Compliance with these provisions is monitored through purchase system survey reviews and Air Force contracting officer consent to certain individual subcontracts:

ASPR 3-807.3

ASPR 3-807.4

Cost and Pricing Data.

Certificate of Current Cost or Pricing Data.

ASPR 7-104.29 Price Reduction for Defective Cost or Pricing Data.
ASPR 7-104.41 Audit and Records.

ASPR 7-104.42

Subcontractor Cost and Pricing Data.

Regarding recommendation (d), it is Air Force opinion that the provisions of ASPR 3-807.6, "Refusal To Provide Cost of Pricing Data" already embody the substance of this recommendation.

Status: Case open.

NOTE.-National Aeronautical Space Administration recently obtained a refund of $139,886 under this case, partly under a most-favored-customer clause and partly for product engineering and tooling costs. Air Force is presently investigating whether or not we have any basis for seeking a small refund (possibly $15,000 to $18,000) under product engineering and tooling. We have no other basis for a refund.

GAO Report B-146965, February 2, 1965

12. Title: "Increased Costs Due to Failure To Obtain Competition in Procurement of Electric Parts on Qualified Products Lists at the Defense Electronics Supply Center, Dayton, Ohio" (OSD case No. 2030).

GAO finding: Increased costs have been incurred annually at the Defense Electronics Supply Center, Dayton, Ohio, through the failure to obtain competition in the procurement of electronic parts in Federal supply class 5960 listed on qualified products lists.

GAO estimate of unnecessary costs: Estimated by GAO to be as much as $1.5 million annually.

Time period of GAO report: Fiscal year 1963.

DOD comments on GAO fiinding: The failure to obtain competition found by the GAO is due primarily to a depression in the tube industry caused by the advent of solid state devices rather than being due to the fault of the procuring agency as implied by the report. Accordingly, tube manufacturers are extremely reluctant to invest money in the development of a competitive product because of the declining market for new products. The Defense Electronics Supply Center and DSA Headquarters recognize clearly the fact that competition results in lower procurement costs.

DOD comments on costs: No independent DOD estimate was made; however, it is to be noted that the GAO estimate is based primarily upon certain tube costs which are not comparable and there were other factors affecting price other than competition. The GAO estimate is therefore questionable.

DOD corrective action: DOD is actively engaged in reducing the need for QPL's and, where this cannot be accomplished, insuring that ample competition exists on QPL buys. There presently exists in ASPR and departmental procurement regulations abundant policy guidance to encourage vigorous competition in this area.

Problem

ADDITIONAL COMMENTS BY THE DEPARTMENT OF THE AIR FORCE

The report stated that increased eosts have been incurred at the Defense Electronics Supply Centers (DESC) due to failure to obtain competition in the pro curement of electronic parts listed on qualified products lists.

GAO recommendations: That—

(a) Where military specifications are used as a basis for the procurement of commercial products, activities responsible for preparing specifications be in structed to eliminate qualification requirements, where practicable.

(b) Where effective competition has not been obtained on established QPL's, procedures be established at DESC to provide that inquiry be made of the activity responsible for preparing the specification as to substitute methods of quality assurance as required by ASPR.

(c) Where QPL's are necessary, DESC be instructed to take aggressive action to establish additional qualified sources.

Statement

DSA responded to the allegations contained in the report.

Status: Actions on draft report completed.

Policy

Our comments which constitute Air Force policy on this matter are confined to the first GAO recommendations.

Air Force regulation 81-1, dated July 2, 1964, is considered quite stringent in this area and DOD agrees. This regulation requires approval of the Deputy Chief of Staff, Systems and Logistics (AFSPPER) of all specifications requiring QPL which are prepared by Air Force activities. These specifications are reviewed to be assured that the requirements of ASPR 1-1103 are met, and, if so, the procuring activity is notified of such approval, in writing.

These regulations are being followed scrupulously by Air Force procurement activities. Only 10 QPL approvals have been granted for all FSC's in the last 12 months. This is a minute percentage of the specifications prepared by the Air Force.

This subject is a matter of continuous review in the Air Force. Office of Assistant Secretary of Defense, Installations and Logistics, memorandum of Octo ber 6, 1961, subject: "Specifications with qualified products list requirements' required the Departments to review their QPL procedures. This review of specifications to justify QPL retention was completed in April 1962. By way of further illustration, as a result of reviews conducted at Aeronautical Systems Division (ASD) in the last 6 months, the prior qualified requirement has been canceled on 42, or approximately 10 percent of its QPL items.

APPENDIX 2B-ARMY CASES

GAO Report B-133295, January 31, 1964

13. Title: "Excessive Charges for Components for M-60 Tanks Under Contract With Chrysler Corp., Detroit, Mich., Department of the Army" (OSD Case No. 1808).

GAO finding

The revised final contract price for M-60 tanks under Department of the Army contract with Chrysler Corp. contained duplicate and excessive costs which increased the contract price by about $315,200 for components made at certain of the contractor's plants. Summary cost data submitted by the contractor as basis for negotiating the final price were prepared after the tanks were produced and the contractor should have been aware of the incurred costs. The procuring agency (1) failed to obtain a certification on the cost data, despite a contract requirement for such a certificate and (2) accepted the summary cost data without an adequate review.

GAO estimate of unnecessary costs: $315,200.

Time period of GAO report: May 1960 to July 1962.

DOD comments on GAO finding

The Department of the Army agrees that the revised final contract price for M-60 tanks under contract with Chrysler Corp. contained duplicate and excessive costs which increased the contract price. The repricing proposal included experienced as well as projected costs in accordance with the terms of the contract. The excessive costs were included in the contractor's cost projections. DOD comments on costs

The Department of the Army agrees that duplicate and excessive costs in the amount of $315,200 were included in the redetermined price of the contract. However, the contractor has agreed to the Government's recoupment, after consideration of certain offsetting costs, of a net amount of $258,060. (See Contract Modification No. 297, August 29, 1964, to Contract DA 20-018-ORD-23403). Total contract cost: $171.4 million.

DOD corrective action

(a) Since the award of this contract, Public Law 87-653, dated September 10, 1962, has required contractors to make a written certification that the cost data

supplied are the most current, complete, and correct data available. This law further requires that the contractor agree to a provision for price adjustment if determination is made that cost information furnished is inaccurate, incomplete, or noncurrent.

(b) The Army does not agree with the GAO recommendation for disciplinary action. The contractors price proposal included experienced costs and cost projections. Complete audit and review were accorded this proposal. Prior to agreeing upon a redetermined price, the Army negotiating team took added steps to obtain data to support the contractor's cost projections. It is pertinent to note that the type of situation disclosed by the GAO will probably not be repeated in view of the fact that the ASPR now limits the use of repricing articles. The forms C and D articles which are similar to the clause used in the M-60 contract are no longer authorized for use.

GAO Report B-146747, April 17, 1964

14. Title: "Unnecessary Interest Costs Incurred by the Government Because of Improper Retention of Overpayments by Burroughs Corp., Detroit, Mich., Department of the Army" (OSD Case No. 1828)

GAO finding: The Government incurred unnecessary interest costs of $208,000 because the contractor improperly retained for long periods of time about $4,900,000 of progress payments made by the Government.

GAO estimate of unnecessary costs: $208,000.

Time period of GAO report: June 1956 to January 1962.

DOD comments on GAO finding: The Department of the Army agrees that unnecessary interest costs were incurred because payments made by the Government were improperly retained for long periods of time.

DOD comments on costs: The contractor has offered in settlement $162,000. However, in keeping with the GAO recommendation, the case has been referred to the Department of Justice for review by that agency. Case has been settled for $190,000.

DOD corrective action: (a) The DOD does not agree with the GAO recommendation for a contractor certification, similar to that required under Public Law 87-653, for cost data submitted for determining whether refunds are due the Government.

(b) The current ASPR requires the contractor to furnish quarterly statements of billings and costs. The contractor is also required to credit or make immediate refund to the Government of the amount of excess billings paid by the Government over actual costs incurred. Further, contracting officers are required to ensure compliance on a continuing basis, and to make prompt reviews of the quarterly statements submitted by contractors. In this connection. Army Procurement Circular 715–2–2, dated May 1, 1962, refers contracting officers to the requirements of ASPR 7-108 and 7-109 "Limitations on Payments" and to ASPR E-604.2 "Price Revision Contracts-Quarterly Statements", which set forth the requirements for such quarterly statements. In addition this area is also subject to reviews by the U.S. Army Audit Agency. Under these circumstances the instant case is not of itself sufficient to warrant an additional ASPR requirement on the subject of contractor certification of cost or pricing data.

GAO Report B-125016, June 2, 1964

15. Title: "Unnecessary Costs to the Government for Unreasonable Delay by Collins Radio Co., Cedar Rapids, Iowa, in Releasing Special Tooling" (OSD Case No. 1868)

GAO finding: The Government has borne unnecessary costs resulting from the contractor's failure to transfer Government-owned special tooling in a timely manner to a subsequent producer of radio receivers for the Army. Late receipt by the subsequent producer necessitated Government authorization to accelerate production in order to meet the contract completion date.

GAO estimate of unnecessary costs: $418,000.

Time period of GAO report: February 1959 to December 1961.

DOD comments on GAO findings: The Army agrees with the GAO findings as representing breach of the contract and action is being taken to recoup the

$418,000 as well as an additional $46,200 for rental of the tooling during its unauthorized use.

DOD comments on costs: The Army agrees that unnecessary costs amounting to $464,200, were incurred (The Army determined that in addition to the $418,000, $46,200 is due the Government for Collins' unauthorized use of the equipment).

DOD corrective action: The Army, in consonance with the GAO recommendations has (a) taken disciplinary action against the contracting officer concerned and (b) taken action to recover the unnecessary costs from Collins by withholding $464,500 due Collins under other contracts.

GAO Report B-146883, June 16, 1964

16. Title: "Unnecessary Costs Incurred for M-61 Machine Gun Components Under Contracts With General Electric Co., Burlington, Vt., Department of the Army" (OSD Case No. 1849)

GAO finding: The Government incurred unnecessary costs because the contractor (1) failed to disclose information during negotiations that a new manufacturing process had been adopted which significantly reduced the cost of manufacturing a part, and (2) improperly included in the contract price an amount for items which were furnished by the Government.

GAO Estimate of unnecessary costs: $74,500.

Time period of GAO Report: November 1959-June 1963.

DOD comments on GAO finding: (a) Army investigation has not disclosed any evidence that the contractor at any time made any misrepresentations, withheld any data, or provided any misleading information concerning the new manufacturing process. General Electric on its own initiative had worked with the subcontractor to make the cheaper forgings acceptable. This constituted a reasonable exercise of judgment which, in retrospect, turned out to the advantage of the contractor.

(b) The Army agrees that Government-furnished property was improperly included in the contract price.

DOD comments on costs: The Army agrees that unnecessary costs were incurred, but holds the amount to be $8,419.45 for which recovery has been effected. DOD corrective action: (a) The GAO is recommending that the Army effect an appropriate recovery from the General Electric Co.

(b) The Army has negotiated with General Electric and has effected an appropriate price adjustment of $8,419.45.

(c) The GAO recognizes that since award of this contract, Public Law 87-653 requires contractors to agree to an adjustment in the contract price if it is determined that cost information is inaccurate, incomplete or noncurrent. The current ASPR implementation of this law is intended to preclude a recurrence of the problem area reported by the GAO.

GAO Report B-146873, June 22, 1964

17. Title: "Overpricing of Contracts DA-20-089-ORD-8406 and DA-36-034– ORD-897 with Chrysler Corp., Newark, Del., by the Department of the Army" (OSD Case No. 1815)

GAO finding: The Government incurred excessive costs because an adjustment to the tentative contract prices for changes in the cost of certain components was not based on the cost of the components that had been included in the price originally. According to the GAO, the excessive costs were incurred because the contractor, the contracting officer and the U.S. Army Audit Agency failed to correctly identify the costs of the components considered in negotiating the tentative contract prices.

GAO estimate of unnecessary cost: $4,780,000.

Time period of GAO report: 1950-59.

DOD comments on GAO findings: (a) The Army was aware of this matter before the GAO made its review. Negotiations, held in 1958, attendant to a partial termination of the contract, led to the withholding of $3.6 million from payments due the contractor pursuant to the termination clause.

(b) The U.S. Army Audit Agency report of total material costs, as well as subsequent audit reports dealing with credit adjustments was used as a basis for negotiation.

DOD comments on costs: The Army agrees that unnecessary costs were incurred.

DOD corrective action: The GAO made no recommendations in view of the fact that the Army negotiated a settlement of $4.5 million.

GAO Report B-146793, August 31, 1964

18. Title: "Cost of Welding Equipment Improperly Included in Price Redetermination Proposal Under Contract With Ford Motor Co., Dearborn, Mich., Department of the Army" (OSD Case No. 1845)

GAO finding: The Government was about to incur unnecessary costs of $233,000, because Ford included the cost of contractor-owned equipment in its price redetermination proposal. Although the Government and no need for the equipment, the contracting officer accepted it and had it sent to a Government warehouse thereby allowing the contractor to charge the Government for the equipment.

GAO estimate of unnecessary costs: $233,000.

Time period of GAO report: June 1959-June 1964.

DOD comments on GAO finding: The Army agrees with the factual content of the report and acknowledges that through inadvertence, the Procurement Officer accepted the welding equipment in question.

DOD comments on costs: (a) The Army agrees that unnecessary costs were incurred, and the charge of $232,864 was deleted from the final contract price.

(b) In commenting on this report it is pertinent to note that the Army has a system of procedures and controls that would have detected and corrected the initial error of shipping the welding equipment to Government custody.

DOD corrective action: (a) The Army has adequate controls in existence which would have detected the error, however, it acknowledges that the GAO did accelerate the date at which the error was detected. Prior to execution of the final contract settlement, reviews conducted by procurement, audit and legal personnel would have revealed the omission.

(b) Although mitigating factors were present, disciplinary action was taken against the contracting officer.

GAO Report B-146884, August 31, 1964

19. Title: "Unreasonable Charges to Government Cost-type Contracts for Depreciation on Buildings Acquired From the Government at No Cost By Stanford Research Institute, Menlo Park, Calif., Department of the Army" (OSD Case No. 1821)

GAO finding: The Government has been charged unreasonable costs because the institute allocated to Government contracts depreciation on buildings that the institute received at no cost. These buildings were transferred by the Government for a sum of $1 to Standard University under the provisions of the Lanham Act, and then transferred by the university to the institute without charge. GAO estimate of unnecessary costs: $246,923.

Time period of GAO report: 1955-1961.

DOD comments on GAO finding: The GAO contention that the Army did not consider the reasonableness of the depreciation charges is not concurred in. Reviews conducted by the United States Army Audit Agency resulted in the determination that the institute's accounting treatment of the land and buildings was satisfactory and that there was no basis for objecting to the Government's bearing its allocable share of the depreciation charges.

DOD comments on costs: The GAO is being requested to withdraw a notice of exception issued against the disbursing officer for the amount in question because the costs (1) were considered by the U.S. Army Audit Agency to be reasonable and (2) were certified to as allowable costs. Determination of reasonableness is inherent in such actions. (On February 10, 1965, the cognizant GAO representatives informed the Army that the notice of exception is being withdrawn).