B-100489, SEP. 8, 1967

B-100489, SEP. 8, 1967

CONTRACTORS - RECORDS - RETENTION DECISION TO GSA RE AMENDMENT TO FEDERAL PROCUREMENT REGULATIONS AND TO ARMED SERVICES PROCUREMENT REGULATION TO REDUCE COST OF RECORD RETENTION BY GOVERNMENT CONTRACTORS. ALTHOUGH PROPOSAL TO MODIFY THE FPR AND ASPR TO REDUCE COST OF RECORD RETENTION BY GOVERNMENT CONTRACTORS TO PERMIT DESTRUCTION OF BULK RECORDS HAS MERIT, RECORDS WHICH ARE ESSENTIAL TO GAO AUDIT ACTIVITIES SHOULD NOT HAVE THREE YEAR RECORD RETENTION PERIOD REDUCED. CERTAIN SUGGESTED CHANGES WERE PROPOSED TO REVISED DRAFT.

TO MR. KNOTT:

WE REFER TO YOUR LETTER OF SEPTEMBER 28, 1966, FORWARDING COPIES OF THE PROPOSED MODIFICATIONS TO THE FEDERAL PROCUREMENT REGULATIONS AND THE ARMED SERVICES PROCUREMENT REGULATION DESIGNED TO REDUCE THE COST OF RECORD RETENTION BY GOVERNMENT CONTRACTORS AND SUBCONTRACTORS PURSUANT TO 10 U.S.C. 2313 (B) AND 41 U.S.C. 254 (C) BY REDUCING THE RETENTION PERIOD OF CERTAIN DESIGNATED RECORDS WHOSE PRESERVATION UNTIL THREE YEARS AFTER FINAL PAYMENT IS NOT THOUGHT TO BE NECESSARY TO PROTECT THE GOVERNMENT'S INTERESTS.

WE BELIEVE THERE IS MERIT IN THE PROPOSED REGULATIONS PERMITTING DISPOSAL OF BULK RECORDS, IN VIEW OF THE SIGNIFICANT SAVINGS THAT MAY ACCRUE TO THE GOVERNMENT. HOWEVER, WE DO NOT AGREE THAT ALL OF THE SPECIFIC RECORDS IDENTIFIED IN THE PROPOSED REGULATION SHOULD BE SUBJECT TO DESTRUCTION EARLIER THAN REQUIRED UNDER PRESENT REGULATIONS. WITH RESPECT TO THOSE RECORDS WHICH ARE ESSENTIAL TO OUR AUDIT ACTIVITIES, WE FIRMLY BELIEVE THAT THE RECORD RETENTION PERIOD SHOULD NOT BE REDUCED BELOW THREE YEARS AFTER FINAL PAYMENT.

WITH THE ABOVE IN MIND, THE FOLLOWING CHANGES ARE SUGGESTED FOR THE PROPOSED REVISION TO THE ARMED SERVICES PROCUREMENT REGULATION. THESE RECOMMENDED CHANGES SIMILARLY APPLY TO THE PROPOSED REVISION OF THE FEDERAL PROCUREMENT REGULATION.

1. X-201.1 (III), PAGE 3. TO THE EXTENT THAT CHECK REGISTERS AND ACCOUNTS PAYABLE REGISTERS OR JOURNALS SUMMARIZE COSTS AND BECOME THE POSTING MEDIA TO THE GENERAL LEDGER AND COST ACCOUNTING RECORDS, WE BELIEVE THE RETENTION PERIOD SHOULD BE THREE YEARS BEYOND FINAL PAYMENT ON THE CONTRACT. TO THE EXTENT THAT THEY MERELY LIST CHECKS NUMERICALLY AND SHOW BANK BALANCES, WE WOULD HAVE NO OBJECTION TO THE 4-YEAR RETENTION PERIOD SUGGESTED. ALSO,"RELATED INVOICES" WOULD APPEAR TO BE THE SAME AS "VENDORS' INVOICES" LISTED IN X-201.1 (VI); THEREFORE WE SEE NO NEED TO LIST THEM IN X-201.1 (III).

2. X-201.1 (VII), PAGE 4. DELETE THE ENTIRE SUBPARAGRAPH. THESE ARE SUMMARY RECORDS (COST ACCOUNTING RECORDS) SHOWING PERFORMANCE COSTS WHICH WE BELIEVE SHOULD BE RETAINED FOR EXAMINATION FOR THREE YEARS AFTER FINAL PAYMENT UNDER THE CONTRACT OR SUBCONTRACT.

3. X-201.2 (I), PAGE 5. DELETE THE WORD "LEDGERS.' THIS SUGGESTION IS MADE TO AVOID POSSIBLE EARLIER DISPOSAL OF A BASIC ACCOUNTING RECORD.

4. X-201.2. (IV), PAGE 5. DELETE THE ENTIRE SUBPARAGRAPH FOR REASONS EXPLAINED IN COMMENT 2 ABOVE.

5. IT DOES NOT SEEM THAT THE PROPOSED REGULATIONS AND/OR CONTRACT CLAUSES WILL PERMIT OUR OFFICE TO EXAMINE UNTIL THE EXPIRATION OF THREE YEARS BEYOND FINAL PAYMENT UNDER THE CONTRACT THOSE RECORDS ON WHICH EARLIER DISPOSAL IS AUTHORIZED BUT WHICH THE CONTRACTOR IS KEEPING FOR OTHER PURPOSES. WE BELIEVE WE SHOULD HAVE THE RIGHT TO EXAMINE SUCH RECORDS FOR THE STATUTORY PERIOD AND THIS RIGHT SHOULD BE INCLUDED IN THE PROPOSED REGULATIONS AND CONTRACT CLAUSES.

6. IN PARAGRAPH X-201.1 (I) THE WORDS "SHIPPING ORDERS" MAY NOT BE INTERPRETED TO INCLUDE CARRIER FREIGHT BILLS. THEREFORE, WE SUGGEST THAT THE WORDS "CARRIER FREIGHT BILLS" BE INCLUDED IN THE PARAGRAPH.

7. IN MANY INSTANCES CONTRACT PRICES FOR FOLLOW-ON PROCUREMENTS ARE WHOLLY OR PARTIALLY SET BY USING COST DATA FROM A PRIOR CONTRACT. THE PROPOSED REGULATIONS WOULD REQUIRE RETENTION OF CERTAIN RECORDS FOR TWO TO FOUR YEARS AFTER THE END OF THE CONTRACTOR'S OR SUBCONTRACTOR'S FISCAL YEAR IN WHICH THE RECORDS ARE USED TO SUPPORT AN ENTRY CHARGING OR ALLOCATING A COST TO THE RELATED CONTRACT OR SUBCONTRACT. UNDER THESE CIRCUMSTANCES, INFORMATION USED IN NEGOTIATING A FOLLOW-ON PROCUREMENT COULD BE DESTROYED SOON AFTER THE FOLLOW-ON CONTRACT IS NEGOTIATED BECAUSE TIME STARTS RUNNING AS OF THE END OF THE FISCAL YEAR IN WHICH THE RECORDS WERE USED TO SUPPORT A CHARGE TO THE PRIOR CONTRACT. THEREFORE, AN ELEMENT OF RISK EXISTS IN THE PROPOSED REGULATIONS AS TO THE AVAILABILITY OF RECORDS WITH RESPECT TO FOLLOW-ON CONTRACTS. TO REDUCE THIS RISK, A CLAUSE SHOULD BE INCLUDED IN FOLLOW-ON CONTRACTS WHICH WOULD REQUIRE THE CONTRACTOR TO RETAIN RECORDS GENERATED DURING A PRIOR CONTRACT AND USED IN THE NEGOTIATION OF FOLLOW-ON CONTRACTS FOR THE APPROPRIATE TWO OR FOUR YEAR PERIODS; BUT THE TIME SHOULD RUN FROM THE DATE OF THE FOLLOW-ON CONTRACT FOR THOSE RECORDS.

8. THE LANGUAGE ON PAGES 3, 14, 15, 16, 17, AND 20 OF THE PROPOSED MODIFICATION TO THE ARMED SERVICES PROCUREMENT REGULATION SHOULD BE CHANGED FROM "THREE YEARS AFTER FINAL PAYMENT" TO "UNTIL EXPIRATION OF THREE YEARS AFTER FINAL PAYMENT.'

9. DELETE THE WORDS "OF THE RECORDS" FROM 7-20397 (A) (2) OF ASPR AND REPLACE WITH THE PHRASE ,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," SO THAT THE REGULATION WILL CONFORM WITH THE APPLICABLE STATUTE, 10 U.S.C. 2313 (B).

THE POSSIBILITY EXISTS THAT IN A GIVEN CASE WE WOULD NOT BE ABLE TO PERFORM CERTAIN AUDIT WORK BECAUSE THE DOCUMENTS WERE DESTROYED PURSUANT TO THE RETENTION PERIODS SET FORTH IN THE PROPOSED REGULATIONS. BECAUSE OF THIS WE SUGGEST THAT APPROPRIATE "REQUESTS FOR AUTHORITY TO DISPOSE OF RECORDS," STANDARD FORM NO. 115, BE PREPARED COVERING THESE RECORDS AND BE SUBMITTED IN ACCORDANCE WITH ESTABLISHED PROCEDURES TO THE JOINT COMMITTEE ON DISPOSITION OF EXECUTIVE PAPERS AS PROVIDED FOR IN 44 U.S.C. 369, 370 AND 374, AS WE HAVE BEEN DOING IN THE CASE OF CONTRACTORS AND SUBCONTRACTORS OF THE ATOMIC ENERGY COMMISSION SINCE APPROXIMATELY 1952.

PLEASE LET US KNOW IF WE CAN FURNISH ANY FURTHER INFORMATION REGARDING THESE PROPOSED REVISIONS TO THE PROCUREMENT REGULATIONS.