B-146708, NOV. 3, 1961

B-146708, NOV. 3, 1961

TO MR. E. L. TEALE, PRESIDENT, NEW YORK SHIPBUILDING CORPORATION:

THE UNITED STATES GENERAL ACCOUNTING OFFICE IS MAKING AN EXAMINATION OF CONTRACT NO. MA-1675 NEGOTIATED BY THE MARITIME ADMINISTRATION WITH THE NEW YORK SHIPBUILDING CORPORATION FOR THE CONSTRUCTION OF THE NUCLEAR- POWERED VESSEL NS SAVANNAH AT A FIXED PRICE. 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).

THE PURPOSE OF THIS LETTER IS TO REQUEST THAT YOUR COMPANY MAKE AVAILABLE FOR OUR EXAMINATION ALL RECORDS WHICH PERTAIN TO THE ESTIMATES OF COSTS AND PROFIT USED BY YOUR COMPANY IN NEGOTIATION OF THE FIXED-PRICE CONTRACT WITH THE MARITIME ADMINISTRATION.

DURING OUR CURRENT EXAMINATION OF THE NEGOTIATED CONTRACT AWARDED TO YOUR COMPANY, REPRESENTATIVES OF THIS OFFICE HAVE BEEN DENIED ACCESS TO ALL SUCH ESTIMATE DATA.

AS INDICATED BY THE ENCLOSED COPY OF A LETTER DATED SEPTEMBER 25, 1961, FROM MR. W. D. WHITAKER, JR., A VICE PRESIDENT OF YOUR COMPANY, TO OUR PHILADELPHIA, PENNSYLVANIA REGIONAL OFFICE, OUR RIGHT OF ACCESS TO THESE RECORDS IS QUESTIONED ON THE BASIS OF YOUR COMPANY'S OPINION THAT ARTICLE V (F) OF THE CONTRACT DOES NOT GIVE REPRESENTATIVES OF THE COMPTROLLER GENERAL THE RIGHT TO EXAMINE ANY DATA USED BY YOUR COMPANY IN THE PREPARATION OF ITS ESTIMATE PRIOR TO THE AWARD OF THE CONTRACT; THAT SUCH DATA DOES NOT CONSTITUTE "TRANSACTIONS; " AND THAT THE RIGHT TO EXAMINE EXTENDS ONLY TO TRANSACTIONS WHICH WERE ACTUALLY MADE SUBSEQUENT TO THE EXECUTION OF THE CONTRACT. WE DO NOT AGREE WITH THIS OPINION FOR THE FOLLOWING REASONS:

CONTRACT NO. MA-1675 AWARDED THE NEW YORK SHIPBUILDING CORPORATION BY THE MARITIME ADMINISTRATION INCORPORATES 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 11C 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 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 RESPONSIBILITIES 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 OF YOUR COMPANY HAS STATED IN EFFECT THAT, SINCE THE REQUESTED ESTIMATE DATA PRECEDED THE AWARD OF THE CONTRACT, SUCH INFORMATION DOES NOT CONSTITUTE TRANSACTIONS CONTEMPLATED BY THE CONTRACT CLAUSE V (F) TO BE MADE AVAILABLE FOR EXAMINATION BY REPRESENTATIVES OF THIS OFFICE. EVEN THOUGH OTHER FACTORS MIGHT HAVE BEEN CONSIDERED BY YOUR COMPANY IN ESTABLISHING THE PRICE FOR THE VESSEL NS SAVANNAH, AND THE PRICE ESTABLISHED FOR THE VESSEL UNDER CONTRACT MAY NOT BE DIRECTLY PROPORTIONATE TO COSTS YOUR COMPANY MUST HAVE DETERMINED WHETHER THE PRICE NEGOTIATED WAS ADEQUATE TO PROVIDE FOR RECOVERY OF COSTS AND FOR A SATISFACTORY FINANCIAL RETURN IN PERFORMANCE OF THE CONTRACT. WE BELIEVE THAT ESTIMATE DATA ARE DIRECTLY PERTINENT TO THE PRICE ESTABLISHED. ALSO BELIEVE THAT AN EXAMINATION OF THE RELATIONSHIP OF EXPERIENCED AND ESTIMATED COSTS TO THE PRICE NEGOTIATED WITH THE GOVERNMENT, AND OF THE METHODS USED IN ESTABLISHING INDIVIDUAL ITEM ESTIMATES TO ARRIVE AT THE TOTAL FIXED PRICE OF THE VESSEL, IS NECESSARY IN ORDER THAT THE OFFICE MAY ADEQUATELY PERFORM ITS AUDIT FUNCTIONS 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 PRICES PAID BY THE GOVERNMENT, (3) THAT THE ESTIMATE DATA WHICH WE REQUESTED AND OTHER DATA SUPPORTING THE VESSEL PRICE CHARGED TO THE GOVERNMENT BY THE CONTRACTOR ARE DATA PERTINENT TO THE CONTRACT, 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.

WE MUST REQUEST THAT YOU HAVE THE RESPONSIBLE OFFICIALS AT THE NEW YORK SHIPBUILDING CORPORATION 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 THE PRICE QUOTED, AND (3) SUCH OTHER INFORMATION AS MAY BE NECESSARY FOR US TO REVIEW THE REASONABLENESS OF THE CONTRACT PRICE AND THE ADEQUACY OF THE PROTECTION AFFORDED THE GOVERNMENT'S INTERESTS.

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