B-129114, OCTOBER 10, 1956, 36 COMP. GEN. 295

B-129114: Oct 10, 1956

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CONTRACTS - EXAMINATION OF RECORDS CLAUSES - LIMITATION UNDER AN ATOMIC ENERGY COMMISSION NUCLEAR POWER PLANT CONTRACT WHICH PROVIDES THAT THE CONTRACTOR WILL BEAR ALL CONSTRUCTION AND OPERATING COSTS AND THE COMMISSION WILL PAY ACTUAL COSTS FOR PERFORMANCE OF RESEARCH AND DEVELOPMENT WORK. WHICH IS REQUIRED BY 42 U.S.C. 2206. MAY NOT BE LIMITED IN ITS APPLICATION TO THAT PART OF THE WORK FOR WHICH PAYMENT WILL BE MADE BY THE COMMISSION. 1956: REFERENCE IS MADE TO THE GENERAL MANAGER'S LETTER OF AUGUST 30. THE CONTRACT WITH YANKEE WAS EXECUTED JUNE 6. IS TO BRING PRIVATE RESOURCES INTO THE DEVELOPMENT OF ENGINEERING INFORMATION ON THE PERFORMANCE OF NUCLEAR POWER REACTORS AND TO ADVANCE THE TIME WHEN NUCLEAR POWER WILL BECOME ECONOMICALLY COMPETITIVE.

B-129114, OCTOBER 10, 1956, 36 COMP. GEN. 295

CONTRACTS - EXAMINATION OF RECORDS CLAUSES - LIMITATION UNDER AN ATOMIC ENERGY COMMISSION NUCLEAR POWER PLANT CONTRACT WHICH PROVIDES THAT THE CONTRACTOR WILL BEAR ALL CONSTRUCTION AND OPERATING COSTS AND THE COMMISSION WILL PAY ACTUAL COSTS FOR PERFORMANCE OF RESEARCH AND DEVELOPMENT WORK, THE EXAMINATION OF RECORDS CLAUSE, WHICH IS REQUIRED BY 42 U.S.C. 2206, TO BE INSERTED IN ALL NEGOTIATED CONTRACTS OF THE COMMISSION, MAY NOT BE LIMITED IN ITS APPLICATION TO THAT PART OF THE WORK FOR WHICH PAYMENT WILL BE MADE BY THE COMMISSION.

TO THE CHAIRMAN, ATOMIC ENERGY COMMISSION, OCTOBER 10, 1956:

REFERENCE IS MADE TO THE GENERAL MANAGER'S LETTER OF AUGUST 30, 1956, REQUESTING OUR VIEWS AS TO THE NECESSITY FOR PROVIDING FOR AUDIT BY THE COMPTROLLER GENERAL OF TRANSACTIONS UNDER CONTRACT NO. AT (30-3/ 222 WITH YANKEE ATOMIC ELECTRIC COMPANY WHICH DO NOT INVOLVE ANY EXPENDITURE OF GOVERNMENT FUNDS.

THE CONTRACT WITH YANKEE WAS EXECUTED JUNE 6, 1956, IN FURTHERANCE OF THE COMMISSION'S POWER DEMONSTRATION REACTOR PROGRAM. THE AIM OF THAT PROGRAM, AS STATED IN THE COMMISSION'S RELEASE OF JANUARY 10, 1955, IS TO BRING PRIVATE RESOURCES INTO THE DEVELOPMENT OF ENGINEERING INFORMATION ON THE PERFORMANCE OF NUCLEAR POWER REACTORS AND TO ADVANCE THE TIME WHEN NUCLEAR POWER WILL BECOME ECONOMICALLY COMPETITIVE. THE CONTRACT PROVES THAT YANKEE WILL DESIGN, CONSTRUCT, AND OPERATE A NUCLEAR POWER PLANT HAVING AN ESTIMATED 134,000-KILOWATT GENERATING CAPACITY. YANKEE IS TO FURNISH THE COMMISSION INFORMATION ON TECHNICAL, ECONOMIC, AND OPERATING ASPECTS OF THE PROJECT DURING THE DEVELOPMENT, DESIGN, CONSTRUCTION, AND OPERATING PHASES. THE COMMISSION IS TO PERFORM CERTAIN RESEARCH AND DEVELOPMENT WORK TO COST NO MORE THAN $1 MILLION, AND HAS AGREED TO PAY THE ACTUAL COST, NOT TO EXCEED $4 MILLION, OF CERTAIN FURTHER RESEARCH AND DEVELOPMENT WORK TO BE PERFORMED BY OR FOR YANKEE. THE COMMISSION HAS ALSO AGREED TO WAIVE ITS USE CHARGE FOR SPECIAL NUCLEAR MATERIAL USED BY THE CONTRACTOR DURING DEVELOPMENT OF THE PLANT AND FOR THE FIRST FIVE YEARS OF OPERATION. ALL OTHER COSTS OF DESIGN, CONSTRUCTION, AND OPERATION OF THE PROJECT ARE TO BE BORNE BY YANKEE.

AS EXECUTED, THE CONTRACT CONTAINS THE USUAL EXAMINATION OF RECORDS PROVISION WHICH GIVES THE COMPTROLLER GENERAL THE RIGHT TO EXAMINE ANY DIRECTLY PERTINENT BOOKS, DOCUMENTS, PAPERS, AND RECORDS OF THE CONTRACTOR OR ANY OF HIS SUBCONTRACTORS INVOLVING TRANSACTIONS RELATED TO THE CONTRACT UNTIL THREE YEARS AFTER FINAL PAYMENT THEREUNDER. DURING THE CONTRACT NEGOTIATIONS THE CONTRACTOR REQUESTED THAT THE FOREGOING PROVISION BE LIMITED IN ITS APPLICATION TO THAT PORTION OF THE WORK FOR WHICH PAYMENT WOULD BE MADE BY THE COMMISSION, AND THE COMMISSION INDICATED ITS WILLINGNESS TO AGREE TO A CONTRACT AMENDMENT SO PROVIDING IF THE COMPTROLLER GENERAL SHOULD DETERMINE THIS TO BE LEGALLY PERMISSIBLE.

THE LAW APPLICABLE IS SECTION 166 OF THE ATOMIC ENERGY ACT OF 1954, 68 STAT. 951-52, 42 U.S.C. 2206, WHICH PROVIDES, IN PERTINENT PART, AS FOLLOWS:

NO MONEYS APPROPRIATED FOR THE PURPOSES OF THIS ACT SHALL BE AVAILABLE FOR PAYMENTS UNDER ANY CONTRACT WITH THE COMMISSION, NEGOTIATED WITHOUT ADVERTISING, * * * 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: * * *

AS STATED IN THE GENERAL MANAGER'S LETTER, THERE IS NO DOUBT AS TO THE GENERAL APPLICABILITY OF THE LAW TO THE CONTRACT IN VIEW OF THE PAYMENT OF $4 MILLION (OR LESS) TO BE MADE TO YANKEE AS REIMBURSEMENT FOR THE COST OF THE RESEARCH WORK WHICH IT WILL PERFORM. CONSEQUENTLY, THE INCLUSION OF THE EXAMINATION OF RECORDS CLAUSE IN THE CONTRACT WAS NOT ONLY PROPER BUT WAS LEGALLY REQUIRED TO VALIDATE SUCH PAYMENT. IT SEEMS TO US THAT THE REAL QUESTION PRESENTED BY THE CONTRACTOR'S REQUEST FOR A LIMITED APPLICATION OF THE CLAUSE INVOLVES THE MEANING OF THE CLAUSE RATHER THAN ITS APPLICABILITY.

THE RIGHT OF EXAMINATION GIVEN IS CONFINED TO "ANY DIRECTLY PERTINENT" RECORDS "INVOLVING TRANSACTIONS RELATED TO" THE CONTRACT OR SUBCONTRACTS. THE EFFECT OF THE SUGGESTED MODIFICATION TO THE CONTRACT WOULD BE TANTAMOUNT TO THAT OF A CONTRACTUAL AGREEMENT BETWEEN YANKEE AND THE COMMISSION THAT THE ONLY RECORDS WHICH WOULD BE CONSIDERED "DIRECTLY PERTINENT" UNDER THE CLAUSE WOULD BE THOSE PERTAINING TO THE REIMBURSABLE WORK. IN OUR OPINION SUCH AN INTERPRETATION OF THE CLAUSE, AND OF THE LAW, WOULD NOT BE JUSTIFIED IN THE CASE OF THE CONTRACT UNDER CONSIDERATION. THE BASIC REASON FOR THE GOVERNMENT'S PARTICIPATION IN THE PROJECT WAS TO SECURE INFORMATION CONCERNING THE COST OF NUCLEAR PRODUCTION OF ENERGY. WHILE IT IS TRUE THAT THE GOVERNMENT WILL NOT BEAR ANY OF THE CONSTRUCTION OR OPERATING COSTS, SUCH COSTS ARE AN ESSENTIAL ELEMENT OF THE OVERALL KNOWLEDGE WHICH IS THE MAIN CONSIDERATION MOVING TO THE GOVERNMENT UNDER THE CONTRACT. FOR THIS REASON WE BELIEVE THAT CONSTRUCTION AND OPERATING COST DATA ARE "DIRECTLY PERTINENT" TO THE CONTRACT WITHIN THE MEANING OF SECTION 166 OF THE ATOMIC ENERGY ACT OF 1954, ESPECIALLY IN VIEW OF THE CONTRACTOR'S SPECIFIC OBLIGATIONS UNDER ARTICLE I-1.E. IT IS ACCORDINGLY OUR VIEW THAT THE CONTRACT WOULD BE SUBJECT TO QUESTION IF SUCH AN AUDIT WERE PRECLUDED.