B-146927, JUN. 11, 1964

B-146927, JUN. 11, 1964

TO MR. LA MOTTE T. COHU:

MY REPRESENTATIVES ARE MAKING AN EXAMINATION OF A NEGOTIATED CONTRACT AWARDED TO COHU ELECTRONICS, INCORPORATED, KIN TEL DIVISION, SAN DIEGO, CALIFORNIA, BY HEADQUARTERS, MIDDLETOWN AIR MATERIEL AREA, DIRECTORATE, PROCUREMENT AND PRODUCTION, OLMSTED AIR FORCE BASE, PENNSYLVANIA, FOR THE PRODUCTION OF 97 MODEL 303A D.C. ABSOLUTE VOLTAGE STANDARDS. THE DUTIES AND RESPONSIBILITIES OF THE COMPTROLLER GENERAL OF THE UNITED STATES FOR MAKING SUCH AUDITS AND INVESTIGATIONS ARE CONTAINED IN VARIOUS LAWS ENACTED BY THE CONGRESS OF THE UNITED STATES, INCLUDING THE BUDGET AND ACCOUNTING ACT, 1921 (10 U.S.C. 53), AND THE ACCOUNTING AND AUDITING ACT OF 1950 (31 U.S.C. 67). UNDER THE BUDGET AND ACCOUNTING ACT, 1921, THE COMPTROLLER GENERAL OF THE UNITED STATES AND HIS REPRESENTATIVES ARE GIVEN RESPONSIBILITY FOR INVESTIGATING 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. ASCERTAIN HOW WELL GOVERNMENTAL DEPARTMENTS OR AGENCIES AND THE CONTRACTORS HAVE FULFILLED THEIR FINANCIAL OBLIGATIONS TO THE UNITED STATES GOVERNMENT UNDER PROCUREMENTS ENTERED INTO THROUGH THE NEGOTIATION PROCESS, OUR REVIEWS INCLUDE AN EXAMINATION OF THE NEGOTIATION OF CONTRACT PRICES 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 OF THE UNITED STATES ENACTED PUBLIC LAW 245, APPROVED OCTOBER 31, 1951, WHICH HAS SINCE BEEN MODIFIED BY SUBSEQUENT LEGISLATION. THIS PUBLIC LAW, AS AMENDED, PRO IDES:

"EACH CONTRACT NEGOTIATED UNDER THIS CHAPTER SHALL PROVIDE THAT THE COMPTROLLER GENERAL AND HIS REPRESENTATIVES ARE ENTITLED, UNTIL THE EXPIRATION OF THREE YEARS 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.'

IT IS, THEREFORE, A STATUTORY REQUIREMENT THAT THE ABOVE CITED PROVISION NOT ONLY BE INCLUDED IN ALL CONTRACTS AWARDED DIRECTLY BY AGENCIES OF THE UNITED STATES GOVERNMENT BUT ALSO IN ALL SUBCONTRACTS AND PURCHASE ORDERS ISSUED BY CONTRACTORS DOING BUSINESS WITH THE UNITED STATES GOVERNMENT. THE CONTRACT YOU HAVE ENTERED INTO WITH HEADQUARTERS, MIDDLETOWN AIR MATERIAL AREA, DIRECTORATE, PROCUREMENT AND PRODUCTION, OLMSTED AIR FORCE BASE, PENNSYLVANIA, CONTAINS THE PROVISION RELATING TO THE RIGHT OF THE COMPTROLLER GENERAL AND HIS REPRESENTATIVES TO EXAMINE CONTRACTORS' RECORDS.

WE HAVE BEEN ADVISED BY MR. H. L. RYDER, REGIONAL MANAGER OF OUR LOS ANGELES OFFICE, THAT HE AND HIS STAFF WERE DENIED ACCESS TO COST RECORDS REQUIRED BY THIS OFFICE FOR THE PURPOSE OF DETERMINING THE REASONABLENESS OF THE NEGOTIATED PRICES FOR THE SUBJECT CONTRACT. WE BELIEVE IT IS IMPORTANT THAT YOU REALIZE THAT THE ACTIONS OF COHU OFFICIALS IN ADHERING TO ITS PRESENT POLICY OF DENYING US INFORMATION DIRECTLY RELATED TO ITS CONTRACT OPERATIONS HAVE PREVENTED US FROM EFFECTIVELY CARRYING OUT OUR STATUTORY RESPONSIBILITIES AND RESULTED IN SERIOUSLY DELAYING OUR AUDIT. IT IS OUR POSITION THAT THE SUBJECT CONTRACT PROVISION GIVES US THE RIGHT TO EXAMINE ALL BOOKS, DOCUMENTS,PAPERS, AND OTHER RECORDS RELATING DIRECTLY TO THE CONTRACT AND THE COSTS BORNE BY THE UNITED STATES GOVERNMENT, AND THAT SUCH BOOKS, DOCUMENTS, PAPERS, AND OTHER RECORDS ARE NOT LIMITED TO THE FORMAL COST ACCOUNTING RECORDS AND THEIR SUPPORTING DATA, BUT INCLUDE ALL DATA CONCERNING CONTRACT ACTIVITIES AND OPERATIONS WHICH AFFORD THE BASIS FOR ESTABLISHING PRICES, OR ARE INVOLVED IN ANY WAY WITH THE COSTS OF PERFORMING CONTRACTS WITH THE UNITED STATES GOVERNMENT. THEREFORE, WE MUST INSIST UPON EXAMINING ALL BOOKS, DOCUMENTS, PAPERS, AND RECORDS OF COHU ELECTRONICS, INC., THAT WERE USED OR PREPARED IN CONNECTION WITH, OR FOR THE PURPOSE OF ESTIMATING CONTRACT COSTS, CONDUCTING NEGOTIATIONS AND PERFORMING THE CONTRACT ENTERED INTO WITH THE UNITED STATES GOVERNMENT. WE CONSIDER INFORMATION OF THE TYPE DESCRIBED ABOVE TO BE DIRECTLY PERTINENT TO THE CONTRACTS NEGOTIATED WITH COHU ELECTRONICS, INC., AND A REFUSAL BY THE COMPANY TO FURNISH SUCH INFORMATION AND DOCUMENTS CONSTITUTES A CLEAR BREACH OF THE TERMS OF THE CONTRACTS. UNLESS THIS MATTER IS SATISFACTORILY RESOLVED, THIS OFFICE WILL HAVE NO ALTERNATIVE BUT TO PURSUE, WITH THE HEADS OF THE APPLICABLE CONTRACTING AGENCIES, ALL AVAILABLE MEASURES RELATING TO THE EXPENDITURE OF GOVERNMENT FUNDS, WHICH SHOULD BE TAKEN TO ASSURE YOUR COMPLIANCE WITH THE TERMS OF YOUR CONTRACTS.

ACCORDINGLY, YOU ARE REQUESTED TO ADVISE THIS OFFICE WITHIN 15 DAYS OF THE DATE OF THIS LETTER WHEN THE REQUESTED RECORDS WILL BE MADE AVAILABLE FOR OUR EXAMINATION.