General Dynamics Under Fire

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The submarine saga illustrates several of the alarming trends in the defense procurement business. The sheer size of the stakes--$100 million or more for a single sub--was enough to excite the greed and test the integrity of even the most well-meaning contractor. Says a former top Pentagon official: "Whenever you have so much money, you are going to have people doing a lot of reprehensible things to get the money. The sums are so huge now they pretty much defy control."

In addition, General Dynamics, more than perhaps any other company, has a tight symbiotic relationship with the Pentagon. It relies on Government contracts for 94% of its business, unlike other contractors, such as Boeing, that depend on the private sector for a sizable percentage of sales. Free from the competitive discipline of the marketplace, General Dynamics has found that pulling strings at the Pentagon can be more important than making products efficiently. The Pentagon, in turn, is dangerously dependent on General Dynamics. It is the only supplier of the Trident submarine and one of two contractors for the SSN 688 attack sub.

As last week's allegations against General Electric and United Technologies show, the charges against General Dynamics are not unique. But the company's pattern of problems indicates that those plaguing the entire industry are more complex and deep rooted--and far more important to solve--than an occasionally overpriced toilet seat or coffee maker.