B-125934, JAN. 11, 1956

B-125934, JAN. 11, 1956

TO HONORABLE CLARENCE G. MORSE, CHAIRMAN, FEDERAL MARITIME BOARD:

REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 16, 1955, ENCLOSING A COPY OF A LETTER TO YOU FROM MR. C. C. MALLORY, CHAIRMAN OF THE BOARD, GRACE LINE, INC., DATED DECEMBER 12, TO COMPLETE OUR FILES.

MR. MALLORY'S LETTER TAKES EXCEPTION TO THE FEDERAL MARITIME BOARD'S DETERMINATION PURSUANT TO SECTION 502 (B) OF THE MERCHANT MARINE ACT, 1936, OF $13,055,000 EACH AS THE "FAIR AND REASONABLE ESTIMATE OF (THE FOREIGN) COST" OF CONSTRUCTION OF TWO PROPOSED VESSELS AND URGES THE LOWERING OF THAT ESTIMATE WITH A RESULTING INCREASE IN THE CONSTRUCTION DIFFERENTIAL SUBSIDY PAYABLE BY THE GOVERNMENT. THE FINAL PARAGRAPH OF THE LETTER STATES:

"AS YOU POINTED OUT AT THE HEARING YOU GAVE US ON NOVEMBER 16, THE GENERAL ACCOUNTING OFFICE IS IN THE PICTURE TO BE SURE THAT WE ARE NEITHER UNDERPAID NOR OVERPAID. IN ORDER THAT THAT OFFICE MAY HAVE AVAILABLE TO IT OUR POSITION IN THIS MATTER, WE RESPECTFULLY REQUEST THAT YOU PRESENT A COPY OF THIS LETTER WITH THE DATA PREPARED BY YOUR STAFF.'

IT IS APPARENT FROM THE QUOTED PARAGRAPH THAT THERE IS A MISCONCEPTION OF OUR ROLE IN THE CONSTRUCTION DIFFERENTIAL SUBSIDY DETERMINATION PICTURE. OBVIOUSLY, IF THE GENERAL ACCOUNTING OFFICE WAS THE ARBITER AS TO THE PRECISE DOLLAR AMOUNT TO BE ALLOWED AS A SUBSIDY, THE DETERMINATIONS IN SUBSIDY MATTERS WOULD, IN THE FINAL ANALYSIS, BE OURS.

SECTION 502 (B) PROVIDES THAT THE CONSTRUCTION DIFFERENTIAL SUBSIDY "MAY EQUAL, BUT NOT EXCEED, THE EXCESS OF THE BID OF THE SHIPBUILDER ESTIMATE OF COST, AS DETERMINED BY THE COMMISSION (BOARD) * * * IF IT WERE CONSTRUCTED * * * IN A FOREIGN SHIPBUILDING CENTER * * *.' CLEARLY, THIS PROVISION PLACES THE RESPONSIBILITY FOR DETERMINING THE ESTIMATED FOREIGN COSTS WHOLLY UPON THE BOARD AND ESTABLISHES, IN EFFECT, ONLY A "CEILING" UPON THE AMOUNT OF CONSTRUCTION DIFFERENTIAL SUBSIDY PROPERLY PAYABLE.

BECAUSE OF PAST DIFFICULTIES REGARDING THE VALIDITY OF CERTAIN CONTRACTS MADE PURSUANT TO ADMINISTRATIVE DETERMINATIONS OF SUBSIDIES, THE VESSEL REPLACEMENT COMMITTEE OF THE AMERICAN STEAMSHIP LINES RECOMMENDED IN ITS REPORT OF FEBRUARY 14, 1955, THAT WE EXAMINE THE BOARD'S DETERMINATIONS IN ADVANCE OF THE EXECUTION OF CONTRACTS PROPOSED TO BE MADE IN ACCORDANCE THEREWITH. IN OUR TESTIMONY OF MAY 18, 1955, BEFORE THE MERCHANT MARINE AND FISHERIES COMMITTEE, HOUSE OF REPRESENTATIVES, WE ACQUIESCED IN THAT RECOMMENDATION--- EVEN THOUGH CONTRARY TO OUR GENERAL POLICY AND PROCEDURES--- BECAUSE OF THE UNUSUAL CIRCUMSTANCES SURROUNDING THE SUBSIDY TRANSACTIONS. THE SOLE PURPOSE OF OUR ADVANCE DECISIONS IN THESE MATTERS IS TO PROVIDE THE ASSURANCE REQUESTED BY THE INDUSTRY THAT THE APPROVED CONTRACTS, WHEN EXECUTED, WOULD NOT BE THE SUBJECT OF LEGAL CONTROVERSIES AS TO THE AMOUNT OF THE SUBSIDIES. HOWEVER, WE EXPRESSLY STATED OUR CONCURRENCE IN THE VIEW EXPRESSED IN THE VESSEL REPLACEMENT COMMITTEE'S REPORT THAT OUR ADVANCE DECISIONS RELATIVE TO THE LEGALITY OF PROPOSED CONTRACTS WOULD NOT INFRINGE ON THE AUTHORITY OF THE FEDERAL MARITIME BOARD NOR INCREASE OUR EXISTING AUTHORITY.

IN SUMMARY, IT IS OUR VIEW THAT CONTRACTS BASED UPON THE BOARD'S DETERMINATIONS RESPECTING SUBSIDIES ARE SUBJECT TO LEGAL OBJECTION ONLY WHEN OUR PREAUDIT OF THOSE DETERMINATIONS RESULTS IN OUR CONCLUDING THAT THE AMOUNT OF THE PROPOSED SUBSIDY EXCEEDS THAT WHICH IS AUTHORIZED BY THE 1936 ACT, IRRESPECTIVE OF WHETHER THE BOARD'S POLICIES, PROCEDURES OR DETERMINATIONS MAY BE SUBJECT TO POSSIBLE CRITICISM IN OUR AUDIT REPORTS TO CONGRESS.