on account of the contract price, but the engines were selected for this purpose as providing the most clearcut evidence of the performance by Westinghouse of a significant part of its over-all undertaking. Actually, the principal asset held by Westinghouse -- its exclusive possession of valuable information -- was given up at the moment that it agreed to disclose the information, thereby in effect conveying to others the right of access to that information. IV. Discussion of Major Views of GAO in the Draft Report A. GAO's question as to the propriety of Contract Now 61-0171-f insofar as concerns purchase of data thereunder. 1. The essence of GAO's objection in this regard is that the contract provides for acquisition of data the Government already owned with unlimited rights of use. 2. For reasons explained in III.E. above, the contract indeed does require Westinghouse to furnish such data. However, as indicated above, the parties were aware of this feature, it being important to obligate Westinghouse to provide a single, complete package; and the parties did not intend that the contract price include any element for that obligation. They intended the bargaining to relate only to materials and data to which the Government had not under prior contracts acquired rights and the agreed price was addressed solely to that category of materials and data. Undoubtedly misunderstanding would have been prevented if the document drawn to express the parties' agreement had reflected that mutual intention. 3. The contract required Westinghouse to furnish a single complete package, including informational material to which the Government did not have title. There is no doubt that the value of this material, in terms of what it would have cost Pratt & Whitney and the Government to proceed without it, was very substantial. The importance of acquiring this material was enhanced in view of the loss of time and increased risk to quality and reliability that would have resulted if this material had not been utilized. 4. a. Reasons for the existence of so large body of information important to J34 engine support outside of that previously acquired by the Government are indicated in III.D., above. In this connection, although information in this category goes beyond the data customarily called for under engine contracts, the draft GAO report suggests that the Navy acquired rights to information which was treated as Westinghouseowned in the negotiations by virtue of product improvement contracts between the Navy and Westinghouse. b. The information the Navy obtained under product improvement contracts prior to Contract Now 60-0498-c was contained in the monthly and final reports submitted under each of these contracts. These reports were essentially limited to past work performed in connection with product improvement programs. They did not contain the information as to production and quality control techniques, processes, line layout, etc., needed My Pratt & Whitney. c. The last product improvement contract (NOw 60-0498-c), for calendar 1960, did provide for the transfer not only of information pertaining to past and present engineering problems encountered in the production of engines and spare parts, but also of engineering information and Westinghouse recommendations and views as to future product improvement programs. However, that contract did not provide for transfer of the non-engineering type of information that was needed by Pratt & Whitney for support of the J34 engine and which it was expected would be covered by a separate agreement between Westinghouse and Pratt & Whitney or Westinghouse and the Government at the time Contract NOw 60-0498-c was negotiated. B. GAO's question as to the propriety of Contract NOW 61-0171-f insofar as concerns purchase of engines thereunder. 1. As in the case of the data discussed just above, the gist of the GAO objection in regard to the engines covered by Contract NOW 610171-f is that the Government already owned them or had paid for them. 2. As indicated previously in this statement, at the time of the negotiations, the Navy representatives believed, and apparently the Westinghouse representative believed, that Westinghouse had title to the engines which that company agreed to sell and deliver as a part of the complete data package. The Navy has thus far been able to conduct only a limited search of records bearing on the matter of title to the engines in question. Dislocation of pertinent records consequent upon the transfer from Westinghouse Kansas City to Pratt & Whitney in Connecticut has hampered this effort. However, some investigation has been made, including examination of engine history books now located at East Hartford. On the basis of this search, the Navy is not able to confirm the statements in the GAO report that the Navy owned the engines covered by Contract NOW 61-0171-f at the time that contract was entered into. If in fact that contract was entered into under a mutual misapprehension regarding ownership of one or more of the engines, the Navy feels that the transaction should be reappraised, and the Navy is willing to pursue its investigation in this matter. In this connection it would be most helpful in conducting further Navy investigation if advantage could be taken of the information already gathered by GAO regarding title to the engines. Should further investigation indicate that negotiations with Westinghouse for adjusting price are appropriate, the Navy will initiate such negotiations. 3. In connection with any such negotiation, the following considerations may be rolavent: a. As noted in III.F.3.a., above, "house engines" had been specifically stated by Pratt & Whitney as a part of the complete data package it needed, and the negotiations were conducted on the same premise in regard to both "house" and cutaway engines. b. However, as indicated in III.F.2.b., above, the dominant subject of the bargain was a reasonably complete disclosure which involved such a large body of Westinghouse data that the addition or subtraction of a few items (including engines) would probably not have made a material difference in the price ultimately arrived at. This probability seems supported by the strenuousness of the negotiations, involving Westinghouse agreement to accept a price of $1,010,000 against its original proposal of $3,500,000. Although it is believed that the Navy would have been in a stronger position to contend for a lower price if the engines had not been included in the contract package, and although the Navy does not know for a certainty that Westinghouse would have refused to contract for less than $1,010,000, the principal Navy negotiator has stated that he does not believe the Government would have been successful in negotiating a lower price even if the engines had been excluded. V. Comment on GAO Finding that (i) one display engine was given to the Connecticut Aeronautical Historical Association, (ii) that the other display engine was placed on exhibit at Pratt & Whitney's Wethersfield plant and (iii) that the Bureau of Naval Weapons Representative, East Hartford, Connecticut, found that the five house engines described in Contract NOW 61-0171-f were beyond the point of repair or rebuilding and recommended that they be given to Pratt & Whitney for such use as desired and ultimate disposal as scrap. A. The 2 display engines described in contract NOw 61-0171-f were provided to serve as training aids. It is true that one display engine was furnished on a recapture basis to the Connecticut Aeronautical Historical Association, Bradley Field, for display purposes, rather than to keep it in storage. The other display engine, which is at Pratt & Whitney's Wethersfield Plant, has been used there for its contemplated purpose of a training aid, in familiarizing Pratt & Whitney field service personnel with the J-34 engine. B. The house engines were needed by Pratt & Whitney in order to carry on testing programs necessary in producing spare parts and providing other support for the Westinghouse engines in Navy use. Upon the arrival of these engines at Pratt & Whitney the Office of the Bureau of Naval Weapons Representative, East Hartford, found that the engines were not suitable for installation in aircraft and recommended that they be given to Pratt & Whitney for such use as desired and ultimate disposal as scrap. Since these engines were to be used for testing purposes rather than installation in aircraft, the Bureau of Naval Weapons disapproved this recommendation. At least 4 of these engines were being used in test work by Pratt & Whitney as of early October 1961 and use of all 5 for that purpose is expected. VI. Proposed Action A. Navy to conduct further investigation regarding the ownership of the engines covered by Contract Now 61-0171-f at the time that contract was made. B. Obtain advice in detail as to the records and other evidence on which is based the GAO view regarding ownership of the engines. C. Should such investigations indicate that negotiations with Westinghouse for an adjustment in price are appropriate, the Navy will initiate such negotiations. D. Navy to furnish GAO results of the foregoing in a report supplementing this statement. APPENDIX 30-DOD RESPONSE TO GAO REPORT B-146760 OF APRIL 5, 1965 (WESTINGHOUSE-CRANE CO. CASE) This refers to your report to the Congress, dated January 5, The report says that Westinghouse paid Crane an excessive In its reply to the draft of this report (included as Ap- |