B-146767, FEB. 18, 1963

B-146767: Feb 18, 1963

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TO HEWLETT-PACKARD COMPANY: WE HAVE YOUR LETTER OF JANUARY 21. YOU CONTEND THAT THE RECORDS RELATING TO THE COST OF PERFORMANCE UNDER THE CONTRACTS WHICH HAVE BEEN REQUESTED BY OUR AUDITORS ARE NOT "DIRECTLY PERTINENT" TO THE CONTRACT AND. OUR OFFICE DOES NOT HAVE A RIGHT OF ACCESS TO THEM UNDER CLAUSE 10 OF STANDARD FORM 32 INCLUDED IN EACH OF THE CONTRACTS. YOUR POSITION APPEARS TO BE BASED ON THE CONTENTION THAT THE FIGURES ARE NOT RELEVANT SINCE COST INFORMATION WAS NOT IN ANY WAY A FACTOR IN THE ORIGINAL NEGOTIATIONS. THE HISTORY OF THE LEGISLATION CLEARLY ESTABLISHES THAT ITS PURPOSE IS TO PERMIT OUR OFFICE TO CHECK ON THE TRANSACTION WITH RESPECT TO WHETHER THE INTERESTS OF THE UNITED STATES HAVE BEEN PROPERLY REPRESENTED.

B-146767, FEB. 18, 1963

TO HEWLETT-PACKARD COMPANY:

WE HAVE YOUR LETTER OF JANUARY 21, 1963, REPLYING TO OUR LETTER OF DECEMBER 18, 1962, WITH RESPECT TO THE RIGHT OF OUR OFFICE TO EXAMINE THE RECORDS OF YOUR FIRM CONCERNING CERTAIN CONTRACTS WITH THE DEPARTMENT OF THE AIR FORCE.

YOU CONTEND THAT THE RECORDS RELATING TO THE COST OF PERFORMANCE UNDER THE CONTRACTS WHICH HAVE BEEN REQUESTED BY OUR AUDITORS ARE NOT "DIRECTLY PERTINENT" TO THE CONTRACT AND, THEREFORE, OUR OFFICE DOES NOT HAVE A RIGHT OF ACCESS TO THEM UNDER CLAUSE 10 OF STANDARD FORM 32 INCLUDED IN EACH OF THE CONTRACTS. YOUR POSITION APPEARS TO BE BASED ON THE CONTENTION THAT THE FIGURES ARE NOT RELEVANT SINCE COST INFORMATION WAS NOT IN ANY WAY A FACTOR IN THE ORIGINAL NEGOTIATIONS.

AS WE INDICATED IN OUR LETTER OF DECEMBER 18, 1962, THE PARAGRAPH INCLUDED IN THE CONTRACTS DERIVES FROM PUBLIC LAW 245, 82ND CONGRESS, 65 STAT. 700. THE HISTORY OF THE LEGISLATION CLEARLY ESTABLISHES THAT ITS PURPOSE IS TO PERMIT OUR OFFICE TO CHECK ON THE TRANSACTION WITH RESPECT TO WHETHER THE INTERESTS OF THE UNITED STATES HAVE BEEN PROPERLY REPRESENTED, SINCE THE PROTECTION INHERENT IN THE COMPETITIVE BID SYSTEM IS ABSENT UNDER NEGOTIATED PROCEDURES. THAT PROVISION OF LAW WAS ORIGINALLY CODIFIED AS 10 U.S.C. 2313/B), 70A STAT. 133. WHILE SOME MODIFICATION WAS MADE IN THE LANGUAGE UNDER THE CODIFICATION, SECTION 49/A), 70A STAT. 640, STATES THAT THE LEGISLATIVE PURPOSE WAS TO RESTATE THE LAW WITHOUT SUBSTANTIVE CHANGE. THEREFORE, ANY CHANGE IN THE LANGUAGE APPEARING IN THE CODIFICATION FROM THAT OF THE ORIGINAL ENACTMENT MUST BE REGARDED AS EDITORIAL AND NOT AFFECTING THE SUBSTANCE OF THE PROVISION.

AS YOU POINT OUT, THE LANGUAGE OF THE CONTRACT AND OF THE STATUTE UPON WHICH IT IS BASED PROVIDES THAT OUR OFFICE SHALL HAVE ACCESS TO "ANY DIRECTLY PERTINENT BOOKS, DOCUMENTS, PAPERS, AND RECORDS OF THE CONTRACTOR INVOLVING TRANSACTIONS RELATED TO THIS CONTRACT.' WHILE THE PROVISION MIGHT HAVE BEEN MORE PRECISELY STATED, THE LEGISLATIVE HISTORY OF THE ACT, CITED AT SOME LENGTH IN OUR EARLIER LETTER, PROVIDES NO BASIS FOR LIMITING OUR ACCESS TO THOSE RECORDS WHICH MAY RELATE DIRECTLY TO MATTERS CONSIDERED IN THE COURSE OF NEGOTIATION. IN OUR VIEW, ANY LIMITATION ON THE RIGHT OF ACCESS WHICH WOULD PRECLUDE AN EVALUATION OF PRICE IN COMPARISON TO THE CONTRACTOR'S COST WOULD FRUSTRATE THE PURPOSE OF THE CONTRACT CLAUSE AND THE STATUTORY PROVISION. THEREFORE, ANY RECORDS DEALING WITH COSTS INCURRED UNDER CONTRACTS WHICH INCLUDE THE ACCESS TO RECORDS CLAUSE MUST BE REGARDED AS DIRECTLY PERTINENT WITHOUT REGARD TO THE EXTENT OF NEGOTIATIONS AS TO PRICE. IN THIS CONNECTION IT SHOULD BE NOTED THAT THE CLAUSE APPLIES TO ANY NEGOTIATED CONTRACT, WHETHER IT PROVIDES FOR PAYMENT ON A FIXED PRICE OR ANOTHER BASIS.

IN THE SUPPORT OF YOUR POSITION THAT THE EXAMINATION OF RECORDS CLAUSE WAS NOT INTENDED TO APPLY IN THE INSTANT SITUATION, YOU REFER TO 10 U.S.C. 2306/F) (4), AS AMENDED BY PUBLIC LAW 87-653, SEPTEMBER 10, 1962. THE CITED STATUTE REQUIRES THAT PRICING DATA BE SUBMITTED AND CERTIFIED AS TO ACCURACY, COMPLETENESS AND CURRENCY IN CONNECTION WITH THE AWARD OF NEGOTIATED PRIME OR SUBCONTRACTS, OR CONTRACT MODIFICATIONS. CERTAIN EXCEPTIONS TO THE REQUIREMENT ARE ESTABLISHED, INCLUDING ONE CERTAIN EXCEPTIONS TO THE/REQUIREMENT ARE ESTABLISHED, INCLUDING ONE UNDER WHICH THE REQUIREMENTS NEED NOT BE APPLIED WHERE THE PRICE NEGOTIATED IS BASED ON ESTABLISHED CATALOG PRICES OF COMMERCIAL ITEMS SOLD IN SUBSTANTIAL QUANTITIES TO THE GENERAL PUBLIC. YOU WILL NOTE THAT THE EXCEPTION IS PERMISSIVE NOT MANDATORY. IT IS YOUR POSITION THAT THE PROCUREMENTS UNDER CONSIDERATION FALL WITHIN THAT EXCEPTION. THERE IS NO BASIS IN THE LANGUAGE OF THE PROVISION OR IN ITS LEGISLATIVE HISTORY FOR CONCLUDING THAT EXCEPTIONS TO THE SUBMISSION AND CERTIFICATION REQUIREMENT WERE INTENDED TO HAVE ANY EFFECT ON THE RIGHT OF OUR OFFICE TO EXAMINE A CONTRACTOR'S RECORDS.

YOU STATE THAT YOU HAVE NOT BEEN REFERRED TO ANY CASE IN WHICH A COURT OR OUTSIDE AGENCY HAS UPHELD THE RIGHT OF OUR OFFICE TO EXAMINE COST RECORDS IN CONNECTION WITH CONTRACTS AWARDED WHERE NO RELIANCE WAS PLACED ON COST IN MAKING THE AWARD. THE REASON FOR THE ABSENCE OF ANY PRECEDENT OF THIS KIND IS SIMPLY THAT OUR OFFICE HAS IN EVERY CASE BEEN ABLE TO PREVAIL UPON THE CONTRACTOR TO PERMIT ACCESS TO THE RECORDS WE HAVE CONSIDERED NECESSARY FOR OUR EXAMINATION WITHOUT RESORTING TO ANY COURT OR OTHER OUTSIDE AGENCY. WE MIGHT POINT OUT IN THIS CONNECTION THAT THE FAILURE OF ANY CONTRACTOR UP TO NOW TO REQUIRE US TO RESORT TO LITIGATION OR SIMILAR ACTION IS WORTHY OF NOTE.

WITH RESPECT TO YOUR POSITION THAT DISCLOSURE OF CERTAIN OF YOUR DATA WOULD ADVERSELY AFFECT YOUR COMPETITIVE POSITION, WE CAN ONLY STATE THAT WE RECOGNIZE THAT SUCH DISCLOSURE MAY BE DETRIMENTAL TO A CONTRACTOR. WHILE WE CANNOT AGREE TO ANY LIMITATION ON OUR RIGHT TO UTILIZE THE DATA IN CARRYING OUT OUR RESPONSIBILITIES, WE CAN ASSURE YOU THAT OUR REPORT WILL INCLUDE ONLY THE DATA NECESSARY TO SUPPORT OUR CONCLUSIONS AND WE WILL ENDEAVOR TO PRESENT THAT DATA IN TERMS WHICH WILL PROTECT YOUR COMMERCIAL INTERESTS.

WE MUST, THEREFORE, AGAIN DEMAND ACCESS TO THE KIND OF INFORMATION DETAILED IN THE NEXT-TO-LAST PARAGRAPH OF OUR LETTER OF DECEMBER 18, 1962. UNLESS WE RECEIVE ADVICE FROM YOU WITHIN THE NEXT 15 DAYS THAT THESE RECORDS WILL BE MADE AVAILABLE FOR OUR EXAMINATION, WE WILL BE REQUIRED TO TAKE SUCH FURTHER ACTION DEEMED APPROPRIATE TO THE EXERCISE OF OUR RIGHTS UNDER THE CONTRACT AND THE EXECUTION OF OUR STATUTORY RESPONSIBILITIES.

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