A Yellow Flag From the Pentagon : Fraud: Teledyne debarment reflects a tougher attitude, it says. But defense firms wonder how much tougher things can get.

Defense procurement experts have long contended that the Pentagon would never debar one of its major contractors, but actions taken against a Teledyne Industries subsidiary last week showed how much times have changed.

Responding to the Pentagon’s extraordinary action banning Teledyne Relays from receiving government contracts, Teledyne officials were scheduled this morning to call on Pentagon Procurement Director Eleanor Spector. Teledyne officials contend that the government sanction--the first ever against one of the Pentagon’s top 100 contractors--is unjustified.

Senior Defense Department officials said a reversal of the debarment is “absolutely unlikely” and that the action represents a tougher attitude on dealing with fraud.

“We are more aggressive--a lot more aggressive,” one Defense Department official said. “Some people have not taken us seriously. They don’t understand that we cannot do business with corporations that constantly are defrauding us.”

Ever since the mid-1980s, the Pentagon has been turning up the heat on defense contractors by increasing the number of investigations, audits and debarments, as well as taking a tougher stance in contracting actions.

Pentagon Inspector General Derek Vander Schaaf last week noted that new procurement fraud cases opened by the Defense Department’s criminal investigative service surged to 995 last year from just 282 a decade ago.

“We have turned ourselves into the most effective investigative organization in the country in terms of procurement fraud,” Vander Schaaf said. “That is our specialty.”

Debarment and suspension proceedings have been growing in recent years and in 1992 reached a plateau of about 1,400 involving both companies and individuals. The ranks of the debarred is a kind of rogues gallery, involving mostly small mom-and-pop contractors and convicted con artists.

Last year, for example, a meatpacker was debarred for paying bribes to Pentagon inspectors in an effort to pass off tainted pork and spoiled dairy products destined to feed military troops.

But the defense industry says enforcement has grown too rough and that the Pentagon has unfairly made regular business disputes subject to criminal sanctions.

“I don’t know how much tougher they could be than they already have been in the last six or seven years,” said Tim Hatch, a Gibson, Dunn & Crutcher attorney who has represented defense firms. “The Defense Logistics Agency and Janet Cook (who imposed the Teledyne debarment) have a longstanding reputation of being very stringent and very harsh in enforcement.”

The amount of oversight imposed on contractors has become an unacceptable burden, Loral Chairman Bernard L. Schwartz said in a speech to top Pentagon procurement officials in Williamsburg, Va., last week.

“We need to discard the Cold War mentality that preyed on industry, heaped oversight upon oversight, audit upon audit, ordered test after test, over-specified virtually everything and spent money like there was no tomorrow,” he said.

Los Angeles-based Teledyne pleaded guilty last year to improperly testing nine million electronic components that went into a wide variety of weapons, ranging from missiles to ships. The resulting debarment will shut off future contracts to Teledyne Relays for a year.

“We believe this was an unjustified action,” Teledyne spokesman Berkley Baker said. “These problems predated July, 1992. It isn’t a current situation. There aren’t any product problems, any quality problems, any testing problems. And meanwhile people have lost their jobs and will continue to lose their jobs.”

In an interview earlier this month, Teledyne Chairman William Rutledge said the firm has significantly improved its ethics program and its efforts to comply with procurement regulations.

But the debarment order issued contends that Teledyne’s execution of that ethics program was “nonexistent” in some areas and that the firm had refused to pay restitution for the improper testing.

Moreover, the order says the firm’s ethic problem “provides a basis for the debarment” of the entire corporation, a step the Pentagon “will continue to review.”

The tougher attitude at the department reflects the more aggressive efforts by the Pentagon’s inspector general and the Department of Justice to weed out fraud, officials said.

“I don’t know if we would have taken this debarment action against Teledyne five years ago,” said the official, who requested anonymity.

But Larry Wilson, spokesman for the Defense Logistics Agency, said the debarment does not signal a tougher enforcement policy compared to the last two or three years. Rather, he said, it was based on the facts in the case.

Nonetheless, the Defense Department official said, “I hope it is a wake-up call to the industry of how serious it is if you keep getting convicted of fraud.”