B-136225, JUL. 17, 1958

B-136225: Jul 17, 1958

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TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO LETTER OF MAY 20. IT APPEARS THAT THE PURCHASE ORDER WAS ISSUED TO CLEMENT LATHES. WAS PAID. THE ITEM WAS DISAPPROVED BY THE ARMY AUDIT AGENCY BY DD FORM NOTICE NO. 7. ON THE BASIS THAT THE CONTRACT CONSUMMATED BY THE ISSUANCE AND ACCEPTANCE OF THE PURCHASE ORDER WAS. THE ITEM NOW IS RECLAIMED IN THE PROPOSAL FOR SETTLEMENT OF THE TERMINATED CONTRACT WHICH THE CONTRACTOR HAS SUBMITTED. THE LETTER IS. OUR COST EXPERIENCE RELATING TO THE MANUFACTURE OF 1 S-BAND OSCILLATOR PER YOUR DRAWING EA2757 AND RELATED DRAWINGS IS AS FOLLOWS. YOU WILL NOTE THAT IN THIS INSTANCE WE HAVE NOT USED THE PRICING FORMULA SUBMITTED EARLIER WHICH IN THIS CASE WOULD HAVE RESULTED IN AN ADDITIONAL COST TO GENERAL COMMUNICATION OF APPROXIMATELY $440.00 THIS WAS DONE BECAUSE WE HAD SOME DIFFICULTY WITH THE SPECIAL BERYLLIUM COPPER FINGERS AND DECIDED THAT A SUBSTANTIAL PORTION OF THE ADDITIONAL CHARGES RESULTING FROM THAT DIFFICULTY SHOULD BE BORNE BY CLEMENT LATHES RATHER THAN BY GENERAL COMMUNICATION. "* * * THIS FIGURE IS CONSIDERABLY UNDERSTATED INASMUCH AS THE BULK OF THE RAW MATERIAL WAS DRAWN FROM OUR STOCK WITH NO CORRESPONDING CHARGE BEING MADE TO THIS JOB.'.

B-136225, JUL. 17, 1958

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO LETTER OF MAY 20, 1958, FROM THE ASSISTANT SECRETARY (LOGISTICS), REQUESTING A DECISION AS TO WHETHER OR NOT THE AMOUNT OF $2,471.55 ON A QUANTUM MERUIT BASIS, MAY BE ALLOWED TO THE GENERAL COMMUNICATION COMPANY IN CONNECTION WITH THE TERMINATION SETTLEMENT OF COST-PLUS-A-FIXED-FEE CONTRACT NO. DA-36-039-SC-70106, TO COVER THE COST OF AN ITEM FURNISHED PURSUANT TO THE CONTRACTOR'S PURCHASE ORDER NO. J- 7553, DATED AUGUST 1, 1956.

IT APPEARS THAT THE PURCHASE ORDER WAS ISSUED TO CLEMENT LATHES, INC., WALTHAM, MASSACHUSETTS, AND THAT IT DIRECTED CLEMENT TO FURNISH TO GENERAL, FOR USE IN PERFORMING CONTRACT NO. DA 36-039-SC-70106, AN S-BAND OSCILLATOR IN ACCORDANCE WITH CERTAIN DRAWINGS, THE PURCHASE ORDER STATING: "PLEASE QUOTE PRICE ON ACKNOWLEDGED COPY.' FOLLOWING DELIVERY OF THE OSCILLATOR, CLEMENT BILLED GENERAL FOR, AND WAS PAID, THE AMOUNT OF $2,471.55 THEREFOR. SUBSEQUENTLY, THE ITEM WAS DISAPPROVED BY THE ARMY AUDIT AGENCY BY DD FORM NOTICE NO. 7, DATED FEBRUARY 25, 1957, AND DEDUCTED FROM PUBLIC VOUCHER NO. 22, ON THE BASIS THAT THE CONTRACT CONSUMMATED BY THE ISSUANCE AND ACCEPTANCE OF THE PURCHASE ORDER WAS, IN EFFECT, A COST-PLUS-A-PERCENTAGE-OF-COST TRANSACTION. THE ITEM NOW IS RECLAIMED IN THE PROPOSAL FOR SETTLEMENT OF THE TERMINATED CONTRACT WHICH THE CONTRACTOR HAS SUBMITTED.

THE GENERAL COMMUNICATION COMPANY, UPON BEING ADVISED OF THE DISAPPROVAL OF THE ITEM OF COST, FURNISHED THE CONTRACTING OFFICER WITH A PHOTOSTAT OF A LETTER DATED NOVEMBER 13, 1956, FROM CLEMENT LATHES, INC., TO THE CONTRACTOR, WITH REFERENCE TO THE PURCHASE ORDER TRANSACTION. THE LETTER IS, IN PERTINENT PART, AS FOLLOWS:

"1. IN REPLY TO YOUR INQUIRY, OUR COST EXPERIENCE RELATING TO THE MANUFACTURE OF 1 S-BAND OSCILLATOR PER YOUR DRAWING EA2757 AND RELATED DRAWINGS IS AS FOLLOWS.

TABLE

MATERIAL AND PLATING COSTS $23.28*

DIRECT LABOR: 435.5 HRS. AT $5.62 PLUS

P/H $2,448.27

TOTAL PRICE PER PURCHASE ORDER $2,471.55

"2. YOU WILL NOTE THAT IN THIS INSTANCE WE HAVE NOT USED THE PRICING FORMULA SUBMITTED EARLIER WHICH IN THIS CASE WOULD HAVE RESULTED IN AN ADDITIONAL COST TO GENERAL COMMUNICATION OF APPROXIMATELY $440.00 THIS WAS DONE BECAUSE WE HAD SOME DIFFICULTY WITH THE SPECIAL BERYLLIUM COPPER FINGERS AND DECIDED THAT A SUBSTANTIAL PORTION OF THE ADDITIONAL CHARGES RESULTING FROM THAT DIFFICULTY SHOULD BE BORNE BY CLEMENT LATHES RATHER THAN BY GENERAL COMMUNICATION.

"* * * THIS FIGURE IS CONSIDERABLY UNDERSTATED INASMUCH AS THE BULK OF THE RAW MATERIAL WAS DRAWN FROM OUR STOCK WITH NO CORRESPONDING CHARGE BEING MADE TO THIS JOB.'

IN ITS LETTER OF APRIL 29, 1957, TRANSMITTING THE PHOTOSTAT, THE CONTRACTOR STATED THAT CLEMENT LATHES, INC., HAD BEEN SUPPLYING OSCILLATORS TO GENERAL FOR FOUR OR MORE YEARS, IN VIEW OF WHICH THE CONCERN WAS CONSIDERED TO BE BEST QUALIFIED TO MANUFACTURE THE ITEM INVOLVED. THE CONTRACTOR FURTHER STATED THAT ITS PURCHASE ENGINEER WAS IN CONSTANT CONTACT WITH THE SUBCONTRACTOR TO INSURE THAT THE END ITEM WOULD MEET THE DESIGN SPECIFICATIONS, AND THAT, AT THE COMPLETION THEREOF, THE CONTRACTOR'S ENGINEERING AND PURCHASING PERSONNEL EVALUATED THE OSCILLATOR IN THE LIGHT OF ITS COST AND CONSIDERED THE SAME TO BE REASONABLE "DUE TO THE SPECIAL TOOLING REQUIRED TO PROVIDE HEAT TREATED BERYLLIUM COPPER CONTACT FINGERS.'

IN A LETTER DATED SEPTEMBER 9, 1957, THE CONTRACTOR ADVISED THE CONTRACTING OFFICER THAT ITS RECORDS FAILED TO SHOW RECEIPT OF AN ACKNOWLEDGEMENT COPY OF THE PURCHASE ORDER AND STATED:

"THE ABBREVIATION "P/H" REFERENCED IN COST BREAKDOWN SUBMITTED BY CLEMENT LATHES INC. STANDS FOR "PER HOUR.' THE RATE OF $5.62 PLUS COULD HAVE BEEN STATED AS $5.621745 PER HOUR.

"CLEMENT LATHES INC. METHOD OF PRICING INCLUDING THEIR RATES REQUESTED BY THE CONTRACTOR ARE AS FOLLOWS:

TABLE

RAW MATERIAL

DIRECT LABOR AT $2.53 PER HOUR

FACTORY OVERHEAD - 112 PERCENT OF DIRECT LABOR

TOTAL FACTORY COST

GENERAL AND ADMINISTRATIVE - 12 PERCENT OF TOTAL COSTS

PROFIT - 10 PERCENT OF COSTS

"YOU WILL NOTE THE ABOVE FORMULA RESULTS IN A RATE OF $6.00 PER HOUR EXCLUDING MATERIAL COSTS. THE HOURLY RATE CHARGE ON P.O. J7553 IS $5.62 PER HOUR.

"IF CLEMENT LATHES INC. USED THEIR NORMAL PRICING FORMULA, THE COSTS WOULD HAVE BEEN AS OLLOWS:

CHART

MATERIAL $ 23.28

DIRECT LABOR 435.5 AT $2.53 1,101.82

FACTORY OVERHEAD - 112 PERCENT OF DIRECT LABOR 1,234.04

TOTAL FACTORY COSTS $ 2,359.14

GENERAL AND ADMINISTRATIVE - 12 PERCENT OF

TOTAL COSTS 283.10

$ 2,642.24

PROFIT - 10 PERCENT 264.22

TOTAL $ 2,906.46"

THE CONTRACTING OFFICER, IN A LETTER DATED MARCH 29, 1958, ADDRESSED TO THE COMMANDING OFFICER, UNITED STATES ARMY SIGNAL SUPPLY AGENCY, LABORATORY PROCUREMENT SUPPORT OFFICE, FORT MONMOUTH, NEW JERSEY, RECOMMENDS PAYMENT OF THE AMOUNT INVOLVED ON THE GROUND, AMONG OTHERS, THAT THE PRICE CHARGED FOR THE OSCILLATOR IS DEEMED REASONABLE.

ON THE BASIS OF THE CONTRACTING OFFICER'S FINDING, WHICH APPEARS TO BE REASONABLY SUPPORTED BY THE RECORD, AND OF THE OTHER FACTS IN THE CASE, AS SET FORTH ABOVE, THE AMOUNT INVOLVED MAY BE ALLOWED IN THE SETTLEMENT AS ON A QUANTUM MERUIT BASIS.