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Air Force Lifts GE Contracts Ban

September 13, 1985

WASHINGTON (AP) _ The Air Force, saying it is finally satisfied with corrective actions taken by General Electric Co., on Friday lifted a ban that had prevented the award of new defense contracts to a GE unit.

At one point, the entire corporation had been banned from receiving new government contracts because of irregularities within the unit, called the Re- Entry Systems Operation, that had prompted a federal fraud indictment.

″General Electric has been very forthright in uncovering, investigating and reporting to appropriate governmental agencies potential past violations of government procurement regulations,″ Air Force Secretary Verne Orr said Friday in a statement.

″This cooperative self-policing effort provides a means for effectively discovering and resolving problems promptly and constructively. The Air Force is lifting its suspension ...″

Last March 28, Orr suspended General Electric from doing any business with the federal government because of an indictment returned two days earlier alleging the firm had defrauded the Pentagon of $800,000 on a warhead contract.

On April 18, Orr narrowed the contracting ban to the Space Systems Division. GE subsequently pleaded guilty on May 13 to 108 counts of submitting false statements and claims and was fined the maximum $1.04 million.

On July 30, saying the company had implemented several ″remedial actions″ demanded by the Air Force, Orr further narrowed the ban to the Re-Entry Systems Operation, which performs work on various missile warhead components.

The corrective actions included formation of an internal Government Contract Compliance Review Board with direct access to the firm’s board of directors; creation of a new post of ombudsman and establishment of a hotline for employees to report suspected abuses.

Orr said Friday the company had agreed to pay the Justice Department $1.9 million ″to reimburse the government for losses incurred as a result of the mischarging.″

The company has also agreed not to seek reimbursement from the Pentagon for expenses it incurred in the course of the investigation and subsequent conviction and to ″take appropriate disciplinary actions against its employees who participated in the violations that formed the basis of the indictment,″ Orr said.

Larry S. Vaber, a GE spokesman, said the company has been suspending or terminating employees involved in the affair ″as appropriate.″

He said GE is pleased that Orr ″has recognized that the company’s new programs provide a means for effectively discovering and resolving problems promptly and effectively.″

Orr also said Friday that GE’s chairman and chief executive officer, John M. Welch Jr., has agreed to continue meeting with him monthly ″to review the progress that GE has made in implementing the management and accounting reforms.″

General Electric is the nation’s sixth-largest defense contractor. Its total corporate revenue in 1984 was nearly $28 billion, of which about $5 billion was for defense work. Within the defense arena, the Space Systems Division, which also produces satellite components, generated revenue of roughly $900 million last year.

The company has previously said the Re-Entry Systems Operation comprised only about one-fifth of the division. GE has refused to estimate the number or value of contracts lost since the initial bans were imposed.

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