The Navy's 1978 Shipbuilding Claims Settlement With General Dynamics Corporation

Testimony was given concerning GAO work on the Navy's shipbuilding claims settlement with General Dynamics Corporation. The claims were in connection with two submarine contracts which were modified by the President in the interest of national defense. At the time of the proposed settlement, the firm had outstanding claims of $544 million against the Navy under two contracts. In addition, it had notified the Navy that it intended to stop work on the submarines not yet delivered because it would incur an estimated loss of $843 million under the contracts. In 1978, GAO testified that the costs reported by the contractor were subject to question and discussed alternatives the Navy had considered, but believed that the proposed settlement was the only option open to the Navy. Since 1979, GAO has conducted annual audits of the contracts and has found that, through 1983, the contractor consistently projected a substantial combined loss in excess of that estimated at the time of the settlement. Furthermore, estimates of unreimbursed costs on completion of the contracts increased $100 million from 1978 to 1983. In addition, costs associated with correcting deficiencies due to defective workmanship and materials contributed significantly to the cost overrun. At present, GAO is preparing a report concerning kickbacks by subcontractors on Navy contracts. Previous GAO audits did not include review steps that would disclose kickbacks; however, GAO is currently considering the effect that some recent General Dynamics kickback convictions will have on the report it is now preparing.