Scandal Rocks General Electric

By Charles P. Alexander.

"We bring good things to life," say the commercials for General Electric, a company that strives to maintain a wholesome image based on quality products and service. But an unsavory side of the ninth-largest U.S. industrial corporation stood exposed last week in a federal district court in Philadelphia. GE pleaded guilty to defrauding the Air Force of $800,000 in 1980 on a project to upgrade the re-entry vehicles on Minuteman missiles. After its indictment eight weeks ago, GE had consistently denied any wrongdoing. The company suddenly changed its story last week on learning that Roy Baessler, a manager on the Minuteman work, had admitted to investigators that he knowingly participated in a scheme to bilk the Pentagon.

GE faces a $1.04 million criminal fine and civil penalties of up to $1.08 million, and will have to reimburse the Air Force for the $800,000 it lost in the fraud. The heaviest cost, though, may fall on the company's reputation. It was GE's worst scandal since three top executives were convicted of price- fixing and went to prison in 1961.

Although better known for its TV sets and toasters, GE is the sixth-largest U.S. defense contractor, receiving 20% of its revenues from military work. In 1980 the company's space-systems division in Philadelphia was suffering cost overruns on a $47 million project to refurbish Minuteman missiles. Because GE had agreed in one contract to a fixed price for part of the work, some of the added costs could not legally be passed along to the Pentagon, and the company faced possible losses. To cut down on the red ink, GE managers decided to shift the overruns to different contracts under which the Government would pay the added costs. Their method: falsifying workers' time cards without their knowledge. Investigators are still trying to determine how many people were part of the plot and how high up into the company's management ranks they go. Joseph Calabria, a chief engineer on the Minuteman project who has been indicted but has pleaded not guilty, will go on trial in July. Baessler, who was given immunity in return for his cooperation, has implicated some of his superiors, but neither the investigators nor the company has released the names of those under suspicion. At GE's headquarters in Fairfield, Conn., top executives have denied any prior knowledge of the fraud. A letter to employees, signed by Chairman John Welch and other officers, stated: "We've seen, all too clearly, how the actions of a few can hurt an entire company and all of its employees."

The Pentagon in March had temporarily suspended GE from bidding on new military contracts and could decide to reinstate the ban as a result of the company's guilty plea. To persuade the Pentagon not to take such an action, GE has said it would make managerial changes to guard against its overcharging the Government in the future. In addition, Welch reportedly will have monthly meetings with Air Force Secretary Verne Orr to review GE's progress in making the reforms.

The case against GE is part of a crackdown on defense contractors who, according to critics, have made overcharging the Government practically their standard operating procedure. The Pentagon has revealed that 45 of the 100 largest military suppliers are now under criminal investigation. That makes it probable that GE's guilty plea will be the first of many.

With reporting by Christopher Redman/Washington and Raji Samghabadi/New York