B-142154, JUL. 29, 1963

B-142154, JUL. 29, 1963

TO THE SECRETARY OF THE AIR FORCE:

REFERENCE IS MADE TO LETTER DATED MAY 14, 1963, FROM THE DEPUTY FOR PROCUREMENT MANAGEMENT, OFFICE OF THE ASSISTANT SECRETARY, REQUESTING OUR ADVISE AND RECOMMENDATION ON A PROPOSED SETTLEMENT BETWEEN NORTH AMERICAN AVIATION, INC., LOS ANGELES, CALIFORNIA, AND J. A. MAURER, LONG ISLAND CITY, NEW YORK, CONCERNING INADEQUATE CONTRACT ADMINISTRATION DISCLOSED IN OUR REPORT TO THE CONGRESS ON JUNE 24, 1960.

THE LETTER NOTES THAT, AFTER UNSUCCESSFUL EFFORTS TO OBTAIN A VOLUNTARY REFUND FROM THE SUBCONTRACTOR, NORTH AMERICAN INITIATED COURT ACTION AGAINST MAURER IN FEDERAL COURT IN NEW YORK. SINCE THAT TIME, THE CASE HAS PROCEEDED THROUGH DEPOSITIONS AND INTERROGATORIES AND A NUMBER OF SETTLEMENT PROPOSALS HAVE BEEN CONSIDERED AND REJECTED BY NORTH AMERICAN. IN JANUARY OF THIS YEAR NORTH AMERICAN RECEIVED A FIRM SETTLEMENT OFFER OF $35,000 FROM MAURER. IT IS THE VIEW OF BOTH YOUR DEPARTMENT AND NORTH AMERICAN THAT THE MANY PROBLEMS INVOLVED IN ATTEMPTING TO LITIGATE THE CASE, AS WELL AS MAURER'S WEAK FINANCIAL POSITION, WARRANT ACCEPTANCE OF THE SETTLEMENT OFFER.

WE HAVE BEEN INFORMALLY ADVISED THAT NORTH AMERICAN PROPOSES TO SETTLE THE ENTIRE MATTER BY PASSING ON DIRECTLY TO THE GOVERNMENT WITHOUT ANY OFFSETS WHATSOEVER, THE REFUND RECEIVED FROM MAURER. WITH THIS UNDERSTANDING AND IN VIEW OF ALL THE FACTS AND CIRCUMSTANCES INVOLVED, WE WOULD NOT OBJECT TO THE PROPOSED SETTLEMENT INSOFAR AS MAURER IS CONCERNED.

HOWEVER, AS INDICATED IN OUR REPORT TO THE CONGRESS DATED JUNE 24, 1960, THE SUBCONTRACT PRICES OF MAURER WERE INCREASED BY THE AMOUNT OF OTHER COSTS AND PROFIT ADDED BY NORTH AMERICAN. THE RECORD SHOWS THAT NORTH AMERICAN ACCEPTED THE SUBCONTRACT PRICE AS SUBMITTED WITHOUT INVESTIGATING THE REASONABLENESS OF THE COST DATA FURNISHED BY MAURER. ALSO, NORTH AMERICAN FAILED TO OBTAIN COMPARATIVE COST DATA AND PRICING INFORMATION FROM THE AIR FORCE EVEN THOUGH NORTH AMERICAN WAS AWARE THAT MAURER WAS THE NORMAL AIR FORCE SOURCE OF SUPPLY FOR THE ITEM AND HAD RECEIVED INFORMATION THAT AN AIR FORCE PROCUREMENT WAS THEN UNDER WAY. ADDITION, THE RECORD SHOWS THAT, AFTER NORTH AMERICAN PLACED ITS ORDER IN TIME FOR MAURER TO COMBINE ITS PRODUCTION WITH THE SEPARATE AIR FORCE PROCUREMENT, THE COMPANY NEGLECTED TO FOLLOW-UP ON THE SUBCONTRACTOR'S OFFER OF A PRICE REDUCTION. CONSEQUENTLY, IN VIEW OF NORTH AMERICAN'S CONDUCT OF THE PROCUREMENT, WE BELIEVE THERE ARE SUFFICIENT GROUNDS TO REQUEST THE COMPANY TO REFUND AMOUNTS IN ITS PRICES ASSOCIATED WITH THE OVERCHARGES MADE BY MAURER.