B-167823, SEPTEMBER 30, 1969, 49 COMP. GEN. 216

B-167823, SEPTEMBER 30, 1969, 49 COMP. GEN. 216

CONTRACTS -- NEGOTIATION -- COST, ETC., DATA -- "TRUTH-IN-NEGOTIATION" - EXCEPTIONS TO COST OR PRICING DATA WHEN NEGOTIATED PRICES ARE BASED ON ESTABLISHED CATALOG OR MARKET PRICES OF COMMERCIAL ITEMS SOLD IN SUBSTANTIAL QUANTITIES TO THE GENERAL PUBLIC AND PRICE DIFFERENCES CAN BE IDENTIFIED AND JUSTIFIED WITHOUT RESORT TO COST ANALYSIS, THE DETERMINATION TO APPLY THE EXEMPTION IN PARAGRAPH 3- 807.1(2) OF THE ARMED SERVICES PROCUREMENT REGULATION TO THE REQUIREMENT IN THE "TRUTH-IN-NEGOTIATIONS" ACT (10 U.S.C. 2306(F)) THAT CERTIFIED COST OR PRICING DATA MUST BE FURNISHED ON CONTRACTS AND SUBCONTRACTS THAT EXCEED $100,000, IS DISCRETIONARY AND REQUIRES THE EXERCISE OF SOUND JUDGMENT. WHERE A DECISION THAT THE "BASED ON" CONCEPT SHOULD NOT APPLY TO SUBCONTRACTOR PRICES AN AXLES AND TRANSFER CASES IS REACHED AFTER AN EXTENSIVE AND CAREFUL REVIEW OF THE FACTUAL MATTERS INVOLVED, THE DECISION IS CONSIDERED A PROPER EXERCISE OF DISCRETION AND JUDGMENT, AND THE SUBCONTRACTOR MUST FURNISH THE COST AND PRICING DATA REQUESTED.

TO THE SECRETARY OF THE ARMY, SEPTEMBER 30, 1969:

REFERENCE IS MADE TO A LETTER DATED AUGUST 29, 1969, WITH ENCLOSURES, FROM THE ASSISTANT SECRETARY OF THE ARMY (INSTALLATIONS AND LOGISTICS), REQUESTING OUR DECISION ON THE APPLICABILITY OF PUBLIC LAW 87-653, 10 U.S.C. 2306(F), COMMONLY REFERRED TO AS THE "TRUTH-IN-NEGOTIATIONS" LAW, TO SUBCONTRACTS OF ROCKWELL STANDARD COMPANY, NORTH AMERICAN ROCKWELL CORPORATION, FOR FURNISHING AXLES AND TRANSFER CASES TO DIAMOND REO DIVISION OF WHITE MOTORS CORPORATION AND CADILLAC GAGE COMPANY.

ROCKWELL HAS REFUSED DEMANDS OF THE PRIME CONTRACTORS AND THE GOVERNMENT FOR CERTIFIED COST OR PRICING DATA IN CONNECTION WITH THE SUBJECT SUBCONTRACTS. THESE TWO SUBCONTRACTS HAVE A TOTAL VALUE OF APPROXIMATELY $5,750,000. WHILE THE ADMINISTRATIVE REPORT IS CONCERNED PRIMARILY WITH THE TWO SUBCONTRACTS REFERRED TO ABOVE, THE MAGNITUDE OF THE PROBLEM IS INDICATED BY THE FACT THAT THERE ARE APPROXIMATELY $49.5 MILLION OF SUBCONTRACTS WITH ROCKWELL FOR AXLES AND TRANSFER CASES AND THE CONTROVERSY OVER SUBMISSION OF COST OR PRICING DATA HAS CONTINUED FOR MORE THAN 34 MONTHS. IT IS REPORTED THAT MOST OF THESE SUBCONTRACTS WITH ROCKWELL HAVE BEEN NEGOTIATED WITH A CLAUSE DEFERRING THE QUESTION OF FURNISHING COST OR PRICING DATA. IT IS ALSO REPORTED THAT RECENTLY ROCKWELL HAS REFUSED TO ACCEPT PURCHASE ORDERS FROM THE CADILLAC GAGE COMPANY FOR AXLES NEEDED FOR PRODUCTION OF THE XM 706E1 ARMORED CAR UNLESS THE PROVISIONS REQUIRING THE SUBMISSION OF COST OR PRICING DATA ARE DELETED.

THE DEMAND UPON ROCKWELL FOR SUBMISSION OF COST OR PRICING DATA IS MADE PURSUANT TO THAT PART OF THE "TRUTH-IN-NEGOTIATIONS" ACT WHICH PROVIDES THAT A CONTRACTOR OR SUBCONTRACTOR SHALL BE REQUIRED TO SUBMIT SUCH DATA AND CERTIFY AS TO ITS ACCURACY, COMPLETENESS AND CURRENCY PRIOR TO THE AWARD OF A NEGOTIATED CONTRACT WHERE THE PRICE IS EXPECTED TO EXCEED $100,000.

ROCKWELL CONTENDS THAT IT IS NOT REQUIRED TO SUBMIT COST OR PRICING DATA IN VIEW OF THAT PART OF THE ACT, AS IMPLEMENTED BY ARMED SERVICES PROCUREMENT REGULATION 3-807.1(2), WHICH PROVIDES THAT THE REQUIREMENTS THEREOF "NEED NOT BE APPLIED TO CONTRACTS OR SUBCONTRACTS WHERE THE PRICE NEGOTIATED IS BASED ON *** ESTABLISHED CATALOG OR MARKET PRICES OF COMMERCIAL ITEMS SOLD IN SUBSTANTIAL QUANTITIES TO THE GENERAL PUBLIC *** " THE REGULATION CITED ABOVE PROVIDES, IN PART, THAT--

A PRICE MAY BE CONSIDERED TO BE "BASED ON" ESTABLISHED CATALOG OR MARKET PRICES OF COMMERCIAL ITEMS SOLD IN SUBSTANTIAL QUANTITIES TO THE GENERAL PUBLIC IF THE ITEM BEING PURCHASED IS SUFFICIENTLY SIMILAR TO SUCH A COMMERCIAL ITEM TO PERMIT THE DIFFERENCE BETWEEN THE PRICES OF THE ITEMS TO BE IDENTIFIED AND JUSTIFIED WITHOUT RESORT TO COST ANALYSIS.

IN THIS CONNECTION, ROCKWELL CONTENDS THAT ITS MILITARY AXLES AND TRANSFER CASES ARE "SUFFICIENTLY SIMILAR" TO ITS COMMERCIAL SQD TANDEM SERIES AXLE AND T-226 TRANSFER CASE, WHICH ARE SOLD TO THE GENERAL PUBLIC IN SUFFICIENT QUANTITIES, "TO PERMIT THE DIFFERENCE BETWEEN THE PRICES OF THE ITEMS TO BE IDENTIFIED AND JUSTIFIED WITHOUT RESORT TO COST ANALYSIS." THEREFORE, ROCKWELL CONTENDS THAT A PRICE ANALYSIS IN ACCORDANCE WITH THE PROVISIONS OF ASPR 3-807.2(B) MAY BE PERFORMED TO DETERMINE THE REASONABLENESS OF ITS PRICE.

IN AN EFFORT TO RESOLVE THIS MATTER, ARMY PERSONNEL, WITH THE COOPERATION OF ROCKWELL PERSONNEL, UNDERTOOK A COMPREHENSIVE TECHNICAL AND PRICE ANALYSIS OF THE DIFFERENCES BETWEEN THE MILITARY AND COMMERCIAL AXLES AND TRANSFER CASES SELECTED BY ROCKWELL FOR COMPARISON TO DETERMINE WHETHER THE "BASED ON" CONCEPT COULD BE ACCEPTED IN LIEU OF A COST ANALYSIS. THE ARMY'S REPORT WAS ISSUED ON SEPTEMBER 14, 1968. AS A RESULT OF THE FINDINGS THEREIN, MR. ROBERT A. BROOKS, THEN ASSISTANT SECRETARY OF THE ARMY (INSTALLATIONS AND LOGISTICS), ADVISED ROCKWELL ON DECEMBER 27, 1968, OF HIS DETERMINATION THAT THE PRICE ANALYSIS TECHNIQUE COULD BE ACCEPTED TO DETERMINE THE REASONABLENESS OF ITS PRICE FOR THE 5-TON REAR AXLE, BUT THAT COST OR PRICING DATA MUST BE SUBMITTED IN CONNECTION WITH ITS PRICES FOR THE 5-TON FRONT AXLE AND TRANSFER CASE AND THE 2-1/2-TON AXLE AND TRANSFER CASE. HOWEVER, ROCKWELL HAS REMAINED ADAMANT IN ITS REFUSAL TO SUBMIT SUCH DATA.

THE REQUIREMENT OF 10 U.S.C. 2306(F) FOR THE SUBMISSION OF CERTIFIED COST OR PRICING DATA IS COUCHED IN MANDATORY TERMS, USING THE PHRASE "SHALL BE REQUIRED," WHEREAS THE PROVISO OF THE STATUTE EXCEPTING THE SUBMISSION OF SUCH DATA STATES THAT THE "REQUIREMENTS OF THIS SUBSECTION NEED NOT BE APPLIED" IN THE CIRCUMSTANCES LISTED THEREIN. THIS LANGUAGE MAKES IT CLEAR THAT THE EXCEPTIONS ARE PERMISSIVE, NOT MANDATORY, PERMITTING THE EXERCISE OF DISCRETION AND JUDGMENT ON THE PART OF PROCUREMENT PERSONNEL. IN THIS CONNECTION, ON AUGUST 1, 1963, CONGRESSMAN F. EDWARD HEBERT, WHO SPONSORED THE "TRUTH-IN-NEGOTIATIONS" LAW AS ORIGINALLY PASSED BY THE HOUSE OF REPRESENTATIVES, INTRODUCED A BILL (H.R. 7909, 88TH CONG.) TO AMEND THE LAW. HE PROPOSED, AMONG OTHER THINGS, TO PROHIBIT, RATHER THAN LEAVE DISCRETIONARY, THE OBTAINING OF DATA AND CERTIFICATES WHEN THE PRICE WAS BASED ON PRICE COMPETITION OR ESTABLISHED CATALOG OR MARKET PRICES. THIS BILL WAS VIGOROUSLY OPPOSED BY BOTH OUR OFFICE AND THE DEPARTMENT OF DEFENSE. ON THE DISCRETIONARY RIGHT TO REQUIRE DATA UNDER THE STATUTORY EXCEPTIONS, WE CONTENDED THAT SUCH DISCRETION WAS DESIRABLE; OTHERWISE, IN THE BORDERLINE CASES, THERE WOULD BE ENDLESS ARGUMENTS ON THE ADMINISTRATIVE LEVEL WHETHER THE LAW WAS APPLICABLE. FURTHERMORE, WE FELT THAT THE CONTRACTING OFFICE SHOULD BE PERMITTED TO REQUIRE THE DATA AND CERTIFICATE IN SPECIAL CASES EVEN THOUGH A STATUTORY EXCEPTION MIGHT BE APPLICABLE. H.R. 7909 NEVER WAS REPORTED OUT OF THE COMMITTEE.

IT SHOULD ALSO BE NOTED THAT ASPR 3-807.1(B)(2), CONCERNING THE STATUTORY EXCEPTION FOR ESTABLISHED CATALOG OR MARKET PRICES, PROVIDES THAT APPLICATION OF THIS "EXCEPTION ALSO REQUIRES JUDGMENT AND ANALYSIS ON A CASE-BY-CASE BASIS."

ACCORDINGLY, IT IS OUR VIEW THAT WHETHER A STATUTORY EXCEPTION APPLIES IS A DISCRETIONARY MATTER REQUIRING THE EXERCISE OF SOUND JUDGMENT ON THE PART OF PROCUREMENT PERSONNEL. WHERE, AS HERE, A DECISION THAT THE "BASED ON" CONCEPT SHOULD NOT APPLY HAS BEEN REACHED AFTER AN EXTENSIVE AND CAREFUL REVIEW OF THE FACTUAL MATTERS INVOLVED, THERE HAS BEEN A PROPER EXERCISE OF THE DISCRETION AND JUDGMENT PERMITTED AND CERTIFIED COST OR PRICING DATA MUST BE FURNISHED BY THE CONTRACTOR OR SUBCONTRACTOR, AS THE CASE MAY BE. ..END :