B-146898, APR. 16, 1964

B-146898, APR. 16, 1964

TO MR. JAMES VIAVANT:

THE GENERAL ACCOUNTING OFFICE IS MAKING AN EXAMINATION OF NEGOTIATED SHIP CONSTRUCTION CONTRACTS AWARDED TO AVONDALE SHIPYARDS INC., BY THE DEPARTMENT OF THE NAVY. 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 10 U.S.C. 2313 (B).

THE RESPONSIBILITY OF THE GENERAL ACCOUNTING OFFICE AS CONTAINED IN THE BUDGET AND ACCOUNTING ACT, 1921 (31 U.S.C. 53) PROVIDES THAT THE COMPTROLLER GENERAL SHALL INVESTIGATE AT THE SEAT OF GOVERNMENT OR ELSEWHERE, ALL MATTERS RELATING TO THE RECEIPT, DISBURSEMENT, AND APPLICATION OF PUBLIC FUNDS. IN DISCHARGING THIS RESPONSIBILITY, IT IS INCUMBENT UPON US TO EXAMINE CONTRACTUAL PROCUREMENTS SINCE THE EFFICIENT, EFFECTIVE AND ECONOMICAL MANAGEMENT OF SUCH TRANSACTIONS ARE AN INTEGRAL PART OF THE OVERALL FINANCIAL STEWARDSHIP OF GOVERNMENTAL DEPARTMENTS OR AGENCIES AND THE CONTRACTORS HAVE FULFILLED THEIR FINANCIAL OBLIGATIONS TO THE GOVERNMENT UNDER CONTRACTUAL PROCUREMENTS ENTERED INTO THROUGH THE NEGOTIATION PROCESS, OUR REVIEWS INCLUDE AN EXAMINATION OF THE NEGOTIATION OF EACH CONTRACT PRICE AND THE RELATED BID PROPOSAL REPRESENTATIONS AND SUPPORTING DOCUMENTATION, AS WELL AS CONTRACT PERFORMANCE.

RECOGNIZING THE NEED FOR OUR OFFICE TO EXAMINE NEGOTIATED PROCUREMENTS AND ANTICIPATING THOSE RARE INSTANCES WHERE A CONTRACTOR MIGHT REFUSE US ACCESS TO HIS RECORDS, THE CONGRESS ENACTED PUBLIC LAW 245, APPROVED OCTOBER 31, 1951, WHICH HAS SINCE BEEN MODIFIED BY SUBSEQUENT LEGISLATION AND IS NOW CONTAINED IN 10 U.S.C. 2313 (B). THIS PUBLIC LAW, AS AMENDED, PROVIDES:

"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.'

OUR EXAMINATION OF SHIP CONSTRUCTION CONTRACTS AWARDED TO AVONDALE SHIPYARDS, INC., BY THE GOVERNMENT IS BEING MADE PURSUANT TO THE ACTS CITED ABOVE. ONE OF THE NEGOTIATED CONTRACTS WE SELECTED FOR THIS EXAMINATION IS CONTRACT NOBS 4353. THIS CONTRACT CONTAINS THE ABOVE CITED PROVISION RELATING TO THE RIGHT OF THE COMPTROLLER GENERAL AND HIS REPRESENTATIVES TO EXAMINE CONTRACTORS' RECORDS.

DURING OUR EXAMINATION OF CONTRACT NOBS 4353, REPRESENTATIVES OF THIS OFFICE HAVE BEEN DENIED ACCESS TO CERTAIN DATA RELATING TO THIS CONTRACT. SPECIFICALLY, OUR REPRESENTATIVES REQUESTED AND WERE DENIED ACCESS TO UNDERLYING DATA SUPPORTING THE PROPOSED AND NEGOTIATED PRICE OF CONTRACT NOBS 4353. BY LETTER DATED FEBRUARY 18, 1964, THE MANAGER OF OUR REGIONAL OFFICE IN NEW ORLEANS, LOUISIANA, CALLED TO THE ATTENTION OF MR. HENRY Z. CARTER, PRESIDENT OF AVONDALE SHIPYARDS, INC., OUR CONTRACTUAL RIGHT TO THESE DATA AND REQUESTED THAT HE ADVISE US WHEN THEY WOULD BE MADE AVAILABLE TO US. MR. CARTER, BY LETTER DATED MARCH 3, 1964, REPLIED THAT ACCESS TO THIS DATA WAS BEING DENIED TO US BECAUSE IT WAS HIS BELIEF THAT THESE DOCUMENTS WERE NOT PART OF THE CONTRACT DOCUMENTS REQUIRED TO BE MADE AVAILABLE BY YOUR COMPANY FOR OUR EXAMINATION. MR. CARTER STATED THAT THE AWARD OF CONTRACT NOBS 4353 TO AVONDALE WAS BASED UPON YOUR COMPANY'S LOW PROPOSED PRICE AND ACCEPTED BY THE NAVY WITHOUT NEGOTIATIONS. HE STATED FURTHER THAT AVONDALE'S ORIGINAL PROPOSED PRICE WAS ACCEPTED BY THE NAVY WITHOUT NEGOTIATIONS BECAUSE THE PRICE OFFERED BY YOUR COMPANY WAS EXTREMELY LOW IN COMPARISON WITH PRICES THE NAVY PAID OTHER SHIPYARDS FOR THE SAME TYPEOF SHIPS. AS AN EXAMPLE, HE STATED THAT THE NAVY HAD BEEN PAYING AS MUCH AS $19 MILLION FOR THE DDG TYPE SHIP WHICH AVONDALE OFFERED UNDER CONTRACT NOBS 4353 FOR A PRICE OF $16 MILLION.

IT IS A MATTER OF INTEREST TO POINT OUT THAT CONTRACT NOBS 4353 WAS AWARDED TO YOUR COMPANY BY THE DEPARTMENT OF THE NAVY FOR THE CONSTRUCTION OF TWO OCEAN ESCORT SHIPS, NOT DDG TYPE SHIPS, AND AT A PRICE OF ABOUT $8 MILLION PER SHIP, NOT $16 MILLION PER SHIP. WE HAVE NOTED, HOWEVER, THAT NOTWITHSTANDING THE ERRONEOUS EXAMPLE CITED IN MR. CARTER'S LETTER OF MARCH 3, 1964, AVONDALE'S ORIGINAL PROPOSED PRICE FOR CONTRACT NOBS 4353 WAS IN FACT ACCEPTED BY THE NAVY.

MR. CARTER AGREED THAT CONTRACT NOBS 4353 WAS DESIGNATED AS A NEGOTIATED CONTRACT AND, AS SUCH, CONTAINS A PROVISION BY WHICH YOUR COMPANY IS REQUIRED TO MAKE AVAILABLE TO US FOR OUR EXAMINATION ANY PERTINENT BOOKS, DOCUMENTS, PAPERS, AND RECORDS RELATED TO THE CONTRACT. HOWEVER, MR. CARTER HAS TAKEN THE POSITION THAT DOCUMENTS SUPPORTING THE ORIGINAL PROPOSED PRICE, ACCEPTED BY THE NAVY WITHOUT CHANGE, ARE NOT PERTINENT TO THIS CONTRACT.

WE CANNOT AGREE THAT THE RECORDS WHICH WE HAVE REQUESTED DO NOT DIRECTLY PERTAIN TO AND INVOLVE TRANSACTIONS RELATING TO CONTRACT NOBS 4353. THE PROPOSED PRICE AND SUPPORTING DOCUMENTATION WAS THE BASIS UPON WHICH THIS CONTRACT PRICE WAS ESTABLISHED AND DIRECTLY PERTAIN TO TRANSACTIONS RELATING TO THIS CONTRACT. THEREFORE, IRRESPECTIVE OF THE DATE PREPARED, ALL BOOKS, DOCUMENTS, PAPERS AND RECORDS THAT WERE USED OR PREPARED IN CONNECTION WITH, OR FOR THE PURPOSE OF ESTIMATING CONTRACT COSTS, CONDUCTING NEGOTIATIONS, AND PERFORMING THE CONTRACT DIRECTLY PERTAIN TO AND INVOLVE TRANSACTIONS RELATING TO THIS CONTRACT.

THEREFORE, WE MUST INSIST UPON EXAMINING THE BID PROPOSAL AND SUPPORTING DOCUMENTATION OF AVONDALE SHIPYARDS, INC., RELATING TO NEGOTIATED CONTRACT NOBS 4353. ACCORDINGLY, YOU ARE REQUESTED TO ADVISE US WITHIN 15 DAYS OF THE DATE OF THIS LETTER WHEN THE REQUESTED RECORDS WILL BE MADE AVAILABLE FOR OUR EXAMINATION.