B-146948, JAN. 7, 1965

B-146948, JAN. 7, 1965

TO LOCKHEED MISSILES AND SPACE COMPANY:

REFERENCE IS MADE TO YOUR LETTER DATED DECEMBER 2, 1964, RELATIVE TO AN OCTOBER 1964 REPORT WHICH WE SUBMITTED TO THE CONGRESS ON THE QUESTION AS TO THE REASONABLENESS OF CHARGES MADE UNDER GOVERNMENT COST REIMBURSABLE- TYPE CONTRACTS WITH YOUR COMPANY, COVERING ALLOCATED PORTIONS OF OVERHEAD EXPENSE WHICH CONSISTED OF COSTS INCURRED IN THE MAINTENANCE AND OPERATION OF COMPANY-OWNED AND LEASED AIRCRAFT.

THE REPORT INDICATED THAT THE COST OF MAINTENANCE AND OPERATION OF THE FLEET OF AIRCRAFT DURING THE YEAR 1962 APPROXIMATED THE SUM OF $1,029,000 AS COMPARED WITH THE APPROXIMATE AMOUNT OF $164,000 WHICH WOULD HAVE BEEN EXPENDED FOR AIR TRANSPORTATION DURING THAT YEAR IF THE COMPANY HAD USED EQUIVALENT COMMERCIAL AIR TRANSPORTATION FACILITIES. YOUR LETTER TAKES EXCEPTION PRIMARILY TO THE FOLLOWING STATEMENTS MADE AT PAGE 23 AND 24 OF THE REPORT:

"WE RECOMMEND THAT, IN NEGOTIATION OF THE ALLOWABLE OVERHEAD RATE FOR 1962, THE AIR FORCE DISALLOW ALL LOCKHEED'S COSTS OF OPERATING ITS FLEET OF AIRCRAFT THAT ARE IN EXCESS OF THE COSTS THAT WOULD HAVE BEEN INCURRED IF MAXIMUM USE HAD BEEN MADE OF COMMERCIAL AIRCRAFT, CHARTERED AIRCRAFT, AND GOVERNMENT-SPONSORED AIR SERVICES AND IF A MINIMUM CAPABILITY FOR UNUSUAL OR EMERGENCY NEEDS HAD BEEN MAINTAINED. WE RECOMMEND ALSO THAT THE AIR FORCE MAKE SIMILAR REVIEWS FOR PRIOR YEARS AND SEEK RECOVERY OF ANY UNWARRANTED CHARGES DISCLOSED BY THOSE REVIEWS. WE FURTHER RECOMMEND THAT THE AIR FORCE APPLY THESE SAME CRITERIA IN DETERMINING RATES FOR 1963 AND SUBSEQUENT YEARS.

"PENDING ADVICE FROM THE AIR FORCE AS TO THE ACTIONS TAKEN IN RESPONSE TO OUR RECOMMENDATIONS, CREDIT IN THE DISBURSING OFFICERS' ACCOUNTS WILL BE WITHHELD, TO THE EXTENT PERMITTED BY STATUTE, FOR AMOUNTS BY WHICH THE COSTS OF LOCKHEED'S EXECUTIVE AIRCRAFT OPERATION EXCEEDED THE COSTS FOR COMPARABLE COMMERCIAL, CHARTERED, AND GOVERNMENT-SPONSORED AIRCRAFT SERVICES.'

YOU CONTEND THAT THESE STATEMENTS CAN ONLY BE CONSTRUED AS AN ATTEMPT TO DEPRIVE LOCKHEED OF ITS CONTRACTUAL RIGHT TO HAVE THE CONTRACTING OFFICER MAKE AN OBJECTIVE DETERMINATION OF REASONABLENESS AND ALLOCABILITY OF COSTS. YOU INDICATE THAT MOST OF YOUR CONTRACTS WITH THE GOVERNMENT, IN EFFECT DURING THE YEAR 1962, CONTAIN A DISPUTES CLAUSE AND A PROVISION FOR NEGOTIATION OF OVERHEAD RATES BY THE CONTRACTOR AND THE CONTRACTING OFFICER, WITH A FURTHER PROVISION THAT ANY FAILURE OF THE PARTIES TO AGREE ON OVERHEAD RATES WOULD BE CONSIDERED A DISPUTE CONCERNING A QUESTION OF FACT FOR DECISION BY THE CONTRACTING OFFICER WITHIN THE MEANING OF THE DISPUTES CLAUSE.

YOU REFER TO THE DISPUTES CLAUSE AS PERMITTING AN APPEAL FROM THE CONTRACTING OFFICER'S DECISION TO THE SECRETARY OF THE DEPARTMENT CONCERNED WITHIN 30 DAYS AFTER RECEIPT OF A COPY OF THE CONTRACTING OFFICER'S DECISION, AND AS PROVIDING THAT THE CONTRACTOR SHOULD BE AFFORDED AN OPPORTUNITY TO BE HEARD AND TO OFFER EVIDENCE IN SUPPORT OF HIS APPEAL. YOU ALSO REFER TO DECISIONS OF OUR OFFICE AND THE COURTS WHICH RECOGNIZE THE PRINCIPLE THAT ADMINISTRATIVE DECISIONS RENDERED UNDER THE DISPUTES CLAUSE OF GOVERNMENT CONTRACTS ARE TO BE ACCORDED FINALITY EXCEPT WHERE IT IS DETERMINED THAT THE DECISIONS CANNOT BE SUSTAINED UNDER THE STANDARDS OF REVIEW AS SET FORTH IN SECTION 1 OF THE ACT OF MAY 11, 1954, 68 STAT. 81, 41 U.S.C. 321. WITH REFERENCE, PARTICULARLY, TO THE PROBLEM HERE INVOLVED, YOU CITE THE CASE OF CLIMATIC RAINWEAR CO. V. UNITED STATES, 88 F.SUPP. 415, AS ONE IN WHICH THE COURT OF CLAIMS ENUNCIATED THE RULE THAT, WHERE THE CONTRACT CALLS FOR A DECISION BY THE CONTRACTING OFFICER, THE CONTRACTOR IS ENTITLED TO HIS PERSONAL AND INDEPENDENT CONSIDERATION OF THE MATTER IN QUESTION. OUR OFFICE HAS RECOGNIZED SIMILAR RULINGS OF THE COURT OF CLAIMS WHERE GOVERNMENT CONTRACTS HAVE PROVIDED FOR DECISIONS ON CERTAIN MATTERS TO BE MADE BY A DESIGNATED OFFICIAL. SEE 18 COMP. GEN. 860; AND 19 ID. 358.

IN OUR CONSIDERATION OF CLAIMS PRESENTED BY GOVERNMENT CONTRACTORS, WE ORDINARILY REFUSE TO EXPRESS AN OPINION ON THE MERITS OF SUCH CLAIMS IF THE PROCEDURE OF THE CONTRACT DISPUTES CLAUSE HAS NOT BEEN FOLLOWED AND IS STILL AVAILABLE AND THE QUESTION OF ALLOWABILITY WOULD DEPEND UPON THE DETERMINATION OF QUESTIONS OF FACT AS DISTINGUISHED FROM QUESTIONS OF LAW. BOTH THE CONTRACTOR AND THE GOVERNMENT ARE BOUND TO FOLLOW THE PROCEDURE SET OUT IN THE CONTRACT FOR THE ADMINISTRATIVE SETTLEMENT OF DISPUTES ON QUESTIONS OF FACT AND THE CONTRACTOR MUST, OF COURSE, EXHAUST ITS ADMINISTRATIVE REMEDIES UNDER THE DISPUTES CLAUSE BEFORE MAKING AN APPEAL EITHER TO OUR OFFICE OR THE COURTS. SEE, GENERALLY, B. H. DEACON CO. V. UNITED STATES, 189 F.SUPP. 146; AND HAPPEL V. UNITED STATES, 176 F.SUPP. 787, AFFIRMED, 279 F.2D 88. ONLY IN A SITUATION WERE THE CLAIM INVOLVES SOLELY A DETERMINATION OF QUESTIONS OF LAW WOULD THE COURTS OR OUR OFFICE HAVE IMMEDIATE JURISDICTION TO CONSIDER THE CASE ON ITS MERITS. SEE ATLANTIC CARRIERS V. UNITED STATES, 131 F.SUPP.

HOWEVER, WHERE A DECISION HAS ALREADY BEEN MADE BY A CONTRACTING OFFICER WHICH IS IN FAVOR OF THE CONTRACTOR, OUR OFFICE AND THE COGNIZANT ADMINISTRATIVE OFFICIALS WOULD HAVE THE RIGHT AND THE DUTY TO QUESTION THE CONTRACTING OFFICER'S DECISION IF THERE APPEARED TO BE A REASONABLE BASIS FOR CONCLUDING THAT IT SHOULD NOT BE ACCORDED FINALITY UNDER THE APPLICABLE STANDARDS FOR JUDICIAL REVIEW OF ADMINISTRATIVE DECISIONS UNDER CONTRACT PROVISIONS MAKING SUCH DECISIONS FINAL AND CONCLUSIVE ON QUESTIONS OF FACT ARISING UNDER THE CONTRACT. ALSO, WHERE, AS HERE, THERE EXISTS A REASONABLE DOUBT AS TO THE CORRECTNESS OF AMOUNTS PREVIOUSLY PAID TO A CONTRACTOR ON CLAIMS WHICH HAVE BEEN APPROVED BY THE CONTRACTING OFFICER, IT IS OUR VIEW THAT THE ACCOUNTING OFFICERS OF THE GOVERNMENT WOULD BE JUSTIFIED IN RECOMMENDING A COURSE OF ACTION ON SIMILAR CURRENT CLAIMS WHICH IS CONSISTENT WITH WHAT THEY BELIEVE TO BE NECESSARY TO PROTECT THE INTERESTS OF THE GOVERNMENT.

ON RECONSIDERATION OF THE STATEMENT IN OUR REPORT TO THE CONGRESS WHICH REFERS TO WITHHOLDING CREDIT IN THE ACCOUNTS OF DISBURSING OFFICERS, WE AGREE THAT IT IS UNNECESSARY TO WITHHOLD CREDIT IN THE DISBURSING OFFICERS' ACCOUNTS PENDING THE OUTCOME OF FURTHER NEGOTIATIONS BETWEEN YOUR COMPANY AND THE CONTRACTING OFFICER, OR ACTION PURSUANT TO THE CONTRACT PROVISIONS FOR THE ADMINISTRATIVE SETTLEMENT OF DISPUTES CONCERNING QUESTIONS OF FACT ARISING UNDER YOUR CONTRACTS. WE DO NOT AGREE THAT WE HAVE NO RIGHT TO STATE OUR OWN OPINION AS TO THE ALLOWABILITY OF REIMBURSABLE COSTS, ALTHOUGH WE DO AGREE THAT THIS SHOULD NOT AND WAS NOT INTENDED TO PREVENT THE CONTRACTING OFFICER FROM MAKING THE PERSONAL AND INDEPENDENT DETERMINATION OF ALLOWABILITY TO WHICH THE CONTRACTOR IS ENTITLED.

IN REGARD TO THE SUGGESTIONS MADE IN THE SECOND TO THE LAST PARAGRAPH OF YOUR LETTER, YOU ARE ADVISED THAT WE WOULD HAVE NO OBJECTION TO YOUR FURNISHING OF COPIES OF YOUR LETTER AND OUR REPLY ..END :