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:] GIA 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all CAS requirements in four contracts, a waiver from certain of its requirements in two situations and one request was withdrawn as being unnecessary. *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. Waiver Withdrawn: Contract became exempt from CAS requirements under exemption established for contracts awarded to foreign governments. USN MOD (U.K.) 35-533 79 - 35 (Pt. 2) Pegasus II Engines $20 CONGRESSIONAL REVIEW OF PROPOSED STANDARDS Mr. BENJAMIN. Also answer the following for the record. The statute requires that standards promulgated and rules and regulations prescribed shall not take effect prior to their submission to the Congress. Explain the purpose of this provision. [The information follows:] In various cases the Congress has deemed it appropriate to require proposals to be submitted to it for consideration before the proposal becomes effective. The requirement provides that the proposal shall not be effective until a specified period passes. During that period the Congress may act to prevent the proposal from taking effect. In the case of the Cost Accounting Standards Board, Cost Accounting Standards and rules and regulations must lie before the Congress for 60 calendar days of continuous session of the Congress. During that time the two Houses may prevent the proposed standard, rule or regulation from taking effect by both passing a concurrent resolution stating that the Congress does not favor the proposal. The provision serves to give the Congress the opportunity to consider the proposal. Mr. BENJAMIN. Incidentally, are the rules and regulations submitted to Congress? Mr. SCHOENHAUT. Yes. IMPLEMENTATION AND COMPLIANCE WITH STANDARDS Mr. BENJAMIN. Explain in detail the procedure used for determining a "defense contractor's failure to comply with duly promulgated cost-accounting standards" and other requirements under the act. Explain the board's role in this process. Has the board ever actively participated in the process? Explain. [The information follows:] There are two primary procedures by which a determination may be made as to whether a defense contractor has failed to comply with duly promulgated costaccounting standards and other requirements of the act. Contractors who receive substantial awards of negotiated national defense contracts are required to complete a Disclosure Statement (CASB-DS-1) which discloses their cost accounting practices. These Statements are reviewed by procurement agency officials, primarily the cognizant government auditor (CGA), who determines first whether the disclosure is current, complete and accurate and then whether the practices disclosed comply with applicable Cost Accounting Standards. The second procedure for determining compliance involves a continuing analysis by the CGA of accounting practices used by disclosing contractors subsequent to review of their Disclosure Statement and by contractors who have not been required to disclose but are required to comply with Standards. This review occurs most frequently during analysis of cost proposals for additional work submitted by contractors, but also occurs in other instances such as during analysis of costs for the purpose of claims for cost reimbursement on cost type contracts or for progress payment on fixed price contracts. The CGA will determine whether the costs are derived and presented in accordance with practices which are in compliance with Standards and if they are not, the CGA will report any non-compliance to the Contracting Officer. The Contracting Officer will make the final determination as to whether the contractor is or is not in compliance with Standards. The Contracting Officer will notify the contractor if he determines the practices questioned are not in compliance and direct that any non-compliant practices be changed. He will also request the contractor to submit a proposal for an adjustment in contract prices if there has been any increased costs paid by the Government as the result of the non-compliance. The contractor may appeal both the finding of non-compliance and the determination of increased costs if he is in disagreement with the Contracting Officer. These actions are taken pursuant to provisions of the contract under which the contractor has agreed to comply with all Cost Accounting Standards promulgated by the CASB and repay any increased costs paid by the U.S. as the result of non-compliance. Pursuant to the authority granted to it under Pub. L. 91-379, the Board has issued regulations implementing the Standards promulgated by it. The regulations are binding on the procurement agencies who award negotiated national defense contracts of the type subject to Standards. The Board is available both to the agencies and to contractors to clarify or explain informally its regulations, or in case of widespread misunderstanding to issue formal written interpretations. The implementation of the regulations in Government contracts is accomplished by the procurement agencies and administration and interpretation of the contracts is done by the agencies. The Board does not directly participate in determinations of non-compliance, but is available for consultation by contracting parties should they desire to call on the Board. NON-DEFENSE CONTRACTOR PROCEDURES Mr. BENJAMIN. What procedure is used for non-defense contractors? What statutory authority exists for this procedure? In the latter, is interest charged? Explain and provide authority for the charging of interest. In other words, explain your role in implementing the standards. Mr. SCHOENHAUT. For the record or now? Mr. BENJAMIN. If you can do it now, or if you want to expand for the record we would welcome it. Mr. SCHOENHAUT. I can do it now, for defense contractors. Often when there is a dispute between a contractor and the government on whether a standard is being interpreted correctly, the staff will get involved informally through telephone calls or meetings. Whenever there is a widespread question as to what the board intended by some provision of a standard, the board then proposes an interpretation of the standard and issues an interpretation. That is the extent of involvement in the disputes. We do have frequent meetings and telephone calls. I got my staff to take a guess as to how much involvement there has been, and in one year they estimated that telephone inquiries as to what the board intended by provisions of standards were 565 telephone calls and meetings. Mr. BENJAMIN. Does that tell you anything about the clarity of that standard? Mr. SCHOENHAUT. No, sir. I think it indicates to me personally a lack of willingness on the part of contractors to follow the standards. Mr. BENJAMIN. That is not your responsibility? Mr. SCHOENHAUT. I cannot control what they think or try to do with their counterparts in the government. Mr. BENJAMIN. In fact, the law set you up as an agent of Congress, and we discussed that earlier. Mr. SCHOENHAUT. Yes. Mr. BENJAMIN. It is a quasi-legislative role? Mr. SCHOENHAUT. Yes. Mr. BENJAMIN. You are telling me that is all you do is respond to inquiries and on occasion you issue an interpretation; is that right? Mr. SCHOENHAUT. You asked the question- Mr. BENJAMIN. Yes. Mr. SCHOENHAUT [continuing]. What do we do if there is a dispute? and I am answering that question. Mr. BENJAMIN. What I am asking you now, is that precisely it, or are there other things you can do? Mr. MINKIN. Let me add just a specific example. There is one case that is pending before the Armed Services Board of Contract Appeals. The contractor's counsel requested our documentation of Standard 403. His request was placed under the Freedom of Information Act. That required us to expend something on the order of 120 to 150 man hours to get all of the information together, to get together with him to make sure that we had covered what he wanted, and so on. Now, in a sense we were involved in the litigation, because the request, although it came under the Information Act, would never have arisen, but for the litigation. I do not know whether your question reaches to that type of involvement or not. Mr. BENJAMIN. It refers to that type of involvement, and any other involvement that would normally be within the domain of the executive. Mr. SCHOENHAUT. I think maybe some clarification is necessary. We want these standards to work, and we do not want the disputes to bog down the contracting process, so as soon as a dispute surfaces, we try to get it settled informally to the satisfaction of both parties by telling them what was intended in the standard, and let's get on with the work. Mr. BENJAMIN. Is this something done on your own volition? Mr. SCHOENHAUT. We have generally made it known that we are available if somebody has a question. I am sure it would be a lot easier to just issue these standards and walk away from them, but I do not think it would help the contracting process very much if we did that. We might get done quicker. STAFF AND BOARD WORKLOAD Mr. BENJAMIN. I assume, then, the combined testimony repesents the extent of the board's actions and the staff. There is nothing else that you do? Mr. SCHOENHAUT. In disputes or generally? Mr. BENJAMIN. Anything beyond just the issuance or promulgation of a standard? Mr. SCHOENHAUT. There are several other things. We have observers on task forces of the Financial Accounting Standards Board, where we think the subject gets close to the same subject in cost-accounting standards. Also, there is fairly heavy involvement in reviewing what the Financial Accounting Standards Board puts out, and deciding whether or not to comment Mr. STAATS. If we are talking about workload, going back to the point I made earlier, we have to go back and evaluate these standards after they have been out for a while, to be sure that they are performing the function we want to perform. This is going to be a sizable part of the workload. We have had two evaluation conferences and we are going to have another one this year, where we will invite all parties concerned to participate. GAO REVIEWS Mr. BENJAMIN. Mr. Staats, isn't that the function of the GAO? Mr. STAATS. The GAO has made a number of studies of individual standards, but what I have talked about in evaluation conferences, to allow industry particularly and the public accounting profession to a certain degree to come and comment about the |