B-112178, DECEMBER 8, 1952, 32 COMP. GEN. 277

B-112178: Dec 8, 1952

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

CONTRACTS - ATOMIC ENERGY COMMISSION CONTRACTORS - EXAMINATION OF RECORDS BY THE GENERAL ACCOUNTING OFFICE A "SUBCONTRACT" AS THAT TERM IS USED IN THE INDEPENDENT OFFICES APPROPRIATION ACT OF 1953. IN CONNECTION WITH THE REQUIREMENT THAT ATOMIC ENERGY COMMISSION CONTRACTS NEGOTIATED WITHOUT ADVERTISING CONTAIN A PROVISION THAT THE COMPTROLLER GENERAL SHALL HAVE THE RIGHT TO EXAMINE ALL PERTINENT RECORDS OF CONTRACTORS OR SUBCONTRACTORS. MAY BE CONSTRUED AS MEANING ANY PURCHASE ORDER OR AGREEMENT TO PERFORM ALL OR ANY PART OF THE WORK OR TO MAKE OR FURNISH ANY MATERIALS REQUIRED FOR THE PERFORMANCE OF A CONTRACT WITH THE UNITED STATES AND INCLUDES SUBCONTRACTS WHICH ARE LET AFTER COMPETITIVE BIDDING.

B-112178, DECEMBER 8, 1952, 32 COMP. GEN. 277

CONTRACTS - ATOMIC ENERGY COMMISSION CONTRACTORS - EXAMINATION OF RECORDS BY THE GENERAL ACCOUNTING OFFICE A "SUBCONTRACT" AS THAT TERM IS USED IN THE INDEPENDENT OFFICES APPROPRIATION ACT OF 1953, IN CONNECTION WITH THE REQUIREMENT THAT ATOMIC ENERGY COMMISSION CONTRACTS NEGOTIATED WITHOUT ADVERTISING CONTAIN A PROVISION THAT THE COMPTROLLER GENERAL SHALL HAVE THE RIGHT TO EXAMINE ALL PERTINENT RECORDS OF CONTRACTORS OR SUBCONTRACTORS, MAY BE CONSTRUED AS MEANING ANY PURCHASE ORDER OR AGREEMENT TO PERFORM ALL OR ANY PART OF THE WORK OR TO MAKE OR FURNISH ANY MATERIALS REQUIRED FOR THE PERFORMANCE OF A CONTRACT WITH THE UNITED STATES AND INCLUDES SUBCONTRACTS WHICH ARE LET AFTER COMPETITIVE BIDDING. THE TERM "SUBCONTRACT" AS USED IN THE INDEPENDENT OFFICES APPROPRIATION ACT OF 1953, IN CONNECTION WITH THE REQUIREMENT THAT ATOMIC ENERGY COMMISSION CONTRACTS NEGOTIATED WITHOUT ADVERTISING CONTAIN A PROVISION THAT THE COMPTROLLER GENERAL SHALL HAVE THE RIGHT TO EXAMINE ALL PERTINENT RECORDS OF CONTRACTORS OR SUBCONTRACTORS, INCLUDES PURCHASE ORDERS FOR STANDARD COMMERCIAL OFF-THE-SHELF ITEMS REQUIRED IN THE PERFORMANCE OF THE PRIME CONTRACT HOWEVER, PURCHASE ORDERS UNDER $1,000 AND SUBCONTRACTS AND PURCHASE ORDERS FOR PUBLIC UTILITY SERVICE AT RATES ESTABLISHED FOR UNIFORM APPLICABILITY TO THE GENERAL PUBLIC MAY BE EXCLUDED, ALSO THERE MAY BE EXCLUDED CONTRACTS AND PURCHASE ORDERS WHICH THE PRIME CONTRACTOR ENTERS INTO FOR GENERAL INVENTORY ITEMS NOT SPECIFICALLY IDENTIFIABLE WITH WORK UNDER THE PRIME CONTRACT. THE TERM "SUBCONTRACT" AS USED IN THE INDEPENDENT OFFICES APPROPRIATION ACT OF 1953, IN CONNECTION WITH THE REQUIREMENT THAT ATOMIC ENERGY COMMISSION CONTRACTS NEGOTIATED WITHOUT ADVERTISING CONTAINS A PROVISION THAT THE COMPTROLLER GENERAL SHALL HAVE THE RIGHT TO EXAMINE ALL PERTINENT RECORDS OF A CONTRACTOR OR ANY OF HIS SUB SUBCONTRACTORS, REFERS TO SUBCONTRACTORS HAVING AN IMMEDIATE CONTRACTUAL RELATIONSHIP TO THE PRIME CONTRACTOR AND NOT TO SUBSEQUENT TIERS OF SUB-SUBCONTRACTORS. THE REQUIREMENT IN THE INDEPENDENT OFFICES APPROPRIATION ACT OF 1953, THAT ALL ATOMIC ENERGY COMMISSION CONTRACTS NEGOTIATED WITHOUT ADVERTISING CONTAIN A PROVISION THAT THE COMPTROLLER GENERAL SHALL HAVE THE RIGHT TO EXAMINE THE PERTINENT RECORDS OF CONTRACTORS AND SUBCONTRACTORS, SPECIFICALLY REFERS TO CONTRACTS THEREAFTER NEGOTIATED AND SHOULD NOT BE GIVEN RETROACTIVE EFFECT TO PRIOR TRANSACTIONS UNDER A CONTRACT OR TO PREVIOUSLY EXECUTED SUBCONTRACTS. THE REQUIREMENT IN THE INDEPENDENT OFFICES APPROPRIATION ACT OF 1953, THAT ALL ATOMIC ENERGY COMMISSION CONTRACTS NEGOTIATED WITHOUT ADVERTISING CONTAIN A PROVISION THAT THE COMPTROLLER GENERAL SHALL HAVE THE RIGHT TO EXAMINE THE PERTINENT RECORDS OF CONTRACTORS AND SUBCONTRACTORS, APPLIES TO ALL CONTRACTS AND SUBCONTRACTS WHICH MAY REQUIRE THE EXPENDITURE OF PUBLIC FUNDS, EITHER DIRECTLY OR AS A DIRECT CONSEQUENCE OF THE CONTRACTS, AND THEREFORE, THE PROVISION SHOULD BE INCLUDED IN LEASES OF GOVERNMENT- OWNED HOUSING OR COMMERCIAL FACILITIES AT GOVERNMENT INSTALLATIONS. UNDER THE INDEPENDENT OFFICES APPROPRIATION ACT OF 1953, WHICH REQUIRES THAT ALL ATOMIC ENERGY COMMISSION CONTRACTS NEGOTIATED WITHOUT ADVERTISING PROVIDE THAT THE COMPTROLLER GENERAL SHALL HAVE ACCESS TO AND THE RIGHT TO EXAMINE THE PERTINENT RECORDS OF CONTRACTORS AND SUBCONTRACTORS FOR A PERIOD OF THREE YEARS AFTER FINAL PAYMENT, A PROVISION MAY BE INCLUDED IN CONTRACTS, WHICH THE COMMISSION DETERMINES WOULD BE UNDULY BURDENSOME ON SUBCONTRACTORS IF THE RETENTION PERIOD WERE MEASURED BY THE DATE OF FINAL PAYMENT UNDER THE PRIME CONTRACT, FOR THE RETENTION OF SUBCONTRACTOR'S RECORDS FOR THREE YEARS AFTER FINAL PAYMENT UNDER THE SUBCONTRACTS. APPROPRIATIONS MADE IN THE INDEPENDENT OFFICES APPROPRIATION ACT OF 1953 FOR THE ATOMIC ENERGY COMMISSION ARE NOT AVAILABLE FOR PAYMENTS UNDER CONTRACTS NEGOTIATED WITHOUT ADVERTISING WHICH CONTAIN A FORMULA FOR REIMBURSEMENT OF OVERHEAD EXPENSES THAT PRECLUDES AN AUDIT BY THE GENERAL ACCOUNTING OFFICE OF ANY TRANSACTIONS UNDER SUCH CONTRACTS.

COMPTROLLER GENERAL WARREN TO THE CHAIRMAN, ATOMIC ENERGY COMMISSION, DECEMBER 8, 1952:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 3, 1952, REQUESTING AN OPINION CONCERNING SEVERAL QUESTIONS WHICH HAVE ARISEN IN CONNECTION WITH CERTAIN PROVISIONS CONTAINED IN THE INDEPENDENT OFFICES APPROPRIATION ACT, 1953, 66 STAT. 396, WHICH READ AS FOLLOWS:

NO PART OF THE APPROPRIATIONS HEREIN MADE TO THE ATOMIC ENERGY COMMISSION SHALL BE AVAILABLE FOR PAYMENTS UNDER ANY CONTRACT HEREAFTER NEGOTIATED WITHOUT ADVERTISING BY THE COMMISSION, EXCEPT CONTRACTS WITH ANY FOREIGN GOVERNMENT OR ANY AGENCY THEREOF AND CONTRACTS FOR SOURCE MATERIAL WITH FOREIGN PRODUCERS, UNLESS SUCH CONTRACT INCLUDES A CLAUSE TO THE EFFECT THAT THE COMPTROLLER GENERAL OF THE UNITED STATES OR ANY OF HIS DULY AUTHORIZED REPRESENTATIVES SHALL UNTIL THE EXPIRATION OF THREE YEARS AFTER FINAL PAYMENT HAVE ACCESS TO AND THE RIGHT TO EXAMINE ANY DIRECTLY PERTINENT BOOKS, DOCUMENTS, PAPERS, AND RECORDS OF THE CONTRACTOR OR ANY OF HIS SUBCONTRACTORS ENGAGED IN THE PERFORMANCE OF AND INVOLVING TRANSACTIONS RELATED TO SUCH CONTRACTS OR SUBCONTRACTS: PROVIDED, THAT NO PART OF SUCH APPROPRIATIONS SHALL BE AVAILABLE FOR PAYMENTS UNDER ANY SUCH CONTRACT WHICH INCLUDES ANY PROVISION PRECLUDING AN AUDIT BY THE GENERAL ACCOUNTING OFFICE OF ANY TRANSACTION UNDER SUCH CONTRACT.

IT IS STATED IN YOUR LETTER THAT THE COMMISSION HAS EXPERIENCED CONSIDERABLE DIFFICULTY IN ATTEMPTING TO DEFINE THE TERM "SUBCONTRACT" AS CONTEMPLATED BY THE ABOVE STATUE AND YOU ASK ADVICE CONCERNING THE MEANING OF THAT TERM. YOU ALSO ASK---

A. IS THE PROVISO INTENDED TO COVER SUBCONTRACTS WHICH ARE LET AFTER COMPETITIVE BIDDING?

B. DOES THE TERM SUBCONTRACT INCLUDE PURCHASE ORDERS ISSUED BY THE PRIME CONTRACTOR FOR STANDARD COMMERCIAL "OFF-THE-SHELF" ITEMS REQUIRED IN THE PERFORMANCE OF A CONTRACTOR'S WORK?

C. DOES THE TERM SUBCONTRACT INCLUDE CONTRACTS OR PURCHASE ORDERS WHICH THE PRIME CONTRACTOR MAY ENTER INTO FOR GENERAL INVENTORY ITEMS NOT SPECIFICALLY IDENTIFIABLE WITH HIS WORK UNDER THE PRIME CONTRACT?

THE FIRST PROVISO OF THE INSTANT STATUTE IS SIMILAR TO THAT CONTAINED IN PUBLIC LAW 921, 81ST CONGRESS, 64 STAT. 1257, RELATIVE TO CONTRACTS NEGOTIATED PURSUANT TO THE FIRST WAR POWERS ACT, 1941, 55 STAT. 838, AND PUBLIC LAW 245, 82D CONGRESS, RELATIVE TO CONTRACTS NEGOTIATED UNDER THE ARMED SERVICES PROCUREMENT ACT OF 1947, 62 STAT. 21, AND THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 63 STAT. 377. THE APPLICABLE LEGISLATIVE HISTORIES CLEARLY DISCLOSE THAT THE PROVISIONS CONTAINED IN THESE EARLIER ACTS WERE INTENDED, AMONG OTHER THINGS, TO AFFORD A MEANS WHEREBY THE CONGRESS COULD BE INFORMED OF ANY EXCESSIVE OR UNREASONABLE PAYMENTS TO CONTRACTORS HOLDING NEGOTIATED CONTRACTS AND TO SERVE AS A DETERRENT TO THE MAKING OF CONTRACTS PROVIDING FOR UNREASONABLE PROFITS TO GOVERNMENT CONTRACTORS.

IT IS NOT BELIEVED THAT THE TERM "SUBCONTRACT" AS USED IN SUCH LEGISLATION CAN BE GIVEN A DEFINITION WHICH WILL COVER EVERY SITUATION WHICH MIGHT ARISE. HOWEVER, SUCH LEGISLATION IS SOMEWHAT RELATED TO THE RENEGOTIATION ACT OF 1951, 65 STAT. 7, 10, WHICH ACT IS DESIGNED TO ELIMINATE EXCESSIVE PROFITS FROM GOVERNMENT CONTRACTS AND RELATED SUBCONTRACTS. A SUBCONTRACT IS DEFINED, IN PART, IN SECTION 103 (G) THEREOF AS MEANING ANY PURCHASE ORDER OR AGREEMENT TO PERFORM ALL OR ANY PART OF THE WORK OR TO MAKE OR FURNISH ANY MATERIALS REQUIRED FOR THE PERFORMANCE OF ANY CONTRACTS WITH THE UNITED STATES. SUCH DEFINITION MAY SERVE AS A GUIDE IN DETERMINING THE MEANING OF THE TERM "SUBCONTRACT" AS IT APPEARS IN THAT PORTION OF THE INDEPENDENT OFFICES APPROPRIATION ACT, 1953, QUOTED ABOVE. SEE ALSO SECTION 3B OF THE CONTRACT SETTLEMENT ACT OF 1944, 58 STAT. 650.

WHILE SUBCONTRACTS LET AFTER COMPETITIVE BIDDING WOULD, IN MOST INSTANCES, REPRESENT THE LOWEST PRICES OBTAINABLE, I FIND NO BASIS TO EXCLUDE SUCH SUBCONTRACTS FROM THE PROVISIONS OF THE STATUTE WHICH ARE COMPREHENSIVE IN REFERENCE TO SUBCONTRACTS. CONSEQUENTLY, QUESTION 1 (A) ABOVE IS ANSWERED IN THE AFFIRMATIVE.

THE TERM "SUBCONTRACT" LIKEWISE INCLUDES PURCHASE ORDERS FOR STANDARD COMMERCIAL OFF-THE-SHELF ITEMS REQUIRED IN THE PERFORMANCE OF THE PRIME CONTRACT. HOWEVER, THIS OFFICE WILL INTERPOSE NO OBJECTION IF THE TERM "SUBCONTRACT" BE CONSTRUED AS EXCLUDING PURCHASE ORDERS UNDER $1,000 AND SUBCONTRACTS AND PURCHASE ORDERS FOR PUBLIC UTILITY SERVICE AT RATES ESTABLISHED FOR UNIFORM APPLICABILITY TO THE GENERAL PUBLIC. YOUR QUESTION 1 (B) IS ANSWERED ACCORDINGLY.

QUESTION 1 (C) IS ANSWERED IN THE NEGATIVE.

YOUR FURTHER QUESTIONS AND YOUR COMMENTS THEREON WILL BE SET FORTH AND ANSWERED IN THE ORDER PRESENTED IN YOUR LETTER.

2. WE HAVE TAKEN THE TERM SUBCONTRACT AS USED IN THE FIRST PROVISO TO REFER ONLY TO SUBCONTRACTORS HAVING AN IMMEDIATE CONTRACTUAL RELATIONSHIP TO THE PRIME CONTRACTOR AND NOT TO SUBSEQUENT TIERS OF SUB- SUBCONTRACTORS. WE WOULD APPRECIATE YOUR DECISION AS TO THE CORRECTNESS OF OUR VIEW ON THIS POINT.

SINCE THE PROVISO IS LIMITED TO THE CONTRACTOR OR ANY OF "HIS" SUBCONTRACTORS, YOUR VIEW ON THIS POINT IS CORRECT.

3. THE COMMISSION WILL BE NEGOTIATING A NUMBER OF SUPPLEMENTS TO CONTRACTS EXECUTED PRIOR TO JULY 1, 1952 FOR THE PURPOSE OF OBLIGATING ADDITIONAL FUNDS, CHANGING THE NATURE OR SCOPE OF THE WORK OR AMENDING OTHER TERMS OF EXISTING CONTRACTS. WE PLAN TO INCLUDE IN MANY OF THE SUPPLEMENTS NEGOTIATED AFTER JULY 1, 1952 A PROVISION RELATING TO EXAMINATION OF RECORDS WHICH MEETS THE REQUIREMENTS OF OUR APPROPRIATION PROVISION. IT IS OUR VIEW, HOWEVER, THAT THE APPROPRIATION PROVISION SHOULD NOT BE GIVEN RETROACTIVE EFFECT IN RESPECT TO PRIOR TRANSACTIONS UNDER THE CONTRACT OR TO PREVIOUSLY EXECUTED SUBCONTRACTS. WE WOULD APPRECIATE YOUR DECISION AS TO THE CORRECTNESS OF OUR VIEW ON THIS POINT.

THE PROVISO SPECIFICALLY REFERS ONLY TO CONTRACTS THEREAFTER NEGOTIATED. COMPARE, IN THIS CONNECTION, THE LANGUAGE OF SECTION 1 OF PUBLIC LAW 921, SUPRA. CONSEQUENTLY, WITH RESPECT TO PRIOR TRANSACTIONS UNDER THE CONTRACT OR TO PREVIOUSLY EXECUTED SUBCONTRACTS, THE PROVISION NEED NOT BE APPLIED RETROACTIVELY.

4. ARE THE PROVISOS IN OUR APPROPRIATION ACT APPLICABLE TO CONTRACTS AND SUBCONTRACTS UNDER WHICH NO PAYMENT OF GOVERNMENT FUNDS IS REQUIRED? EXAMPLES OF CONTRACTS AND SUBCONTRACTS IN THIS CATEGORY WOULD BE LEASES OF GOVERNMENT-OWNED HOUSING OR COMMERCIAL FACILITIES AT SEVERAL OF OUR MAJOR INSTALLATIONS. IT WILL BE NOTED THAT WHILE NO PAYMENT OF GOVERNMENT FUNDS TO THE CONTRACTOR OR SUBCONTRACTOR IS CONTEMPLATED UNDER SUCH ARRANGEMENTS, THE COMMISSION OR ITS PRIME CONTRACTOR MAY IN SUCH ARRANGEMENTS UNDERTAKE CERTAIN OBLIGATIONS, E.G. MAINTENANCE OF THE FACILITIES OR PROVISION OF UTILITY SERVICES, WHICH DO REQUIRE THE EXPENDITURE OF GOVERNMENT FUNDS.

THE PROVISION IS REQUIRED BY THE TERMS OF THE STATUTE TO BE INCLUDED IN ANY CONTRACT NEGOTIATED AFTER ITS EFFECTIVE DATE IF THE CONTRACT OBLIGATES OR MAY OBLIGATE THE GOVERNMENT TO MAKE PAYMENTS UNDER SUCH CONTRACT FROM FUNDS MADE AVAILABLE BY THE INDEPENDENT OFFICES APPROPRIATION ACT, 1953. WHILE TECHNICALLY NO PAYMENTS ARE TO BE MADE "UNDER" THE CONTRACTS YOU DESCRIBE, PAYMENTS WILL BE MADE AS A DIRECT CONSEQUENCE OF THE CONTRACTS AND, THEREFORE, THE PROVISION SHOULD BE INCLUDED.

WITH RESPECT TO QUESTION NO. 5, THE GENERAL ACCOUNTING OFFICE RECENTLY ADVISED THE SECRETARY OF DEFENSE AND THE ADMINISTRATOR OF GENERAL SERVICES THAT NO OBJECTION WOULD BE MADE TO THE INCLUSION IN EXPERIMENTAL, DEVELOPMENTAL, AND RESEARCH CONTRACTS OF A PROVISION REQUIRING SUBCONTRACTORS TO RETAIN THEIR RECORDS ONLY FOR THREE YEARS FOLLOWING FINAL PAYMENT UNDER THEIR SUBCONTRACTS. WHILE THAT ADVICE CONCERNED ONLY THOSE TYPES OF CONTRACTS--- IT BEING STATED AT THAT TIME THAT THE DIFFICULTY AROSE PARTICULARLY UNDER SUCH CONTRACTS--- THIS OFFICE WOULD NOT OBJECT TO THE INSERTION OF A SIMILAR PROVISION IN ANY CONTRACT WHERE YOUR COMMISSION DETERMINES THAT IT WOULD BE UNDULY BURDENSOME TO REQUIRE THE RETENTION OF RECORDS BY SUBCONTRACTORS FOR A LONGER PERIOD MEASURED BY FINAL PAYMENT UNDER THE PRIME CONTRACT, UNLESS A LONGER PERIOD IS REQUIRED BY OTHER LAW.

WITH RESPECT TO QUESTION NO. 6, UNLESS THE CONTRACTS YOU REFER TO AS CONTAINING A DEFINITE FORMULA FOR REIMBURSEMENT OF OVERHEAD PURPORT TO PRECLUDE AN AUDIT BY THE GENERAL ACCOUNTING OFFICE OF ANY TRANSACTION THEREUNDER, THE PROVISO IN QUESTION HAS NO APPLICATION THERETO. IF THEY DO INCLUDE SUCH A PROVISION THEN BY THE EXPRESS AND CLEAR LANGUAGE OF THE PROVISO THE APPROPRIATIONS MADE TO THE ATOMIC ENERGY COMMISSION IN THE INDEPENDENT OFFICES APPROPRIATION ACT, 1953, ARE NOT AVAILABLE FOR PAYMENTS UNDER SUCH CONTRACTS.