Arming The Nation And Picking Your Pocket


Inside America's Biggest Defense Scandal

By Andy Pasztor

Scribner 416pp $25

`John Marlowe's sex drive kicked into high gear the instant he spotted the two little girls."

With this grabber, Andy Pasztor begins his disturbing tale of defense fraud, 1980s-style, When the Pentagon Was for Sale. According to Pasztor, Marlowe was one of dozens of Reagan Administration-era defense consultants who took the term Beltway Bandit literally. A six-year sentence for child molestation was hanging over him when the government got a tip that he had solicited a bribe from a defense contractor. Under pressure, Marlowe agreed to become an undercover informant for prosecutors who were just beginning to investigate a defense-corruption scandal that would make Teapot Dome look like a minor tempest. A tap on Marlowe's phone led to other culprits and a total of 76,000 intercepted conversations. Federal agents overheard candid discussions of payoffs large and small and of successful efforts to steer Pentagon contracts to favored companies.

Two federal investigations, dubbed Operation Illwind and Operation Uncover, proved that such fraud was no aberration. More than 90 individuals and companies, including 8 of the 15 largest Pentagon suppliers, were ultimately convicted of or pleaded guilty to charges ranging from bribery to illegally obtaining competitors' cost data. The roster included General Electric Co., Boeing Co., former Assistant Navy Secretary Melvin Paisley, and a host of consultants who traded on friendships to rake in hundreds of thousands of dollars for themselves and billions for their corporate clients. (For his cooperation, Marlowe, on the other hand, was never charged with soliciting a bribe, and the government paid some of his bills while he was in prison for the sex crimes.)

Many of these consultants, it turned out, knew nothing about weapons technology: As his friends were wont to joke, one consultant's definition of a universal joint was "a really big nightclub open to everyone." And much of what they and the contractors got the government to purchase, such as $116 million worth of shipboard radar-upgrade kits, was either unnecessary, obsolete, or overpriced.

Pasztor, who covered the scandal for The Wall Street Journal, shows how the Reagan Administration's lack of ethical awareness and its market-oriented reform efforts contributed to the land-rush climate. Unfettered by ethical rules, Reagan's Pentagon transition-team members had ready access to some of the Defense Dept.'s innermost secrets--which some of them employed for private gain. One top transition official was Benjamin T. Plymale, a senior executive at Boeing, whose colleagues, Pasztor says, photocopied a treasure trove of Pentagon documents from the transition team's safe.

Even well-intentioned efforts to reform procurement backfired. In the midst of a fleet buildup, Navy Secretary John F. Lehman vastly increased the number of contracts open to competitive bids. He shifted from the practice of providing cost-plus deals--thought to encourage wasteful practices--to fixed-cost contracts. And Lehman sometimes had two companies make the same weapon. These moves were intended to drive prices down and to shift the risk of cost overruns to suppliers.

But Lehman, as arrogant as the underlings who never thought they would get caught, refused to acknowledge these efforts weren't working. The real rivalry turned out to be not over pricing but for inside information on upcoming procurements and over getting arms specifications tailored to a company's advantage. Making matters worse, the lead contractor was allowed to pick the second source for manufacturing a weapon. As William Galvin, one of the consultants at the heart of the investigation, explained to a grand jury, this let them avoid aggressive competition. "You pick a friendly, docile second source," he said. "You don't pick a tiger."

Pasztor paints detailed portraits of some of these central figures. At first, this approach slows down his account, but once the author turns to the investigations, the book picks up speed. While the probes were unfolding, they didn't have the public impact of the savings-and-loan debacle or other scandals of the 1980s. So When the Pentagon Was for Sale serves as an important reminder of why government officials and procurement must undergo thorough scrutiny.

Have the seeds now been sown for a replay of the skulduggery, Pasztor wonders? With procurement budgets running at about half of their 1987 high in constant dollars and with the defense industry suffering through a wrenching retrenchment, pressure for inside information and help winning contracts is greater than ever. What's more, he points out, some of the more rigorous requirements have been eased.

Whether or not he's right, the scandal's legacy will continue to dog the Pentagon. In an added wrinkle, tight budgets are pushing the Pentagon to seek cheaper nonmilitary products, from computers to nails. But, like defense contractors, commercial vendors have gripes about procurement rules, and they may be unwilling to do business with the Pentagon unless the rules are abandoned. It's a dilemma that policymakers are only beginning to face. And given competitive pressures and the industry clout that Pasztor details, it's difficult to believe that the problem will be solved wisely.

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