Is that not true?

Mr. BURRESS. Yes, sir.

Mr. BOLAND. As the members of the subcommittee know, the Board has a headquarters here in Washington, on which the five members of the Board sit. Field activities are conducted by the two regional boards. The western regional board, which is situated in Los Angeles, Calif., and the eastern regional Board, which is situated in Washington, D.C. As I understand from reading the justifications, these regional boards have jurisdiction over cases of $800,000 or less, and they can actually settle these.

Mr. BURRESS. Any contractor who has receipts of a million dollars or more for a fiscal year must make a filing.

Mr. BOLAND. What jurisdiction do you lodge in the eastern and western regional boards?

Mr. BURRESS. They are investigative boards. So when a case is assigned for investigation we assign it on a geographic basis, either to the east or to the west coast boards. The Mississippi is the line

we use.

Mr. BOLAND. What is the authority for settling cases by the regional boards, without the statutory board actually taking jurisdiction in these cases.

Mr. BURRESS. They can settle or clear the so-called B cases that are assigned to them. Those are cases that involve $800,000 or less in profits.

Mr. BOLAND. The annual report indicates that the Renegotiation Board has done an outstanding job. The justification indicates the cumulative excess profits that have been returned to the Government. since the inception of the Board in 1951, because of action by the Board and also the voluntary refunds and voluntary price reductions totals $2,507,367,177.

Mr. Chairman, we are glad to have you here. If you have a prepared statement, we will be pleased to hear you.

GENERAL STATEMENT

Mr. BURRESS. Thank you very much, Mr. Chairman. I have a statement which I would like to present to the committee.

Mr. Chairman and members of the subcommittee, I appreciate this opportunity to appear before you today to discuss the program of the Renegotiation Board and its fiscal year 1974 appropriation request.

We are requesting an appropriation of $4,690,000 for fiscal year 1974. The request is $210,000 less than our fiscal year 1973 appropriation, and it would allow the Board to maintain its currently authorized full-time staff of 227 until the fourth quarter of fiscal year 1974, at which time it would be reduced to 200. The timing of this reduction would reduce estimated average employment in fiscal year 1974 to 221, compared with 225 in the current fiscal year.

FIELD BACKLOG

I would like to report, Mr. Chairman, that the field backlog, which we discussed in considerable detail last year, has been reduced well

below our target level. The backlog was reduced to 925 on June 30, 1972, compared with a goal of 1,119. We made a forecast of 1,069 cases in our backlog at the end of this fiscal year, and I am very pleased to report that it should not exceed 800 on June 30, 1973. As I stated last year, the substantial decline in assignments beginning in fiscal year 1969 contributed to that reduction. Assignments to regional boards declined from 690 in fiscal year 1970 to 615 in fiscal year 1971 and to 433 in fiscal year 1972.

In addition, we do not now routinely assign cases that involve accounting or other technical problems. Such cases are handled at headquarters or "referred" to the region for investigation of the particular problem.

I also reported last year, Mr. Chairman, that our backlog contained a substantial number of cases which had been in process more than 2 years. These were cases that had not been completed by the regional boards within 2 years after commencement, and extensions had been obtained by agreement with the contractor. There were 272 such cases in the backlog on July 1, 1971. These were reduced to 222 on July 1, 1972 and we are endeavoring to reduce this figure to no more than 50 by June 30, 1973.

CHANGES IN PROCEDURES AND REGULATIONS

I wish to discuss with you today several actions taken by the Board during this fiscal year to improve and to accelerate the renegotiation process. Early in this fiscal year, the Board, by regulation, established a policy of providing a contractor with a copy of the report of renegotiation whenever a regional board renegotiator recommends a finding of excessive profits. This procedure was adopted after an intensive study, with particular emphasis on principles of administrative due process and the objectives of the Freedom of Information Act. Prior practice had been to furnish the contractor only with a copy of the accounting report.

We found that the contractors were very much interested in this report. They felt that this was the first explanation on a factual basis that they could obtain which would help them to ascertain whether or not there were excessive profits.

We also eliminated the practice of a regional board making a “tentative determination" of excessive profits prior to the accountant and renegotiator meeting with the contractor to discuss his case. The discontinuance of the "tentative determination" should eliminate complaints that cases are prejudged and it should provide contractors with a better chance to present their cases to regional boards. We are hopeful this policy will result in more agreements at the regional board level between contractors and the Government concerning the amount. of excessive profits to be refunded.

Under the old procedure, a case would be brought to the regional board at a very early stage. The regional board would then make a "tentative determination" of excessive profits. Then the case would go back to the renegotiator and the contractor would be advised of the determination.

Under this procedure, the contractor obviously felt that the Board had already made up its mind so why discuss the case any further. The "tentative determination" has been done away with. Now the regional board will only get a case after it has been fully investigated both by the accountants and renegotiators.

The Board has established a policy of providing a Memorandum of Decision to a contractor whenever a finding of excessive profits is made by a regional board, or the Statutory Board, except when the contractor has agreed to a refund. The Memorandum of Decision will be sent to the contractor automatically with a notice of the proposed finding of excessive profits. Such Memorandum of Decision sets forth the relevant facts of the case, including a discussion of all material issues of fact, law or accounting unilaterally resolved by a regional board, or the Statutory Board. It will provide the contractor with an analysis and evaluation of his case under the statutory factors and an explanation of the judgment process that resulted in a finding of excessive profits.

We think this is a significant improvement. At the time a contractor is told by either the regional board or the Statutory Board that we propose to find excessive profits in a certain amount, he also receives an explanation of how we arrived at that amount, what our application of the statutory factors has been and how it affects his case. We believe that this will spark a response from the contractor. He knows our reasoning. If he feels we are off base or that we have not considered certain facts, he can bring this to our attention.

Another new regulation of the Board provides that a regional board member cannot serve as a panel member, nor can he vote as a Board member in the final disposition of a case if he has served as a renegotiator in that case. Thus we separated, to the extent possible, the investigative and decisionmaking functions to assure contractors of unbiased and independent judgment by regional board members. Again, this change just seemed to be dictated by common sense. We are a small organization so sometimes we have to double in brass. However, if a regional board member has acted as a renegotiator, it is easy to understand why a contractor would have the feeling that he was getting less than due process if later on this same employee would sit there as a board member judging the same case he had worked on as a renegotiator.

Although the Renegotiation Act specifically directs the Board to "endeavor to make an agreement with the contractor or subcontractor with respect to the elimination of excessive profits received or accrued" (section 105(a)), over the years excessive profits determinations became formalized at a very early stage in the processing of a case and thereafter there was very little give or take. All too often the decisions of the Board were presented to the contractor on a take it or leave it basis. This has been changed. We now attempt to reach an agreement at every step of the proceedings. In this manner an exchange of information is encouraged and a formalized determination is not made until a case has been completely processed. Thus, the term "determination" is now reserved, in strict compliance with the language of the act, to describe the final action that closes a case. Such action may take

the form of an agreement jointly arrived at by the contractor and the Government, or, in the event this cannot be accomplished, an order issued by the Board.

It is apparent from the language of the statute that Congress knew precisely what it wanted. The statute says, "The Board shall endeavor to reach an agreement," and then it says, "Failing to reach an agreement, it shall enter an order determining excessive profits." Thus, we feel that the instruction to us is very clear. We are supposed to work with the contractor, to develop all the facts, and then to do everything that we can, consistent with the provisions of the act to reach an agreement with the contractor on what amount should be determined to be excessive profits.

We have also taken several actions that reflect the Board's awareness of special problems affecting small contractors. A small business adviser was designated to furnish advice and assistance to small concerns who need help in understanding and discharging their responsibilities under the Renegotiation Act and the Board's regulations. Also, the minimum refund of $40,000, which had been in effect since 1953, was increased to $80,000, effective for contractors' fiscal years ending after December 31, 1970. Concurrently, the Board exempted from renegotiation competitively bid construction contracts that are awarded as a result of small business restricted advertising under small business set-aside programs.

These changes were made, Mr. Chairman, in recognition of the fact that the small contractor, who is usually the owner of the plant, together with his plant manager, are the men who have to appear before the Board. They don't have the assistance of high-priced accounting firms or lawyers, so our proceedings take up their personal time and take them away from their business. Certainly, we should be careful not to put them through this administrative ringer, unless the amount in question is significant.

That is why we raised the amount of the minimum refund from $40,000, which was placed in effect in 1953, to $80,000.

Another significant development that I would like to report to you relates to the Board's response to concern expressed by the House Committee on Government Operations about certain aspects of our screening process. The Board has established a special screening program for contractors appearing on the Defense Department's list of 100 companies receiving the largest dollar volume of prime contract awards (DOD 100). In this program, the filings of such contractors now are given a more intensive review and analysis and the underlying data are verified to a much greater extent. In appropriate cases, additional data is requested of the contractor and assignment may be made to a regional office so that the data submitted by the contractor can be analyzed and verified. It is our hope that this additional verification process can be carried out within the framework of this budget request.

Last year questions were raised at this hearing with respect to Congressman Brooks' report. We were very much interested in the findings contained in that report, and felt that we should do everything

possible to look at our processes and improve them, if improvement was indicated. Our review reflected that we could do more with respect to the processing of these large contractors. So that is what we are now doing. We have set up a special, more intensive screeing process for the larger defense contractors, and the best definition of that group that we could find was the so-called DOD-100 list.

The Board is curently developing a system to use EDP techniques in renegotiation. This system will bring under automated control the voluminous data that is an inherent element of the renegotiation process. The objective of the program is to provide through computer facilities a complete picture of a contractor's position, reflecting, in addition to the contractor's own financial data, all meaningful ratios applicable to the case. Comparable data will also be provided with respect to the contractor's prior years, and with respect to other contractors active in the same or related industries and operating under the same or similar circumstances. The system will be programed so that the data can be retrieved in any configuration for use in our screening process and in the examination and analysis of cases assigned to regional boards for full-scale renegotiation. We are confident that the renegotiation process will be accelerated and will become more effective once the program is operational.

Again, this seemed like a commonsense thing to do. To turn to the computer for assistance, not only in compiling certain data, but in recalling data filed in earlier years by the contractor, or by other contractors similarly situated, or by the industry generally.

And this is what we are now in the process of doing, setting up this data processing procedure. I might add that although we average approximately 5,000 filings, and these filings report approximately $38 billion in receipts, for a computer this is still a pretty small program. So we have to be careful that we did not load our board down with a very expensive process.

We have been approaching this program with care to be sure that we get the kind of data into the computer that will help us in our process, and not just load us down with a lot of extraneous facts and figures.

I can assure you, Mr. Chairman, that the Board will continue to pursue methods to improve the efficiency and effectiveness of renegotiation.

In closing, Mr. Chairman, I wish to report that the Board made 178 determinations of excessive profits in fiscal year 1972, totaling after State income tax adjustments but before deductions of credits for Federal income taxes, $40,190.577. From its inception through June 30, 1972, the Board made 4.333 determinations totaling $1,135,737,153.

This concludes my formal statement. Mr. Chairman. We shall attempt to answer to the best of our abilities any questions that you and members of the subcommittee may wish to ask.

Mr. BOLAND. Thank you very much, Mr. Chairman. I think the subcommittee would agree with me that the changes in procedures and regulations that the Board has established with in the last year seem to be fair and very equitable. The rather surprising thing is that they were not developed a long time ago. It would seem that these proce