B-126603, JAN. 27, 1956

B-126603, JAN. 27, 1956

TO ALLIS-CHALMERS MANUFACTURING COMPANY:

YOUR LETTER OF JANUARY 11, 1956, REQUESTS OUR OPINION AS TO WHETHER THE "EXAMINATION OF ECORDS" CLAUSE PROPOSED BY THE GENERAL SERVICES ADMINISTRATION FOR INCLUSION IN A NEGOTIATED REPAIR PARTS CONTRACT MAY BE AMENDED IN THE MANNER SUGGESTED IN YOUR LETTER.

THE PROPOSED CLAUSE READS AS FOLLOWS:

"21. EXAMINATION OF RECORDS:

"/A) THE CONTRACTOR AGREES THAT THE COMPTROLLER GENERAL OF THE UNITED STATES OR ANY OF HIS DUTY AUTHORIZED REPRESENTATIVES SHALL, UNTIL THE EXPIRATION OF THREE YEARS AFTER FINAL PAYMENT UNDER THIS CONTRACT, HAVE ACCESS TO AND THE RIGHT TO EXAMINE ANY DIRECTLY PERTINENT BOOKS, DOCUMENTS, PAPERS AND RECORDS OF THE CONTRACTOR INVOLVING TRANSACTIONS RELATED TO THIS CONTRACT.

"/B) THE CONTRACTOR FURTHER AGREES TO INCLUDE IN ALL HIS SUBCONTRACTS HEREUNDER A PROVISION TO THE EFFECT THAT THE SUBCONTRACTOR AGREES 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 UNDER THIS CONTRACT WITH THE GOVERNMENT, HAVE ACCESS TO AND THE RIGHT TO EXAMINE ANY DIRECTLY PERTINENT BOOKS, DOCUMENTS, PAPERS AND RECORDS OF SUCH SUBCONTRACTOR INVOLVING TRANSACTIONS RELATED TO THE SUBCONTRACT. THE TERM "SUBCONTRACT" AS USED IN THIS CLAUSE EXCLUDES (I) PURCHASE ORDERS NOT EXCEEDING $1,000 AND (II) SUBCONTRACTS OF PURCHASE ORDERS FOR PUBLIC UTILITY SERVICES AT RATES ESTABLISHED FOR UNIFORM APPLICABILITY TO THE GENERAL PUBLIC.'

YOU STATE THAT THIS CLAUSE WOULD BE ACCEPTABLE IF THE FOLLOWING PARAGRAPH (C) WERE ADDED.

"/C) THE PROVISIONS OF PARAGRAPH 21-/B) SHALL NOT APPLY TO ANY ITEMS IN CONTRACTOR'S INVENTORY OR ON ORDER BY CONTRACTOR PRIOR TO DATE OF RECEIPT OF DELIVERY ORDER PLACED UNDER THIS CONTRACT.'

YOU FURTHER STATE THAT THE GENERAL SERVICES ADMINISTRATION ADVISED YOU THAT NO ALTERATION IN THE "EXAMINATION OF RECORDS" CLAUSE CAN BE MADE SINCE IT IS REQUIRED BY PUBLIC LAW 245, APPROVED OCTOBER 31, 1951, 65 STAT. 700. FINALLY YOU STATE IT TO BE YOUR BELIEF THAT THE CLAUSE SHOULD NOT APPLY TO COMMERCIAL STOCK ITEMS AS IT IS IMPOSSIBLE TO IMPLEMENT IN COMMERCIAL BUSINESS SINCE IT WOULD BE NECESSARY TO HAVE THE CLAUSE EFFECTIVE ON ALL PURCHASE ORDERS IN ALL TRACTOR PLANTS OF YOUR COMPANY.

ALTHOUGH GENERALLY THE "EXAMINATION OF RECORDS" CLAUSE WOULD APPLY TO PURCHASE ORDERS OR CONTRACTS ISSUED BY A PRIME CONTRACTOR FOR COMMERCIAL STOCK ITEMS REQUIRED IN THE PERFORMANCE OF A NEGOTIATED PRIME CONTRACT WITH THE GOVERNMENT, WE DO NOT BELIEVE THAT THE AMENDMENT WHICH YOU PROPOSE IS NECESSARY FOR YOUR PURPOSES. ANY CONTRACTS OR PURCHASE ORDERS COVERING MATERIAL NOW IN YOUR INVENTORY OR MATERIAL ON ORDER WOULD NOT BE CONSIDERED SUBCONTRACTS UNDER A CONTRACT WITH THE GOVERNMENT. THIS WOULD BE TRUE EVEN THOUGH THE MATERIAL MIGHT LATER BE USED OR FURNISHED IN PERFORMING THE SUBSEQUENTLY EXECUTED CONTRACT WITH THE GOVERNMENT. OTHER WORDS, IT IS OUR OPINION THAT UNDER THE ARRANGEMENT HERE CONTEMPLATED THE CLAUSE WOULD BE APPLICABLE ONLY TO THOSE SUBCONTRACTS OR PURCHASE ORDERS WHICH WERE ISSUED BY YOUR COMPANY FOR THE PURPOSES OF FULFILLING SPECIFIC DELIVERY ORDERS PLACED UNDER YOUR PRIME CONTRACT WITH THE GOVERNMENT.

IT IS BELIEVED THAT THE ABOVE WILL SERVE THE PURPOSE OF YOUR INQUIRY.