change visits by our personnel, and for the right to request additional information, as required, from Westinghouse's background experience, in design and development, which related to the manufacture and inspection of the J-34 engines. Our appreciation of the importance of know-how is thus evident in the negotiation of the definition of the needed data. It became apparent in our negotiations with Westinghouse that the information which would pass to us under the proposed license would be of use to us only in support of the Navy equipment. That factor, together with the inherent tax problems and the fee and royalty schedule proposed by Westinghouse, led to the conclusion that the better approach would be for the Navy to acquire directly the additional rights needed to establish the program which the Navy wished us to undertake. The data, know-how, and assistance which were furnished to us, following completion of arrangements between Westinghouse and the Navy, were equivalent in scope and content to those which we would have received had our own negotiations with Westinghouse culminated in an executed license agreement. The assistance made available to us included Westinghouse's know-how and developmental, manufacturing sequence, process and inspection background data, much of which was transferred to us in the course of approximately 75 visits made by representatives of Pratt & Whitney Aircraft and Westinghouse to each other's plants. On the basis of 18 months of experience in the use of this data, know-how, and assistance package we advised the Navy by letter dated January 30, 1962, that, in our opinion, the additional cost involved in our assumption of support responsibility for the J-34 engine could reasonably be placed at $32 million had the information which flowed to us from Westinghouse not included these additional elements. In our opinion the value of know-how and technical assistance made available by Westinghouse was greater than the price fixed in the Navy contract which the report attacks. Further regarding the accuracy of the GAO report, we note that there is included comment on a contract assertedly issued by the Navy to Pratt & Whitney Aircraft for testing of a Government-furnished J-34 engine combined with a Solar Aircraft Co. afterburner. We assume that the contract which forms the basis for this statement is Noa (s) 9602, which contract was cited in similar context in the GAO draft report of December 1962 concerning competitive procurement of parts for Pratt & Whitney Aircraft engines. In response to that earlier draft report, we advised your representatives that the reference contract was in fact one between the Navy and Chance-Vought Aircraft, which at that time (in 1948) was a division of United Aircraft Corp. Pratt & Whitney Aircraft Division was not a party to that contract or program. GAO responded by deleting from its final report all reference to that matter. We submit the foregoing as a more complete and accurate statement of our position in this matter than is contained in the GAO report. Very truly yours, L. C. MALLET, Division President. cc: Chief, Bureau of Naval Weapons, Department of the Navy, Washington, D.C. AFTERNOON SESSION Mr. HOLIFIELD. The subcommittee will be in order. We will resume our hearings. FURTHER GRAEME C. STATEMENT OF HON. GRAEME C. BANNERMAN, ASSISTANT SECRETARY OF THE NAVY (INSTALLATIONS AND LOGISTICS) Mr. ROBACK. We were discussing the Westinghouse technical data package contract. Where did we leave it, Mr. Secretary? Mr. BANNERMAN. I think that is Mr. ROBACK. In suspense, I mean suspension? Mr. BANNERMAN. I think that is where we left, both literally and figuratively. By the way, one fact I heard from Mr. Keller of the GAO after we stopped our hearing this morning was that the brief from the company had come in to the GAO within the last day or two. I had not known that. Mr. HOLIFIELD. How long had it been delayed? Mr. BANNERMAN. Well, there had been no time within the last 2 or 3 years when they could not have submitted one, Mr. Chairman, Mr. HOLIFIELD. Was there any reason given as to why they did not submit it? Mr. BANNERMAN. I do not know. Mr. ROBACK. They asked for the opportunity themselves, and then held back because they were busy on other cases presumably. They had other things to worry about in connection with GAO reports. Mr. MARKEY. That took priority over that case that is my understanding. Mr. HOLIFIELD. Is that right? Mr. MARKEY. That is my understanding. (Westinghouse Electric Corp was requested by the subcommittee to comment on this point of alleged delay in submitting a brief. The following document was submitted in response :) DATA TRANSFER OR TECHNICAL PACKAGE CASE At pages 615 and 616 of the transcript, the Navy representatives inferred that Westinghouse delayed filing its brief with GAO on the data transfer case. The following chronology should be helpful in this regard. June 12, 1961: Exception taken by GAO. July 28, 1961: GAO draft report sent to Westinghouse. September 28, 1961: Westinghouse filed detailed reply to draft report. December 31, 1963: GAO final report (released in January 1964 without Westinghouse comments). May 7, 1964: Westinghouse asked GAO for reconsideration of its final report. July 21, 1964: After numerous conferences with GAO personnel, Westinghouse requested to review (1) the minutes and records of negotiations as recorded by the Navy, in order to evaluate GAO contention that Navy was mistaken as to its rights, and the new GAO argument that Navy lacked authority to enter into the contract, and (2) the DOD position statement on the final report. This was necessary in order to prepare its brief in support of reconsideration. July 21, 1964: Westinghouse was referred to DOD office of Mr. Bannerman to make request to Mr. Satenstein. This was done. August 4, 1964: Mr. Satenstein of DOD informed Westinghouse of decision not to release these records and the DOD position statement because GAO felt it would adversely affect the Government's interest in any future proceedings. August-September, 1964: Westinghouse asked GAO to change its position so as to allow DOD to release this information. GAO refused. December 28, 1964: DOD released position statement. January 28, 1965: Westinghouse again requested GAO to release negotiating minutes and records in view of DOD release of position paper. March 11, 1965: GAO released minutes of negotiation to Westinghouse. Mr. ROBACK. We had been discussing the fact that in the judgment of the Defense Department, your reply to the General Accounting Office report should be withheld from public dissemination at the time. Did you submit it as a formal-for formal review to the Justice Department? Mr. BANNERMAN. I personally did not. I do not know that it was ever formally reviewed by them. I think it was described to them by one of the members of counsel of the Office of the Secretary of Defense with a request that they notify us if they had objection to our releasing it, and the informal response that he got was that they would have no objection. Mr. ROBACK. According to your letter to the Comptroller General, the classification was taken off and release was made on or about December 28, 1964. Mr. BANNERMAN. That is correct. Mr. ROBACK. You have submitted to the committee a summary list of GAO reports, complaints by the Department, actions taken or not taken, and also a Navy postscript which brings up to date the status of these various cases. Mr. BANNERMAN. I understand that is correct, Mr. Roback. Mr. ROBACK. They will, in the discretion of the subcommittee, be inserted in the record at appropriate places. (The documents referred to appear in appendix 2C, p. 757.) REPORT ON SPANISH BASE CONTRACTS Mr. ROBACK. We might refer to several of the items. The first one, I believe, has to do with a series of contracts with Brown, Raymond, Walsh, contractors on the Spanish base construction program. Mr. BANNERMAN. Yes, sir. Mr. ROBACK. I note there were three draft reports in these cases. Mr. ROBACK. Is it your understanding that this series of drafts was due to a serious controversy as to the facts of the matter, or was this because of the complexity of the problems? Mr. BANNERMAN. I think it was a very complex case. I think there was probably some disagreement over the facts throughout, and may still be, and there was certainly considerable difference of opinion over the policy judgment that was being formed by the GAO, and that being formed by the Navy. The result was that, as we successively answered these over a substantial period of time, the GAO revised its judgment in some ways, may be based upon our answers, but maybe based upon independent information it had gotten, but in any event their successive reports changed rather substantially. Mr. ROBACK. The summary notes that the GAO audit began in 1958 and covered contract performance which went back to 1954. Mr. BANNERMAN. That is correct. Mr. ROBACK. Is that an average or unusual time, in your experience for GAO audits? Mr. BANNERMAN. Well, I think at the time this started, that is to say, the fact that they reviewed in 1958 a contract which had been made and was being performed from 1954 to 1958 is not in itself unusual. I think that the process of going through three successive draft reports and continuing the study for several years thereafter, issuing a final report only in 1963 indicates that for nearly 5 years they were in the process of developing the report after the study had been started. Mr. ROBACK. In a 10-year span? Mr. BANNERMAN. That, in my judgment, is quite unusual. I think it may be unique. Mr. ROBACK. In the span of concern, that is, calling attention of Congress to matters which commenced in 1954, which would cover roughly about a decade of concern here. Mr. BANNERMAN. That is correct, although the actual work being commented on covered only the first 4 years of that decade. Mr. ROBACK. I gather from your summary that the Navy has nothing more to do with it. This is a matter which the Renegotiation Board will consider in its reviews of submissions under their jurisdiction. Mr. BANNERMAN. Yes. They may already have done so, I do not know. We reported the facts to them. This case, by the way, has some aspects, not the total aspects, but some aspects which remind me a little bit of the Bainbridge case, Here again we were faced with a declining volume of work and we converted a cost-type contract to a fixed price toward the end of the work, feeling that by doing so we were likely to wind up the work and get it brought to an efficient conclusion faster than might have been the case if we continued on a cost-reimbursement basis. In any event, that decision is part of what is being challenged by GAO. Mr. ROBACK. The Renegotiation Board will look at that contract in the light of all the company contracts? Mr. BANNERMAN. They will look at that contract year by year as part of the total company business during those years. The Renegotiation Board, as you know, reviews the contractor's fiscal year total business. Mr. ROBACK. Will you advise the committee whether the Renegotiation Board extends, can extend, backward to the same period that GAO covers? Mr. BANNERMAN. Well, I think the Renegotiation Board normally is operating on the contractor's fiscal years that run 2 or 3 years back of the time when they are actually renegotiating. I would doubt, for instance, whether in 1965 they could renegotiate something that happened in 1958 because they will have closed out and signed final agreements by that time. Mr. ROBACK. So that the Renegotiation Board review would not necessarily be coextensive in time, or in contracts, with the GAO reports. Mr. BANNERMAN. That is correct. I would have to check the actual facts of this case to be very useful to you in this line of questioning, Mr. Roback, because I do not know whether they have been able to do it or not. Mr. ROBACK. But, at least there is a question, I mean, it is unlikely that they could be exactly coextensive in their area of concern. Mr. BANNERMAN. Well, in this case, yes, because the GAO concern is so far back. But in the normal case, I do not think this would be impossible at all, because, as I say, the Renegotiation Board is currently renegotiating returns for 1962 or 1963, I believe. Maybe they have gotten into 1964. Incidentally, the contractor's business, during their own fiscal year 1963 may very well pertain to contracts which are made 2 or 3 years ahead of that. Mr. ROBACK. We have a copy of a letter from the Chairman of the Renegotiation Board to Chairman Dawson, dated October 30, 1963, which can be inserted in the record, with the committee's permission. (The text of the letter referred to follows:) Hon. WILLIAM L. DAWSON, RENEGOTIATION BOARD, Washington, D.C., October 30, 1963. Chairman, Committee on Government Operations, DEAR MR. DAWSON: I have your letter of October 22, 1963, asking for the views of this Board on the report of the Comptroller General dated October 21, 1963, enclosing the Department of Defense reply to Report No. B-118763, June 28, 1963 (failure of the Department of the Navy to fully recover excessive administrative costs allowances included in fixed prices negotiated with Brown-RaymondWalsh (a joint venture) under contract NOy-83333 for the Spanish base construction program). We have also received a communication from the Comptroller General, as stated in such report, requesting this Board to take all action available to it to effect recovery of the $3.7 million which in the opinion of the Comptroller General represents excess administrative costs under the contract with the Department of the Navy. The joint venture is now in the process of filing the report required by the Renegotiation Act of 1951. Therefore, we are not yet in a position to present our views with respect to the report of the Comptroller General. You may be assured, however, that the Board will take the findings of the Comptroller General into consideration in the renegotiation proceedings with the joint venture. Sincerely yours, (Signed) LAWRENCE E. HARTWIG, 1 Chairman. Mr. ROBACK. And it notes: Among other things also received a communication from the Comptroller General, as stated in such report, requesting this Board to take all action available to it to effect recovery of the $3.7 million which, in the opinion of the Comptroller General, represents excess administrative costs under the contract with the Department of the Navy. Then the next paragraph: The joint venture is now in the process of filing the report required by the Renegotiation Act of 1951. Therefore, we are not yet in a position to present our views with respect to the report of the Comptroller General. Now, is the joint venture required to file only in 1 given year for all these contracts? Mr. BANNERMAN. Well, I would assume from what I know of the Renegotiation Board procedure that the joint venture would file on each year in which it had income which was renegotiable. |