B-147252, OCT. 26, 1961

B-147252: Oct 26, 1961

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F. GOODRICH COMPANY: THE UNITED STATES GENERAL ACCOUNTING OFFICE IS MAKING AN EXAMINATION OF THE PRICING OF AIRCRAFT TIRES AND TUBES PROCURED BY THE GOVERNMENT FROM THE B. OUR EXAMINATION IS BEING MADE PURSUANT TO THE BUDGET AND ACCOUNTING ACT. HAVE BEEN AWARDED ANNUALLY TO B.F. HAVE BEEN AWARDED TO GOODRICH BY THE DEPARTMENT OF THE AIR FORCE. REPRESENTATIVES OF THIS OFFICE HAVE BEEN DENIED ACCESS TO ALL COST RECORDS RELATING TO AIRCRAFT TIRES AND TUBES. OUR RIGHT OF ACCESS TO THESE RECORDS IS QUESTIONED ON THE FOLLOWING GROUNDS: 1. SINCE NONE OF YOUR CONTRACTS FOR AIRPLANE TIRES ARE NEGOTIATED ON THE BASIS OF COST. COST RECORDS ARE NOT "DIRECTLY PERTINENT" AND. SUCH COST RECORDS ARE HIGHLY CONFIDENTIAL AND THEIR DISCLOSURE COULD SUBSTANTIALLY HARM YOUR COMPANY IN THE COMMERCIAL FIELD.

B-147252, OCT. 26, 1961

TO MR. J. W. KEENER, PRESIDENT, THE B. F. GOODRICH COMPANY:

THE UNITED STATES GENERAL ACCOUNTING OFFICE IS MAKING AN EXAMINATION OF THE PRICING OF AIRCRAFT TIRES AND TUBES PROCURED BY THE GOVERNMENT FROM THE B. F. GOODRICH COMPANY, AKRON, OHIO, UNDER NEGOTIATED CONTRACTS. OUR EXAMINATION IS BEING MADE PURSUANT TO THE BUDGET AND ACCOUNTING ACT, 1921 (31 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 CONTRACTORS' RECORDS, AS SET FORTH IN 41 U.S.C. 254 (C) AND 10 U.S.C. 2313 (B).

NEGOTIATED CONTRACTS, INCLUDING CONTRACT GS-00S-33743 FOR THE PERIOD FEBRUARY 1, 1961, THROUGH JANUARY 31, 1962, HAVE BEEN AWARDED ANNUALLY TO B.F. GOODRICH AVIATION PRODUCTS, A DIVISION OF THE B.F. GOODRICH COMPANY, BY THE GENERAL SERVICES ADMINISTRATION FOR AIRCRAFT TIRES AND TUBES TO BE MANUFACTURED IN ACCORDANCE WITH MILITARY SPECIFICATIONS AND TO BE FURNISHED TO THE MILITARY DEPARTMENTS AT PRICES PUBLISHED IN THE FEDERAL SUPPLY SCHEDULE. NEGOTIATED FIXED-PRICE CONTRACTS, INCLUDING CONTRACT AF 33/600/-43527 DATED JUNE 20, 1961, HAVE BEEN AWARDED TO GOODRICH BY THE DEPARTMENT OF THE AIR FORCE.

DURING OUR EXAMINATION OF THE NEGOTIATED CONTRACTS AWARDED TO YOUR COMPANY, REPRESENTATIVES OF THIS OFFICE HAVE BEEN DENIED ACCESS TO ALL COST RECORDS RELATING TO AIRCRAFT TIRES AND TUBES. AS INDICATED BY THE ENCLOSED COPY OF A LETTER DATED SEPTEMBER 27, 1961, FROM THE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY OF YOUR COMPANY TO THE MANAGER OF OUR REGIONAL OFFICE IN DETROIT, MICHIGAN, OUR RIGHT OF ACCESS TO THESE RECORDS IS QUESTIONED ON THE FOLLOWING GROUNDS:

1. SINCE NONE OF YOUR CONTRACTS FOR AIRPLANE TIRES ARE NEGOTIATED ON THE BASIS OF COST, COST RECORDS ARE NOT "DIRECTLY PERTINENT" AND, THEREFORE, NOT REQUIRED TO BE FURNISHED BY THE EXAMINATION OF RECORDS CLAUSE.

2. SUCH COST RECORDS ARE HIGHLY CONFIDENTIAL AND THEIR DISCLOSURE COULD SUBSTANTIALLY HARM YOUR COMPANY IN THE COMMERCIAL FIELD.

WE DO NOT AGREE WITH THE CONCLUSIONS IN POINT (1) FOR THE FOLLOWING REASONS:

RECORDS WHICH PERTAIN TO THE COSTS AND PRICES OF AIRCRAFT TIRES AND TUBES FURNISHED BY YOUR COMPANY TO THE GOVERNMENT ARE CONSIDERED BY THIS OFFICE TO BE DIRECTLY PERTINENT TO THE CONTRACTS. THE PURPOSE OF THIS LETTER IS TO REQUEST THAT SUCH RECORDS BE MADE AVAILABLE FOR OUR EXAMINATION, AS PROVIDED BY THE TERMS OF THE NEGOTIATED CONTRACTS AWARDED TO YOUR COMPANY BY THE GENERAL SERVICES ADMINISTRATION AND THE DEPARTMENT OF THE AIR FORCE.

THE CONTRACTS AWARDED TO GOODRICH BY THE GENERAL SERVICES ADMINISTRATION INCORPORATE A CLAUSE REQUIRED UNDER 41 U.S.C. 254 (C), WHICH PROVIDES AS FOLLOWS:

"ALL CONTRACTS NEGOTIATED WITHOUT ADVERTISING PURSUANT TO AUTHORITY CONTAINED IN THIS CHAPTER, CHAPTER 11B OF TITLE 5, CHAPTER 10 OF TITLE 40, AND CHAPTER 11 OF TITLE 44 SHALL INCLUDE 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.' (JUNE 30, 1949 CH. 288, TITLE III, SEC. 304, 63 STAT. 395; OCT. 31, 1951, CH. 652, 65 STAT. 700; JULY 12, 1952, CH. 703, SEC. 1 (M), 66 STAT. 594)

THE CONTRACTS AWARDED TO GOODRICH BY THE DEPARTMENT OF THE AIR FORCE INCORPORATE A CLAUSE REQUIRED UNDER 10 U.S.C. 2313 (B), WHICH PROVIDES AS FOLLOWS:

"EACH CONTRACT NEGOTIATED UNDER THIS CHAPTER SHALL PROVIDE THAT THE COMPTROLLER GENERAL AND HIS REPRESENTATIVES ARE ENTITLED, UNTIL THE EXPIRATION OF THREE YEARS AFTER FINAL PAYMENT, TO EXAMINE ANY BOOKS, DOCUMENTS, PAPERS, OR RECORDS OF THE CONTRACTOR, OR ANY OF HIS SUBCONTRACTORS, THAT DIRECTLY PERTAIN TO, AND INVOLVE TRANSACTIONS RELATING TO, THE CONTRACT OR SUBCONTRACT.' (AUG. 10, 1956, CH. 1041, 70A STAT. 132)

THE CONGRESS HAS AUTHORIZED THE AGENCIES TO PLACE CONTRACTS BY NEGOTIATION UNDER CIRCUMSTANCES SPECIFIED IN BOTH THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949 AND THE ARMED SERVICES PROCUREMENT ACT OF 1947, AS AMENDED. ALONG WITH SUCH AUTHORIZATIONS, THE CONGRESS HAS PROVIDED FOR THE EXAMINATION BY THE GENERAL ACCOUNTING OFFICE OF CONTRACTORS' RECORDS RELATING TO THESE NEGOTIATED CONTRACTS. THIS INTEREST OF THE CONGRESS IN NEGOTIATED CONTRACTS STEMS FROM A RECOGNITION BY THE CONGRESS THAT THE AWARD OF CONTRACTS BY NEGOTIATION RATHER THAN BY FORMAL ADVERTISING PROCEDURES DOES NOT PROVIDE THE GOVERNMENT ADEQUATE ASSURANCE AS TO THE REASONABLENESS OF THE PRICES. THE CONGRESS HAS CHARGED THE GENERAL ACCOUNTING OFFICE WITH RESPONSIBILITY FOR REVIEWING THE AGENCIES' DISCHARGE OF THEIR RESPONSIBILITY AND HAS EXPRESSLY PROVIDED THAT THE GENERAL ACCOUNTING OFFICE HAVE THE RIGHT TO EXAMINE CONTRACTORS' RECORDS RELATING TO CONTRACTS AWARDED BY NEGOTIATION PROCEDURES.

IN CONSIDERING THE LEGISLATION WHICH WAS ENACTED AS PUBLIC LAW 245, APPROVED OCTOBER 31, 1951 (65 STAT. 700), THE FOLLOWING STATEMENT WAS MADE ON THE FLOOR OF THE HOUSE OF REPRESENTATIVES BY CONGRESSMAN HARDY ON OCTOBER 15, 1951, 97 CONG.REC. 13197.

"* * * AT THE PRESENT TIME THE GENERAL ACCOUNTING OFFICE DOES GET TO SEE MANY CONTRACTORS' BOOKS AND RECORDS. I AM ADVISED THAT IN 9 OUT OF 10 CASES CONTRACTORS VOLUNTARILY MAKE THEIR RECORDS AVAILABLE FOR INSPECTION BY GAO UPON REQUEST. THIS HAS BEEN GOING ON FOR YEARS, AND I HAVE HEARD OF NO SINGLE INSTANCE WHERE THE GAO HAS VIOLATED ITS TRUST, OR HAS USED THE INFORMATION SECURED FROM THE CONTRACTORS' BOOKS FOR OTHER THAN THE AUTHORIZED DUTIES OF THE GENERAL ACCOUNTING OFFICE.

"THIS BRINGS UP ANOTHER POINT. AS I HAVE INDICATED, THE AUTHORITY CONTAINED IN THIS BILL IS REALLY ONLY NECESSARY TO COVER THOSE CASES WHERE THE CONTRACTORS REFUSE TO PERMIT THE GENERAL ACCOUNTING OFFICE TO INSPECT THEIR BOOKS AND RECORDS. AS I HAVE ALREADY POINTED OUT, THE VAST MAJORITY OF CONTRACTORS DO MAKE THEIR BOOKS AVAILABLE ON A VOLUNTARY BASIS WHEN REQUESTED. THUS, THIS BILL WOULD AFFECT THAT COMPARATIVE FEW CONTRACTORS WHO NOW REFUSE THE AGENT OF THE CONGRESS PERMISSION TO SEE THEIR RECORDS. IT WOULD BE COMPULSORY UPON THEM. IT SEEMS LOGICAL TO ME TO SUPPOSE THAT THERE IS GREATER NEED FOR THE GAO TO SEE THE RECORDS OF THOSE FEW WHO DO NOT WISH TO MAKE THEM AVAILABLE ON A VOLUNTARY BASIS THAN IT IS TO SEE THE RECORDS OF THOSE WHO READILY COMPLY. TO PUT IT BLUNTLY, THOSE WITH NOTHING TO HIDE HAVE NOTHING TO FEAR BY OPENING THEIR BOOKS TO THE GENERAL ACCOUNTING OFFICE.'

THE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY OF YOUR COMPANY STATED THAT, SINCE NONE OF YOUR CONTRACTS FOR AIRPLANE TIRES ARE NEGOTIATED ON THE BASIS OF COST, COST RECORDS ARE NOT ,DIRECTLY PERTINENT.' EVEN THOUGH OTHER FACTORS ARE CONSIDERED BY GOODRICH IN ESTABLISHING THE PRICES FOR THE VARIOUS SIZES AND TYPES OF AIRCRAFT TIRES FURNISHED TO THE GOVERNMENT AND THE PRICES ESTABLISHED FOR SIZES AND TYPES OF TIRES INDIVIDUALLY MAY NOT BE DIRECTLY PROPORTIONATE TO COSTS, COSTS OF PRODUCTION NEVERTHELESS "DIRECTLY PERTAIN TO, AND INVOLVE TRANSACTIONS RELATED TO, THE CONTRACT * * *.' WE BELIEVE THAT COST RECORDS ARE DIRECTLY PERTINENT TO THE PRICES ESTABLISHED. WE ALSO BELIEVE THAT AN EXAMINATION OF THE RELATIONSHIP OF EXPERIENCED AND ESTIMATED COSTS TO THE PRICES PAID BY THE GOVERNMENT, AND OF THE PRICING METHODS USED IN ESTABLISHING THE PRICES, IS NECESSARY IN ORDER THAT THIS OFFICE MAY ADEQUATELY PERFORM ITS AUDIT FUNCTION AND DISCHARGE ITS OBLIGATION TO THE CONGRESS.

THE POSITION OF THE GENERAL ACCOUNTING OFFICE IS (1) THAT ALL BOOKS, DOCUMENTS, PAPERS, AND OTHER RECORDS RELATING TO THE PRICING AND COST OF PERFORMANCE OF NEGOTIATED CONTRACTS ARE RECORDS RELATING DIRECTLY TO THE CONTRACTS AND TO THE GOVERNMENT'S FINANCIAL INTEREST, (2) THAT SUCH BOOKS, DOCUMENTS, PAPERS, AND OTHER RECORDS ARE NOT LIMITED TO THE FORMAL COST ACCOUNTING RECORDS AND THEIR SUPPORTING DATA, BUT INCLUDE ALL UNDERLYING DATA CONCERNING CONTRACT ACTIVITIES AND OPERATIONS WHICH AFFORD THE BASIS FOR, OR ARE INVOLVED IN ANY WAY WITH, THE INCURRENCE OF COSTS BY THE CONTRACTOR THAT HAVE BEEN, OR WILL BE, INCLUDED IN THE PRICES PAID BY THE GOVERNMENT, (3) THAT THE COST RECORDS WHICH WE REQUESTED AND OTHER DATA SUPPORTING THE AIRCRAFT TIRE AND TUBE PRICES CHARGED TO THE GOVERNMENT BY THE CONTRACTOR ARE DIRECTLY PERTINENT TO THE CONTRACTS, AND (4) THAT THEREFORE ALL SUCH BOOKS, DOCUMENTS, PAPERS, AND OTHER RECORDS AND UNDERLYING DATA ARE SUBJECT TO EXAMINATION BY THE GENERAL ACCOUNTING OFFICE UNDER ITS STATUTORY RESPONSIBILITY AND AUTHORITY TO EXAMINE ACTIVITIES AND RELATED COSTS UNDER NEGOTIATED CONTRACTS.

WITH RESPECT TO POINT (2) OF YOUR LETTER, WE APPRECIATE YOUR VIEWS CONCERNING THE CONFIDENTIAL NATURE OF YOUR COST RECORDS. HOWEVER, OUR DUTIES AND RESPONSIBILITIES PREVENT US FROM ENTERING INTO ANY AGREEMENT THAT THIS TYPE OF INFORMATION WOULD NOT BE DISCLOSED TO APPROPRIATE AGENCY OFFICIALS AND TO THE CONGRESS IF IN OUR OPINION THE CIRCUMSTANCES REQUIRE SUCH DISCLOSURE. IT IS OUR NORMAL PRACTICE TO GIVE CONTRACTORS AN OPPORTUNITY TO COMMENT ON OUR DRAFT REPORTS AND APPROPRIATE RECOGNITION IS GIVEN TO THESE COMMENTS IN FINALIZING OUR REPORTS.

WE MUST REQUEST THAT YOU HAVE THE RESPONSIBLE OFFICIALS AT THE B.F. GOODRICH COMPANY MAKE AVAILABLE TO THE GENERAL ACCOUNTING OFFICE, AS REQUIRED, ALL BOOKS, DOCUMENTS, PAPERS, AND OTHER RECORDS DIRECTLY PERTINENT TO THE CONTRACTS, WHICH INCLUDE, BUT ARE NOT LIMITED TO, (1) RECORDS OF EXPERIENCED COSTS, (2) SUPPORT FOR PRICES CHARGED TO THE GOVERNMENT, AND (3) SUCH OTHER INFORMATION AS MAY BE NECESSARY FOR US TO REVIEW THE REASONABLENESS OF THE CONTRACT PRICES AND THE ADEQUACY OF THE PROTECTION AFFORDED THE GOVERNMENT'S INTERESTS.

WE REQUEST ALSO THAT YOU ADVISE US WITHIN 15 DAYS WITH RESPECT TO YOUR DECISION TO MAKE THESE RECORDS AVAILABLE FOR OUR EXAMINATION.