A-65768 L/M, NOV 10, 1982, OFFICE OF GENERAL COUNSEL

A-65768 L/M, NOV 10, 1982, OFFICE OF GENERAL COUNSEL

PRECIS-UNAVAILABLE

MR. JOHN BYRNE, GENERAL SERVICES ADMINISTRATION:

THIS IS IN RESPONSE TO YOUR LETTER OF SEPTEMBER 14, 1982, REQUESTING OUR COMMENTS ON THE FOLLOWING MATTER.

IN THE MAY 27, 1982, EDITION OF THE FEDERAL REGISTER, THE FOLLOWING ITEM APPEARED:

"EDITORIAL NOTE: PURSUANT TO A REQUEST FROM THE GENERAL ACCOUNTING OFFICE, THE OFFICE OF THE FEDERAL REGISTER WILL INSERT INTERPRETATION NO. 1 TO COST ACCOUNTING STANDARD 403 IN THE NEXT EDITION OF TITLE 4, CODE OF FEDERAL REGULATIONS PRESENTLY SCHEDULED FOR REVISION AS OF JANUARY 1, 1983. THE TEXT OF INTERPRETATION NO. 1 PUBLISHED ON MARCH 3, 1980 (45 FR 13721) WILL BE ADDED AS AN APPENDIX TO PART 403 OF TITLE 4, CFR." 47 FED.REG. 23137.

THEREAFTER, VARIOUS REPRESENTATIVES OF THE AEROSPACE INDUSTRY CHALLENGED THE RIGHT OF YOUR OFFICE TO COMPLY WITH OUR REQUEST, QUESTIONING:

(1) WHETHER INTERPRETATION NO. 1 TO COST ACCOUNTING STANDARD 403 CONSTITUTED AN OFFICIAL ACTION OF THE BOARD WHICH IS AUTHORIZED TO BE PUBLISHED IN THE C.F.R.; AND,

(2) WHETHER THIS OFFICE MAY CONTINUE TO SPONSOR PUBLICATION OF THE STANDARDS AND INTERPRETATIONS IN THE C.F.R.

WHILE WE TOUCHED BRIEFLY ON SOME OF THE ISSUES RAISED BY THESE QUESTIONS IN OUR LETTER TO YOU OF AUGUST 31, 1982 (REFERENCE A-65768), SINCE THAT LETTER WAS PRIMARILY CONCERNED WITH THE GENERAL AUTHORITY OF THE OFFICE OF THE FEDERAL REGISTER TO PUBLISH INTERPRETATIONS IN THE C.F.R., WE WILL AVAIL OURSELVES OF THIS OPPORTUNITY TO PROVIDE YOU WITH A MORE DETAILED DISCUSSION OF THIS MATTER.

THE COST ACCOUNTING STANDARDS BOARD (CASB) WAS ESTABLISHED IN 1970 FN1 TO PROMULGATE COST ACCOUNTING STANDARDS DESIGNED TO ACHIEVE UNIFORMITY AND CONSISTENCY IN THE COST ACCOUNTING PRINCIPLES FOLLOWED BY DEFENSE CONTRACTORS AND SUBCONTRACTORS UNDER FEDERAL CONTRACTS. FN2 THESE STANDARDS ARE REQUIRED TO BE USED BY DEFENSE CONTRACTORS AND SUBCONTRACTORS IN ESTIMATING, ACCUMULATING, AND REPORTING COSTS IN CONNECTION WITH THE PRICING, ADMINISTRATION AND SETTLEMENT OF ALL NEGOTIATED PRIME CONTRACT AND SUBCONTRACT NATIONAL DEFENSE PROCUREMENTS WITH THE UNITED STATES IN EXCESS OF $100,000 EXCEPT IN CERTAIN SITUATIONS WHICH ARE NOT IMPORTANT FOR THE PURPOSES OF OUR DISCUSSION. FN3

THE CASB WAS SPECIFICALLY EXEMPTED FROM THE REQUIREMENTS OF 5 U.S.C. SECS. 551, 553-559 AND 701-706 WHEN PERFORMING ITS FUNCTIONS. FN4 INSTEAD SPECIFIC PROCEDURES WERE ESTABLISHED PURSUANT TO WHICH THE CASB WAS TO ADOPT COST ACCOUNTING STANDARDS, RULES AND REGULATIONS FOR THEIR IMPLEMENTATION, AND ANY MODIFICATION THEREOF. THESE PROCEDURES REQUIRED THAT PROPOSALS BE PUBLISHED IN THE FEDERAL REGISTER AND THAT INTERESTED PARTIES BE PROVIDED AN OPPORTUNITY TO BE HEARD. ONCE ADOPTED, THESE RULES, REGULATIONS, AND MORE IMPORTANTLY FOR THE PURPOSES OF OUR DISCUSSION, THE COST ACCOUNTING STANDARDS, WERE GIVEN THE FORCE AND EFFECT OF LAW. FN5

THEREAFTER, IN ACCORDANCE WITH THESE PRESCRIBED PROCEDURES, THE CASB PROMULGATED A NUMBER OF COST ACCOUNTING STANDARDS WHICH WERE ANNUALLY INCORPORATED INTO CHAPTER III OF TITLE 4, CODE OF FEDERAL REGULATIONS (C.F.R.). THIS WAS PROPER SINCE THE COST ACCOUNTING STANDARDS UPON THEIR ISSUANCE HAD THE FORCE AND EFFECT OF LAW WITH REGARD TO DEFENSE CONTRACTORS AND SUBCONTRACTORS. THUS THEY MET THE STANDARD FOR PUBLICATION IN THE C.F.R. SINCE THEY WERE OF GENERAL APPLICABILITY AND CURRENT AND FUTURE LEGAL EFFECT. FN6

NOTHING IN EITHER THE LAW FN7 OR THE COST ACCOUNTING STANDARDS THEMSELVES PROVIDED THAT THEY WOULD TERMINATE OR CASB HAS NOT REPEALED ANY OF THESE STANDARDS AND NO COURT OF EXPIRE UPON SOME FIXED DATE OF OCCURRENCE. FURTHERMORE, THE COMPETENT JURISDICTION HAS VOIDED THEM. THUS UNLESS THE CONGRESS HAS ACTED TO REPEAL THEM, THEY STILL HAVE THE FORCE AND EFFECT OF LAW WITH REGARD TO DEFENSE CONTRACTORS AND SUBCONTRACTORS UNDER NEGOTIATED PROCUREMENTS.

AS A GENERAL RULE, REPEALS OF LAW BY IMPLICATION ARE NOT FAVORED, WATT V. ALASKA, 451 U.S. 259, 267 (1981); UNITED STATES V. WILL, 449 U.S. 200, 221 (1980), AND THE INTENTION OF THE LEGISLATURE TO HAVE ACTED TO REPEAL ANY LAW MUST BE CLEAR AND MANIFEST, UNITED STATES V. BORDEN CO., 308 U.S. 188, 198 (1939). FURTHERMORE, LEGISLATIVE HISTORY OF STATUTES AND CONGRESSIONAL INTENT ARE IMPORTANT FACTORS TO BE CONSIDERED WHEN DETERMINING WHETHER THERE HAS BEEN A REPEAL BY IMPLICATION. SEE WATT V. ALASKA, ABOVE; PLAINS ELEC. GENERATION AND TRANSMISSION CO-OP V. PUEBLO OF LAGUNA, 542 F.2D 1375, 1376 (10 CIR., 1976). THEREFORE, THE LEGISLATIVE HISTORY OF THE RELEVANT APPROPRIATION ACTS FOR THE CASB PRECEDING THE EXPIRATION OF THE FUNDING ON SEPTEMBER 30, 1980, IS APPROPRIATE IN ORDER TO ASSIST US IN DETERMINING THE PROPER INTERPRETATION TO BE GIVEN THE CONGRESS' DECISION TO CUT OFF APPROPRIATIONS FOR THE CASB BEGINNING IN FISCAL YEAR 1981.

BEGINNING WITH THE HEARINGS ON FISCAL YEAR 1980 APPROPRIATIONS FOR THE CASB, QUESTIONS BEGAN TO BE RAISED ABOUT WHY THE CASB HAD NOT COMPLETED ITS TASK OF PROMULGATING STANDARDS AND ABOUT THE CONTINUED EXISTENCE OF THE BOARD ONCE ITS TASK OF PROMULGATING COST ACCOUNTING STANDARDS HAD BEEN COMPLETED. FN8 HOWEVER, RATHER THAN STOP FUNDING AT THIS POINT, THE HOUSE APPROPRIATIONS COMMITTEE PROVIDED FUNDING FOR AN ADDITIONAL YEAR STATING:

"THE BOARD INDICATES THAT IT IS NOT INTERESTED IN BECOMING A PERMANENT BODY AND SUGGESTS THAT THE CONGRESS REVIEW ITS NEED IN ANOTHER YEAR. TO DATE, IT HAS COST MORE THAN $600,000 FOR EACH STANDARD AND THE QUESTION IS WHETHER THERE IS A NEED FOR ANY ADDITIONAL STANDARDS OTHER THAN THOSE RELATING TO INDIRECT COSTS, NOW UNDER CONSIDERATION. THE BOARD WAS ASKED TO LIST FURTHER COST ACCOUNTING STANDARDS NECESSARY TO MEET ITS CONGRESSIONAL MISSION, ALONG WITH THE COSTS AND TIME REQUIRED TO COMPLETE THESE STANDARDS. IT RESPONDED WITH 17 STANDARDS, AND INDICATED THAT IT COULD NOT ESTIMATE THE COSTS AND THAT THE PROJECTS COULD BE COMPLETED OVER THE NEXT TWO YEARS.

"THE COMMITTEE BELIEVES THAT THE BOARD HAS CONTRIBUTED SUBSTANTIALLY TO THE DEVELOPMENT OF CONSISTENCY AND UNIFORMITY IN COST ACCOUNTING AND THAT ITS USEFUL LIFE SHOULD ONLY BE PROLONGED SUFFICIENTLY TO COMPLETE THE INDIRECT COST STANDARDS. WORK ON THESE STANDARDS COMMENCED IN EARLY 1977 AND THE COMMITTEE ANTICIPATES THAT THESE WILL BE PROMULGATED BY THE END OF FY 1980.

"THE AUTHORIZING COMMITTEES ARE URGED TO REVIEW THE ACTIVITY OF THE BOARD WITH THE OBJECTIVE OF PLACING CONTINUING ACTIVITY WITH AN APPROPRIATE AGENCY INVOLVING MUCH LESS COST TO THE FEDERAL GOVERNMENT." H.R.REP. NO. 96-245, ACCOMPANYING THE LEGISLATIVE BRANCH APPROPRIATION BILL FOR 1980 (H.R. 4390), 41 (1979).

WHILE H.R. 4390 WAS PASSED BY THE HOUSE, IT WAS NOT ADOPTED BY THE SENATE DURING THE REGULAR APPROPRIATION PROCESS, BUT INSTEAD WAS INCORPORATED BY THE CONGRESS UNDER SECTION 101(C) OF THE CONTINUING RESOLUTION PROVIDING FUNDING FOR THE LEGISLATIVE BRANCH FOR FISCAL YEAR 1980, PUB.L. NO. 96-86, OCTOBER 12, 1979, 93 STAT. 657.

THEREAFTER, DURING THE HEARINGS ON THE 1981 CASB APPROPRIATIONS, IT WAS MADE CLEAR THAT A REDIRECTION IN THE FOCUS OF THE CASB ACTIVITY WAS IMMINENT AS IT WAS COMPLETING ITS TASK OF PROMULGATING COST ACCOUNTING STANDARDS. FN9 HOWEVER, RATHER THAN PROVIDE FUNDS FOR THE CASB TO UNDERTAKE ACTIVITY IN A NEW DIRECTION, THE HOUSE APPROPRIATIONS COMMITTEE RECOMMENDED NO FUNDING FOR THE CASB FOR FISCAL YEAR 1981, AND EXPLAINED ITS REASONS AS FOLLOWS:

"THE COMMITTEE RECOMMENDS NO APPROPRIATION FOR FISCAL YEAR 1981. THE TERMINATION OF THE COST ACCOUNTING STANDARDS BOARD REFLECTS THE COMMITTEE'S BELIEF THAT THE PURPOSES FOR WHICH THE BOARD WAS CREATED WILL HAVE BEEN FULFILLED WITH THE CONCLUSION OF THEIR CURRENT ACTIVITIES.

"THE COST ACCOUNTING STANDARDS BOARD WAS CREATED BY SECTION 719 OF THE 1970 AMENDMENTS TO THE DEFENSE PRODUCTION ACT, FOLLOWING AN 18-MONTH GENERAL ACCOUNTING OFFICE STUDY RECOMMENDING THE FEASIBILITY AND DESIRABILITY OF DEVELOPING COST ACCOUNTING STANDARDS.

"THE BOARD'S PURPOSE WAS TO NARROW THE OPTIONS IN COST ACCOUNTING AVAILABLE TO DEFENSE CONTRACTORS AND TO ASSURE UNIFORMITY AND CONSISTENCY IN COST ACCOUNTING. THE BOARD HAS ISSUED 11 MAJOR RULES AND REGULATIONS AND 17 STANDARDS SINCE THAT TIME. IN TESTIMONY BEFORE THE COMMITTEE, THE COMPTROLLER GENERAL, WHO IS ALSO CHAIRMAN OF THE COST ACCOUNTING STANDARDS BOARD, HAS INDICATED THAT ISSUING INDIRECT COST STANDARDS IS THE MAJOR PIECE OF UNFINISHED BUSINESS THAT REMAINS FOR THE BOARD. HENCEFORTH, THE BOARD WOULD CONCENTRATE ON COMPLIANCE MATTERS AND REFINING THE EXISTING CORPUS OF COST ACCOUNTING STANDARDS.

"LAST YEAR, THE COMMITTEE INDICATED THAT THE BOARD HAS CONTRIBUTED SUBSTANTIALLY TO THE DEVELOPMENT OF CONSISTENCY AND UNIFORMITY IN COST ACCOUNTING AND THAT ITS USEFUL LIFE SHOULD ONLY BE PROLONGED SUFFICIENTLY TO COMPLETE THE INDIRECT COST STANDARDS. SINCE THE CURRENT PLAN IS TO PROMULGATE INDIRECT COST STANDARDS THIS FISCAL YEAR, THE OBJECTIVES OF THE COST ACCOUNTING STANDARDS BOARD WILL HAVE BEEN ACCOMPLISHED. THERE IS NO NEED FOR ITS CONTINUED EXISTENCE. COMPLIANCE MONITORING AND REGULATORY CLARIFICATION IS A LEGITIMATE AND TRADITIONAL FUNCTION OF THE EXECUTIVE BRANCH, AND VARIOUS OFFICIALS HAVE INDICATED THAT THE EXECUTIVE BRANCH CAN ABSORB THE FUNCTION. THUS, THE COMMITTEE RECOMMENDS TERMINATION OF THE COST ACCOUNTING STANDARDS BOARD." H.R.REP. 96-1098, 96TH CONG., 2D SESS. 35-36 (1980) (ACCOMPANYING H.R. 7593, THE LEGISLATIVE BRANCH APPROPRIATION ACT, 1981).

THEREAFTER, THE HOUSE ADOPTED H.R. 7593, WITHOUT FUNDING THE CASB AND THIS BILL AS PASSED BY THE HOUSE WITH CERTAIN MINOR EXCEPTIONS WHICH ARE UNIMPORTANT TO THIS ISSUE, BECAME THE LEGISLATIVE BRANCH APPROPRIATION FOR 1981 UNDER TWO CONTINUING RESOLUTIONS. SEE PUB.L. NO. 96-369, SECTION 101(C), OCTOBER 1, 1980, 94 STAT. 1351, 1352 AND PUB.L. NO. 96-536, SECTION 101(C), DECEMBER 16, 1980, 94 STAT. 3166, 3167.

THUS IT IS CLEAR THAT NO REPEAL OF THE COST ACCOUNTING STANDARDS SHOULD BE IMPLIED FROM THE CONGRESS' FAILURE TO FUND THE CASB BEGINNING WITH FISCAL YEAR 1981. TO THE CONTRARY, IT IS CLEAR FROM THIS THAT THE CONGRESS INTENDED THE COST ACCOUNTING STANDARDS TO CONTINUE TO BE EFFECTIVE AND HAVE THE FORCE AND EFFECT OF LAW WITH REGARD TO DEFENSE CONTRACTORS AND SUBCONTRACTORS. ALL THEY INTENDED TO ACCOMPLISH WAS A SHIFT FROM THE CASB TO OTHER AGENCIES OF THE COMPLIANCE MONITORING AND REGULATIONS IMPLEMENTATION FUNCTIONS PREVIOUSLY EXERCISED BY THE CASB.

SECTION 719(A) OF THE DEFENSE PRODUCTION ACT OF 1950, SUPRA, WHICH ESTABLISHED THE CASB, ESTABLISHED THE BOARD AS AN AGENT OF CONGRESS, INDEPENDENT OF THE EXECUTIVE DEPARTMENTS. THE COMPTROLLER GENERAL WAS NAMED CHAIRMAN OF THE BOARD AND WAS AUTHORIZED TO APPOINT THE OTHER FOUR BOARD MEMBERS. THUS, A STRONG AFFINITY EXISTED BETWEEN THE CASB AND THE GAO DURING THE BOARD'S EXISTENCE. IT IS THIS AFFINITY, COUPLED WITH THE GAO'S RESPONSIBILITY FOR MONITORING COMPLIANCE WITH COST ACCOUNTING STANDARDS, WHICH SUPPORTS OUR SPONSORSHIP OF THE CONTINUED PUBLICATION OF CASB ISSUANCES.

SINCE THIS OFFICE IS AN AGENCY AUTHORIZED TO DETERMINE WHETHER A DEFENSE CONTRACTOR OR SUBCONTRACTOR HAS COMPLIED WITH THESE STANDARDS, FN10 IT IS NECESSARY THAT WE ASSURE THAT THESE STANDARDS ARE PUBLISHED IN THE C.F.R. OTHERWISE IT WOULD BE NECESSARY FOR CONTRACTORS AND SUBCONTRACTORS TO SEARCH THE FEDERAL REGISTER TO FIND THE STANDARDS IN ORDER TO DETERMINE THEIR REQUIREMENTS. BY SPONSORING THEIR CONTINUED PUBLICATION, WE ARE ATTEMPTING TO ASSURE THAT THE PURPOSE OF THE FEDERAL REGISTER ACT, FN11 AS AMENDED, AND NOW CODIFIED TO CHAPTER 15 OF TITLE 44, U.S.C. IS ACHIEVED: THAT THE PUBLIC HAVE EASY ACCESS TO THE ADMINISTRATIVE RULES AND PRONOUNCEMENTS OF GOVERNMENT. FN12 THE FACT THAT THE PROMULGATING AGENCY HAS CEASED TO EXIST SHOULD NOT BE PERMITTED TO DEFEAT THIS PURPOSE.

IT HAS BEEN ARGUED THAT INTERPRETATION NO. 1 TO COST ACCOUNTING STANDARD 403 IS INVALID BECAUSE IT WAS NOT ISSUED BY THE CASB IN CONFORMITY WITH THE PROCEDURES SET FORTH IN 50 U.S.C. APP. SEC. 2168(I). FN13 AS WE INDICATED IN OUR LETTER OF AUGUST 31, 1982, QUESTIONS CONCERNING THE VALIDITY AND APPLICATION OF THE INTERPRETATION MUST BE RESOLVED BY THE APPROPRIATE ADMINISTRATIVE AGENCY OR THE COURTS, NOT BY THE OFFICE OF THE FEDERAL REGISTER.

IT IS OUR VIEW THAT ONCE PROMULGATED, THE INTERPRETATION WAS REQUIRED TO BE PUBLISHED IN THE FEDERAL REGISTER BY 5 U.S.C. SEC. 552(A)(1)(D), AND ONCE PUBLISHED THERE IT IS ENTITLED TO BE INCLUDED IN 4 C.F.R. PART 403 UNDER AUTHORITY OF 1 C.F.R. SEC. 21.25(A). SINCE IT ALSO HAS GENERAL APPLICABILITY AND CURRENT LEGAL EFFECT (AT LEAST UNTIL SOME COURT DECIDES OTHERWISE) CONTINUED PUBLICATION IS WARRANTED JUST AS IT IS WITH THE COST ACCOUNTING STANDARDS. THUS WE FIND NOTHING THAT WOULD PRECLUDE YOUR OFFICE FROM CONTINUING TO PUBLISH THE STANDARDS AND INTERPRETATIONS PROMULGATED BY THE CASB, EVEN THOUGH THE CASB NO LONGER EXISTS, SINCE THE STANDARDS AND INTERPRETATIONS HAVE CONTINUED LEGAL EFFECT.

FN1 SEE SECTION 719 OF THE DEFENSE PRODUCTION ACT OF 1950, AS ADDED BY PUB.L. NO. 91-379, SECTION 103, AUGUST 15, 1970, 84 STAT. 796, AND AS AMENDED (50 U.S.C. APP. SEC. 2168).

FN2 50 U.S.C. APP. SEC. 2168(G).

FN3 IBID.

FN4 50 U.S.C. APP. SEC. 2168(I)(B).

FN5 50 U.S.C. APP. SEC. 2168(I)(A).

FN6 44 U.S.C. SEC. 1510 AS IMPLEMENTED BY 1 C.F.R. SEC. 8.1.

FN7 SECTION 101(A) OF PUB.L. NO. 91-379, AMENDED SECTION 717(A) OF THE DEFENSE PRODUCTION ACT OF 1950, AS AMENDED, 50 U.S.C. APP. SECTION 2166(A), TO EXEMPT THE CASB FROM THE AUTOMATIC TERMINATION OF ITS LEGAL AUTHORITY THAT OTHERWISE WOULD OCCUR UNDER THAT PROVISION OF LAW.

FN8 SEE HEARINGS ON THE LEGISLATIVE BRANCH APPROPRIATIONS FOR 1980 BEFORE A SUBCOMMITTEE OF THE HOUSE APPROPRIATIONS COMMITTEE (PART 2), 96TH CONG., 1ST SESS., 1664-1669 (1979).

FN9 SEE TESTIMONY OF ELMER B. STAATS, CHAIRMAN OF THE CASB DURING HEARINGS ON THE LEGISLATIVE BRANCH APPROPRIATIONS FOR 1981, BEFORE A SUBCOMMITTEE OF THE HOUSE APPROPRIATIONS COMMITTEE (PART 2), 96TH CONG., 2D SESS., 536-537, 544-545 (1980).

FN10 SEE 50 U.S.C. APP. SECTION 2168(J). OTHER AGENCIES CONCERNED WERE ALSO GIVEN THIS RESPONSIBILITY.

FN11 ACT OF JULY 26, 1935, CH. 417, 49 STAT. 500.

FN12 SEE H.R.REP. NO. 280, 74TH CONG., 1ST SESS., 1-3 (1935) ACCOMPANYING THE FEDERAL REGISTER ACT.

FN13 NONE OF THE OTHER INTERPRETATIONS CURRENTLY APPEARING IN 4 C.F.R. ARE CHALLENGED ON THIS GROUND.