Government closes in on fraud indictments in Pentagon scandal. BILKING A STRONG DEFENSE

Operation Ill Wind, the two-year probe of alleged fraud and bribery in Pentagon contracting practices, was scheduled to blow in its first series of indictments in mid-November. Now a spokesman for Henry Hudson, the prosecuting United States attorney, says indictments will come in the next ``couple of weeks.'' Last June headlines exploded with allegations of massive fraud in the Department of Defense. The reports came after special agents of the Federal Bureau of Investigation and the Naval Investigative Service (NIS) conducted nearly 30 searches of the homes and offices of consultants, contractors, and government officials, in 12 states and Washington.

A quiet period ensued as federal prosecutors went to work reviewing the evidence seized by investigators. Now the tension builds as defense lawyers await word on who will be named. Defense attorneys say the government needs to tread lightly to ensure fairness.

``Without any question there is a feeding frenzy,'' says Richard Bennett, who represents the companies of Northrop, Gould, and BDM, all of which are suspected of wrongdoing. ``A lot of good companies and good people will be unfairly tarnished unless the government proceeds with the precision of a surgeon's knife instead of a meat ax.''

One consultant complains that his reputable contracting history was trashed along with his contract when the company he was doing business with reacted to the scandal by ``cutting everyone.''

The list of companies mentioned in the probe reads like a ``Who's Who'' of corporate America. Among them: Boeing, General Dynamics, Hughes Aircraft, IBM, Litton Industries, Lockheed, Martin Marietta, McDonnell Douglas, Raytheon, Unisys, and United Technologies.

A defense lawyer, speaking on condition of anonymity, says the indictment delay is due to the government's trying to ``turn people,'' meaning to negotiate deals with individuals likely to be charged in exchange for blowing the whistle.

The government says its approach is methodical to ensure that justice is served. US Attorney Hudson is using 15 lawyers, some from the Justice Department's fraud and public-integrity sections, and 75 federal agents from the NIS, FBI, and Internal Revenue Service.

The investigation began in 1986 when the FBI and the NIS were tipped off that a consultant had approached an employee of a company that submitted a bid on a contract with the Marine Corps.

The consultant told the company representative that he could provide him with competitors' costs and bid data. This passing of insider information is central to the government's case.

Government wiretaps allegedly disclosed that William Parkin, a consultant and retired director of acquisition for the Joint Cruise Missile Project Office at the Pentagon, served as a middleman who paid government employees for inside information and sold it to contractors.

The wiretap of Mr. Parkin developed probable cause for electronic surveillance of consultant William Galvin, former Assistant Navy Secretary Melvyn Paisley, and consultant Fred Lackner. These men are considered prime targets in the probe.

Parkin told the Wall Street Journal that he paid $15,000 to $18,000 in late 1986 for information on a pending Navy contract and turned the information over to Hazeltine Corporation. Parkin has also said he split fees from Teledyne Electronics with Mr. Lackner.

``Hazeltine and Teledyne are on the front burner,'' one source says.

The Defense Department awards contracts worth $150 billion annually. A recent audit ordered by Defense Secretary Frank Carlucci disclosed that $43 million in professional fees and consultant costs for 12 selected companies were dubious.

Contractors audited reportedly were incurring substantial amounts of these fees with deficient controls over the need for such services, the content of agreements, and the nature and extent of actual services. Contractors were unable in many instances to provide adequate evidence to support the nature and extent of the consulting services received.