B-146733, B-146760, AUG. 28, 1964

B-146733,B-146760: Aug 28, 1964

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DEALT WITH THE PRICING OF SUBCONTRACTS AWARDED BY PAD TO THE ATOMIC EQUIPMENT DEPARTMENT (AED) OF WESTINGHOUSE AND CONCLUDED THAT THE PRICES OF SUCH SUBCONTRACTS WERE OVERSTATED AS A RESULT OF WESTINGHOUSE'S FAILURE TO EXERCISE THAT DEGREE OF CARE REQUIRED OF A COST-PLUS-A-FIXED-FEE CONTRACTOR IN THE EXPENDITURE OF FUNDS TO BE REIMBURSED TO IT BY THE GOVERNMENT. THESE REPORTS WERE REFERRED TO THE APPROPRIATE GOVERNMENT AGENCIES. THE SUSPENSIONS OF COSTS MADE BY THE NAVY UNDER THE CONTRACTS WERE NOT DIRECTED BY OUR OFFICE BUT WERE TAKEN ADMINISTRATIVELY IN RECOGNITION OF THE DEPARTMENT'S MANAGEMENT RESPONSIBILITIES AS THE GOVERNMENT CONTRACTING AGENCY. IT IS TO BE ESPECIALLY NOTED THAT OUR OFFICE.

B-146733, B-146760, AUG. 28, 1964

TO HEDRICK AND LANE:

WE REFER TO YOUR LETTER OF JULY 24, 1964, AND TO YOUR SUPPLEMENTAL MEMORANDUM OF AUGUST 12, 1964, CONCERNING THE SUSPENSIONS OF COSTS TOTALING $4,255,504 MADE BY THE DEPARTMENT OF THE NAVY UNDER CERTAIN COST- PLUS-A-FIXED-FEE CONTRACTS ASSIGNED BY THE WESTINGHOUSE ELECTRIC CORPORATION TO ITS PLANT APPARATUS DEPARTMENT (PAD). THESE SUSPENSIONS RESULTED FROM ACTIONS TAKEN BY THE NAVY AFTER CONSIDERATION OF OUR FINDINGS INCLUDED IN OUR DRAFT REPORTS ON EXAMINATION OF THESE CONTRACTS.

OUR FINAL REPORTS ON THESE MATTERS DATED JULY 23 AND DECEMBER 26, 1962, B -146733 AND B-146760, RESPECTIVELY, DEALT WITH THE PRICING OF SUBCONTRACTS AWARDED BY PAD TO THE ATOMIC EQUIPMENT DEPARTMENT (AED) OF WESTINGHOUSE AND CONCLUDED THAT THE PRICES OF SUCH SUBCONTRACTS WERE OVERSTATED AS A RESULT OF WESTINGHOUSE'S FAILURE TO EXERCISE THAT DEGREE OF CARE REQUIRED OF A COST-PLUS-A-FIXED-FEE CONTRACTOR IN THE EXPENDITURE OF FUNDS TO BE REIMBURSED TO IT BY THE GOVERNMENT. THESE REPORTS WERE REFERRED TO THE APPROPRIATE GOVERNMENT AGENCIES, INCLUDING THE DEPARTMENT OF JUSTICE, WITH THE RECOMMENDATION THAT ALL AVAILABLE AND PROPER ACTION BE TAKEN TO OBTAIN PROPER RECOVERY FROM WESTINGHOUSE.

THE SUSPENSIONS OF COSTS MADE BY THE NAVY UNDER THE CONTRACTS WERE NOT DIRECTED BY OUR OFFICE BUT WERE TAKEN ADMINISTRATIVELY IN RECOGNITION OF THE DEPARTMENT'S MANAGEMENT RESPONSIBILITIES AS THE GOVERNMENT CONTRACTING AGENCY. THE RESPONSIBILITY OF OUR OFFICE IN THE MATTER EFFECTIVELY CEASED UPON ISSUANCE OF THE FINAL REPORTS TO THE CONGRESS; AND THE IMPLEMENTATION OF THE RECOMMENDATIONS CONTAINED THEREIN THEREAFTER BECAUSE AN ADMINISTRATIVE RESPONSIBILITY. IT IS TO BE ESPECIALLY NOTED THAT OUR OFFICE, IN THE EXERCISE OF ITS REPORTING JURISDICTION, DOES NOT BECOME INVOLVED IN CONTRACT ADMINISTRATION, BUT THAT OUR FUNCTION IS ORDINARILY LIMITED TO A REVIEW OF GOVERNMENT FINANCIAL TRANSACTIONS WITH A CONCOMITANT DUTY TO REPORT TO THE CONGRESS ANY DEFICIENCIES OR IRREGULARITIES ASCERTAINED FROM OUR REVIEW, TOGETHER WITH OUR VIEWS AND RECOMMENDATIONS FOR CORRECTIVE ACTION.

WE ARE UNABLE TO COMPLY WITH YOUR REQUEST THAT WE "DIRECT" THE NAVY TO RELEASE THE FUNDS OF WESTINGHOUSE NOW UNDER ADMINISTRATIVE SUSPENSION, OR TO RESORT TO THE DISPUTES CLAUSE PROCEDURE UNDER THE CONTRACTS INVOLVED. IN THAT CONNECTION, WE HAVE BEEN ADVISED THAT THE DEPARTMENT OF JUSTICE IS INVESTIGATING THE TRANSACTIONS UNDER THE CONTRACTS AND HAS ADVISED THE NAVY TO CONTINUE THE SUSPENSIONS OF COSTS UNTIL DIRECTED OTHERWISE. ANY QUESTIONS BEARING ON THE LEGALITY OF THIS SITUATION ARE FOR CONSIDERATION SOLELY BY THE NAVY AND/OR THE DEPARTMENT OF JUSTICE. WE DO NOT BELIEVE THAT IT WOULD BE PROPER FOR OUR OFFICE TO INTERJECT ITSELF INTO A MATTER PRESENTLY BEFORE THOSE DEPARTMENTS FOR CONSIDERATION AND RESOLUTION AS TO THE ACTIONS DEEMED APPROPRIATE.

RESPECTING THE JURISDICTION OF THE DEPARTMENT OF JUSTICE, WE FEEL THAT THE CASE OF SULLIVAN V. UNITED STATES, 348 U.S. 170, CITED BY YOU, PROVIDES AMPLE JUSTIFICATION FOR THE DEPARTMENT TO INTERCEDE IN THIS MATTER. THE COURT HELD:

"IT WAS NOT THE PURPOSE OF THE EXECUTIVE ORDER (NO. 6166) TO DIRECT HOW THE RESPONSIBILITY SHOULD BE EXERCISED BUT TO FIX IT IN THE DEPARTMENT OF JUSTICE. HOW THAT RESPONSIBILITY WAS TO BE DISCHARGED WAS A MATTER FOR THE DEPARTMENT.'

SEE, ALSO, PARTICULARLY, PARAGRAPH 2 OF THE SECTION 5 OF EXECUTIVE ORDER NO. 6166, QUOTED IN A FOOTNOTE TO THE COURT'S DECISION.

WE SUGGEST, THEREFORE, THAT FURTHER CONTACTS IN THE MATTER BE DIRECTED TO THE DEPARTMENT OF THE NAVY AND THE DEPARTMENT OF JUSTICE.