Shipshape?

Most customers, when they are outrageously overcharged by a company, decide to take their business elsewhere. But the Defense Department is different. In a controversial move last week, the Navy lifted its ban on new contracts with General Dynamics. The reversal came just three months after the service suspended the supplier of nuclear submarines on charges of improperly billing taxpayers $158 million for overhead costs ranging from the kenneling of an executive's dog to the purchase of a company director's kingsize bed. In announcing the sanctions, Navy Secretary John Lehman accused the third largest defense contractor of disregarding the public's trust.

Declaring the resumption of business-as-usual, Assistant Secretary Everett Pyatt said that naval investigators had found "no pattern of corruption" with regard to General Dynamics' billing practices. If anything, Pyatt asserted, the Defense Department's "imprecise and ludicrous" guidelines were partly to blame. Said he of the St. Louis-based company: "They were simply doing what our procedures would allow them to do."

In exchange for becoming eligible for new awards, General Dynamics agreed to meet a series of Navy demands. Among them was the creation of a "rigorous code of ethics for all employees." After a selective naval review of 94 million previously submitted expense vouchers, the company withdrew $111 million in challenged bills. The Navy agreed to pay $17 million of the rest, leaving $30 million in dispute.

Within hours of the reinstatement, the Navy awarded General Dynamics $658.3 million to build the twelfth Trident nuclear-powered submarine. Pyatt said the firm will also soon receive nearly $500 million in additional orders for surface-to-air missiles and other weapons systems.

Congressional critics were angered by the announcements. "To say there's no corruption is ridiculous," said Michigan Congressman John Dingell, a leading investigator of Pentagon procurement. "The Navy is more anxious to get ahead with its spending goals than in spending well." Declared Wisconsin Senator William Proxmire: "The case is not closed just because the Navy says it is. I intend to look very closely at the whole matter in hearings this fall."

That will add one more probe of General Dynamics to several already under way. In New Haven, Conn., the company remains the target of a year-old grand jury investigation into a former director's charges that it submitted false billing claims. In Washington, the Internal Revenue Service is reportedly examining whether General Dynamics has been cheating on taxes, and the Securities and Exchange Commission wants to know if the firm manipulated its stock price in the late 1970s.