General Dynamics-Fleecing U.S. Taxpayers
General Dynamics Corporation, another defense contractor, was accused of fleecing U.S. taxpayers who were footing the bills for military hardware by various means, including cost overruns, fraud, faulty workmanship, bill padding, mismanagement and misappropriation of funds, and tax evasion.
Over the course of many years, the company developed a close and symbiotic relationship with the Pentagon. The company was infamous for cost overruns - promising work at a given price, the submitting a much higher bill, justified by various means (changes in scope or specifications, changes in costs of supplies, etc.), and this eventually drew scrutiny and a closer look at the estimating process and the accounting of actual costs.
The problem was not unique to General Dynamics - there were flaws in the defense procurement process, and overruns were common in its dealings with a variety of vendors. A score of defense contractors was under open investigation by the defense department in 1985, but as the third-largest defense contractor, the total sum of the alleged overcharges came to a substantial amount.
Analysis
GD management was largely responsible for a lot of very poor management and accounting decisions. Because cost overruns were common, and because the DD typically paid them without question, the company became lax about cost controls and was wasteful in its business practices.
Also, because the procurement process required the government to place orders with the most competitive bidder, there was a tendency for defense contractors to underestimate the work to submit a low bid in order to win the business, knowing that the actual cost could be inflated later.
The DD was also to blame due to its inefficient purchasing processes. It was not unusual for the armed forces to cause delays and cost overruns by constantly changing or adding to specifications.
Lessons Learned
Primarily, there is a need for reform in the defense industry. The process by which the pentagon procures new weapons systems is severely flawed, and these flaws encourage and reward irresponsible behavior (and punish honest behavior).
Cost overruns should not be accepted as a normal effect of doing business. They should be investigated, the reasons identified, ands steps taken to ensure better cost estimation in future.
Strict bureaucratic control of procurement process invites abuse. The demand to go with the lowest bidder, the willingness to pay any cost overrun if the appropriate paperwork is submitted, and other actions that require procedural compliance without investigation of the substance or reasons for such policies and procedures becomes a system that can easily be gamed.
EN: In this instance, the author seems to put full blame on the government, but I suppose these lessons could be applied to corporate procurement processes as well.