B-133304, OCT. 31, 1960

B-133304, OCT. 31, 1960

TO THE SECRETARY OF DEFENSE:

THE GENERAL ACCOUNTING OFFICE HAS EXAMINED THE PROCUREMENT OF INDUSTRIAL FACILITIES AND SPECIAL TOOLING BY CHRYSLER CORPORATION, MISSILE DIVISION, HIGHLAND PARK, MICHIGAN, UNDER DEPARTMENT OF THE ARMY COST-PLUS-A-FIXED- FEE (CPFF/CONTRACTS DA-20-018-14440 AND -14800. THESE CONTRACTS, WHICH WERE AWARDED IN JUNE AND NOVEMBER 1956, PROVIDED FOR THE FURNISHING OF ENGINEERING SERVICES AND PRODUCTION OF JUPITER AND REDSTONE MISSILES. OUR EXAMINATION WAS MADE PURSUANT TO THE BUDGET AND ACCOUNTING ACT, 1921, (30 U.S.C. 53), THE ACCOUNTING AND AUDITING ACT OF 1950 (31 U.S.C. 67), AND THE AUTHORITY OF THE COMPTROLLER GENERAL TO EXAMINE CONTRACTOR'S RECORDS, AS SET FORTH IN 10 U.S.C. 2313 (B).

WE FOUND THAT THE GOVERNMENT INCURRED UNNECESSARY COSTS FOR FIXED FEES BECAUSE THE ARMY ORDNANCE CORPS ACCEPTED CHRYSLER'S COST PROPOSALS, WHICH INCLUDED ESTIMATED COSTS FOR INDUSTRIAL FACILITIES IMPROPERLY CLASSIFIED AS SPECIAL TOOLING, IN NEGOTIATING CPFF CONTRACTS FOR ENGINEERING SERVICES AND PRODUCTION OF JUPITER AND REDSTONE MISSILES. CHRYSLER WAS ALLOWED FEES UNDER THESE CONTRACTS BASED ON THE ESTIMATED COSTS OF INDUSTRIAL FACILITIES ALTHOUGH THE FACILITIES COULD HAVE BEEN PROCURED UNDER COST- REIMBURSABLE, NO-FEE CONTRACT DA-20-018-ORD-13336 WHICH HAD BEEN AWARDED TO CHRYSLER IN JANUARY 1954. THE USE OF A SEPARATE NO-FEE CONTRACT IS IN ACCORDANCE WITH THE ARMED SERVICES PROCUREMENT REGULATION WHICH PROVIDES THAT INDUSTRIAL FACILITIES SHALL BE PROCURED UNDER A FACILITIES CONTRACT SEPARATE FROM ANY RELATED CONTRACT FOR SUPPLIES OR SERVICES AND THAT IT MAY BE APPROPRIATE TO USE A COST-TYPE, NO-FEE CONTRACT FOR THIS PURPOSE.

WE BROUGHT OUR FINDINGS TO THE ATTENTION OF THE DEPARTMENT OF THE ARMY AND THE CONTRACTOR ON OCTOBER 9, 1959. COMMENTS WERE RECEIVED FROM CHRYSLER DATED NOVEMBER 5, 1959, AND FROM THE DEPUTY ASSISTANT SECRETARY OF THE ARMY (LOGISTICS) DATED DECEMBER 15, 1959.

IN THE LETTER FROM THE DEPUTY ASSISTANT SECRETARY, WE WERE INFORMED THAT THE DETROIT ORDNANCE DISTRICT FORMALLY REQUESTED CHRYSLER TO PERFORM AN INVENTORY OF ALL INDUSTRIAL FACILITIES AND SPECIAL TOOLING ACQUIRED UNDER THE CONTRACTS IN QUESTION TO DETERMINE WHETHER SUCH ITEMS SHOULD HAVE BEEN PROCURED UNDER THE SUPPLY CONTRACTS OR THE FACILITIES CONTRACT AND THAT CHRYSLER HAD AGREED TO THIS PROCEDURE.

ON JULY 18, 1960, THE DETROIT ORDNANCE DISTRICT APPROVED PROPOSED REVISIONS TO THE CONTRACTS TRANSFERRING $879,093 OF INDUSTRIAL FACILITIES ACQUIRED UNDER THE SUPPLY CONTRACTS TO THE FACILITIES CONTRACT AND REDUCING THE FIXED FEE ALLOWED CHRYSLER UNDER THE CPFF SUPPLY CONTRACTS BY $30,000. IN ARRIVING AT THE FEE ADJUSTMENT, CONSIDERATION WAS GIVEN TO $111,604 OF SPECIAL TOOLING ITEMS PURCHASED UNDER THE FACILITIES CONTRACT WHICH COULD HAVE BEEN PROCURED UNDER THE SUPPLY CONTRACTS. THE ACTIONS TAKEN REPRESENT A REASONABLE ADJUSTMENT OF THE EXCESS COST TO THE GOVERNMENT.

THE DEPUTY ASSISTANT SECRETARY OF THE ARMY (LOGISTICS) HAS ADVISED US THAT APPLICABLE REGULATIONS GOVERNING THE ACQUISITION OF FACILITIES AND SPECIAL TOOLING ARE CONSIDERED ADEQUATE AND THAT THE CHIEF OF ORDNANCE WILL EMPHASIZE THESE REGULATIONS TO ORDNANCE FIELD PROCUREMENT INSTALLATIONS. COPIES OF THIS LETTER ARE BEING SENT TODAY TO THE SECRETARY OF THE ARMY FOR HIS INFORMATION.