutes last week. "So did others. I don't deny it." But "the question that ought to be asked," insisted Rickover, "is, Did I ever favor General Dynamics or any other contractor?" In fact, Rickover was known for leaning on contractors to meet deadlines, budgets and quality specifications. It was he who triggered a formal investigation of General Dynamics for cost overruns in 1978. The probe, carried out by the Justice Department, produced no indictments and was dropped in 1981.

Meanwhile, the Navy settled with General Dynamics, paying $634 million of $843 million in excess costs claimed by the company for construction of the SSN-688 Los Angeles-class attack submarines. Rickover bitterly criticized the settlement.

The matter might have died there had a former General Dynamics executive not surfaced with new allegations--and, he claims, tapes and documents to prove them. P. Takis Veliotis, onetime general manager of the company's Electric Boat division, charges that fellow executives routinely lavished gifts and perks on Navy brass. He also claims that the company submitted low bids for contracts and then tried to stick the Pentagon with false claims for overruns.

The retired executive was indicted by a federal grand jury in 1983 for taking kickbacks from a subcontractor. When he fled the U.S. to his native Greece, General Dynamics promptly impounded $6 million of his assets. Veliotis is now bargaining with the Justice Department, which has revived its earlier probe, for some level of immunity from prosecution in return for his cooperation.

Meanwhile, General Dynamics is feeling heat in Washington. Congressman John Dingell, chairman of the House Oversight and Investigations subcommittee, has demanded that the Navy cancel some $5 billion in contracts with the company for the SSN-688 and the Trident submarine because its gifts to Rickover violate Navy regulations.

The broader issue of cost overruns is stirring renewed concern in both Congress and the Pentagon. Congressional investigators are looking into charges that Newport News Shipbuilding overcharged the Navy by some $50 million for the $2.7 billion nuclear aircraft carrier U.S.S.

Theodore Roosevelt, launched last October. "This is a widespread practice," says Republican Senator William Cohen of Maine. "Contractors submit intentionally unrealistic bids and then try to recoup after they get the contract."

The near monopoly enjoyed by shipbuilders once they win a contract limits the Navy's leverage. The Navy hopes to stir competition by splitting shipbuilding awards between two contractors. This month Lehman announced almost $2 billion in awards under such a "dual sourcing plan.'' More competition may serve to keep contractors honest. But many military contractors and Navy brass have, in effect, been shipmates for years; they will not be an easy crew to break up. --By Evan Thomas.

Reported by Bruce van Voorst/Washington

With reporting by BRUCE VAN VOORST