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board than it would be to turn it over to the Defense Department. That would be my opinion.

Mr. BENJAMIN. Also in 1970 Admiral Rickover testified:

Almost 2 years have passed since Congress asked the GAO to study the feasibility of establishing uniform standards of accounting. Meanwhile the Department of Defense has awarded another $90 billion in defense contracts without benefit of uniform accounting standards. Perhaps the delay was unavoidable-time was needed to convince the accounting profession, the Department of Defense, and the General Accounting Office of the problem. However, these groups now generally agree that uniform accounting standards are feasible and should be established. We should proceed at once to establish and implement such standards.

The Department of Defense has had ample opportunity to correct the problem; it has done nothing. Even after the GAO study confirmed the feasibility and need for such standards, the Department of Defense has taken no action to set its house in order. Congress again will have to take the lead in this important issue, just as it has historically in many other issues involving the public interest.

Congress should require that uniform cost accounting standards be established and promulgated with the 18-month time period called for in Senator Proxmire's bill. Otherwise, years will be wasted while those involved theorize and debate accounting opinions. If Congress had not set an 18-month time on the GAO's study of the feasibility of establishing uniform cost accounting standards, I am sure the study would not yet be completed.

To avoid delay in establishing uniform cost accounting standards Congress should limit the scope of the proposed legislation to defense contracts. Later, after the standards have been put into effect for defense work, the standards may be extended to other Government work, if Congress so desires.

The word Admiral Rickover focused on was “immediacy”. Why hasn't there been an urgency in developing all necessary standards if some remain to be developed?

Mr. STAATS. I think we could have put out more standards if we had larger staff to have done it. Admiral Rickover was, of course, one of the people who testified strongly in favor of this legislation, and he has been a strong supporter of the program from the very beginning. He was impatient. He saw no reason why we could not do this without consultation with industry, for example. He did not see why industry should be consulted. He felt we could do this and just do it on the basis of largely the accounting experience that he had had, for example. In my opinion that would not have worked at all. I do not think Congress would have ever accepted that, but he was impatient, and he was talking about issuing a complete set of standards within 18 months. Well, it would have been impossible.

Mr. BENJAMIN. Apparently members of Congress were talking that way too.

Mr. Staats. They probably did not know as much about it even as he did. It would have been a completely and utterly impossible situation.

EXEMPTIONS AND CIVIL AGENCY COVERAGE Mr. BENJAMIN. I am going to ask you to respond for the record to the following question.

Fifteen standards have been promulgated to date. During the same time, various exemptions have been established. Please detail these for us. Who is exempted? Who remains covered?

[The information follows:)

Section 331.30(b) of the CASB's regulations provide exemptions for the following:

(1) Any contract or subcontract award to a small business concern.

A small business concern is any business enterprise which pursuant

to the rules and regulations of the Small Business Administration

is determined to be a small business concern for the purpose of

Government procurement.

(2) Any contract made with an educational institution whose cost

principles are subject to Federal Management Circular 73-8 except

contracts that are to be performed by a federally funded research

and development center operated by such an institution.
(3) Any contract made with a labor surplus area concern pursuant

to procedures providing for a partial set-aside for such concerns

as set out in ASPR 1-804 and FPR 1-1.804.
(4) Any contract or subcontract awarded to a foreign government
or an agency or instrumentality of such government...or, insofar
as the requirements of Cost Accounting Standard 403 and any sub-

sequent standards are concerned, any contract or subcontract

awarded to a foreign concern.
(5) Any subcontract to be performed outside the U.S. either by
an agency of a foreign government or by a foreign concern in con-
nection with the class of hydrofoil guided missile ship known as
the "NATO PHM Ship."

(6) Any contract or subcontract of $500,000 or less, unless

awarded to a contractor who, on the date of such award, (i) has

already received a contract or subcontract in excess of $500,000

and (ii) has not received notification of work to be delivered

on that contract or subcontract and on all other contracts and

subcontracts awarded after January 1, 1975, which were subject

to the cost accounting standards clause.

(7) Any contract or subcontract awarded to a United Kingdom

contractor for performance substantially in the United Kingdom,

provided it has filed with the Ministry of Defence a completed

Disclosure Statement and agrees to follow consistently the
practices so disclosed.

B. Essentially, U.S. business concerns awarded substantial negotiated national defense contracts are required to comply with all of the Board's rules, regulations and Standards.


50 U.S.C. 2168(g) states: “The Board shall from time to time promulgate cost-accounting standards designed to achieve uniformity and consistency in the cost-accounting principles followed by defense contractors and subcontractors under Federal contracts. What other contractors are now covered? Explain the circumstances and the statutory authority allowing the expansion of coverage. Mr. Staats. We will be happy to explain that. [The information follows:] The Federal Procurement Regulation (FPR) promulgated by the General Services Administration sets forth the applicability of Cost Accounting Standards to Government contractors other than defense contractors and subcontractors. The FPR is prescribed by the Administrator under the authority of the Federal Property and Administrative Services Act of 1949, as amended (40 U.S.C. 471 et seq.). The basic coverage for CAS is spelled out in § 1-3.1203-2 of the FPR. It results in coverage of negotiated civil contracts which are essentially the same as the negotiated defense contracts which are subject to Public Law 91-379.


Mr. BENJAMIN. Also I will ask you to answer this one for the record. Provide information concerning each instance in which the Board “examined or made copies of any documents, papers, or records" under paragraph (j) of the same section. For each instance in which documents, papers or records of non-defense contractors or subcontractors were examined please provide the statutory authority allowing you to do so.

[The information follows:]

The statutory authority for examination of records of Defense contractors by the CASB and the GAO appears in section 719(j) of Public Law 91-379. The CASB does not have sufficient staff to make examinations of records for compliance with Standards. It relies on the audit agencies in the Executive Branch and the GAO to make such examinations. Since 1973 the GAO has examined the records of 26 Defense contractors to review contractors' compliance with the requirements of the CASB. In some instances, examinations were made to assist the CASB staff in its research and development of potential Cost Accounting Standards.

As to examinations of non-defense contractors or subcontractors, such examinations have been made at 5 universities by the GAO under its general audit authority.

WAIVERS REQUESTED IN 1977 AND 1978 Mr. BENJAMIN. Also for the record, please provide information concerning each waiver requested in calendar years 1977 and 1978. Detail which were granted and which were not.

[The information follows:]


Defense agencies requested a waiver from CAS requirements on seven occasions during CY 1977 and 1978. The Board authorized a waiver from all CAS requirements in four contracts, a waiver from certain of its requirements in two situations and one request was withdrawn as being unnecessary.

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*A waiver was granted authorizing use of a modified CAS clause in contracts and subcontracts awarded to Ladish Co. for two years. The modification would delete the requirement to apply new Standards on existing contracts.

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Waiver Withdrawn: Contract became exempt from CAS requirements under exemption established for contracts awarded to foreign governments.

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