ITEM II-C: Letter to the GAO Concurring in Need to Consider ASPR 3-807.2 provides that, in certain circumstances, contracting officers should require contractors to submit certified cost or pricing data in respect to negotiated contracts even though they are not expected to exceed $100,000. A recent GAO report highlights the point that an expectation of repeat orders with the same firm, involving a total volume exceeding $100,000, should be taken into account in deciding whether such data should be required. The following excerpts from DOD's reply to the GAO, concurring in the repeat orders point, summarize DOD policy regarding the requirement for cost or pricing data for contracts expected to be less than $100,000: "The report states that the Government incurred unnecessary costs because a supplier proposed prices to Government prime contractors that were based on substantially higher cost estimates than its experienced production costs warranted. The report notes that certifications of cost data were not required since the orders in question were less than $100,000 and the Armed Services Procurement Regulation makes such certifications mandatory only in transactions over $100,000. "The report recommends . . . that procurement regulations be revised to require periodic submission of cost data and certifications from sole source subcontractors expected to do a considerable business with the Government over a period of time. "With respect to the comments in the report on current ASPR requirements for obtaining contractors' certifications of cost or pricing data, the ASPR provisions in this regard follow the statute (P.L. 87-653) in requiring such certifications on a mandatory basis only in noncompetitive procurements exceeding $100,000. This does not mean that such certifications are precluded with respect to procurements of lower dollar amount. Subject to the specific guidance provided in ASPR. the contracting officer is required to obtain cost or pricing data and certifications in any case in which he determines that the circumstances warrant such action. "The report questions the DOD position with respect to the use of cost data as a pricing method in procurements below $100,000. As you are aware, a revision of the ASPR provisions dealing with the use of cost data has been prepared and will be published shortly. This was done in DPC No. 12. A copy of the proposed revision was furnished your office for comment. In brief, it is the DOD position that in procurements below $100,000 recourse to contractors' cost data is not necessarily the most sound approach to evaluating the reasonableness of contractors' proposals. We believe that it is frequently more efficient and economical to use other techniques of evaluation, provided, of course, that adequate information is available for the effective application of such techniques. If adequate information is not available, cost data and certifications can and must be obtained. This method of pricing is therefore not only available but mandatory when the reasonableness of proposed prices cannot be established by more efficient means. "The report raises a specific question also with respect to the use of cost data and certifications in connection with procurements from firms expected to do considerable business with the Government over a period of time. Unquestionably, the expectation that repeat orders will be placed with the same firm, resulting in total volume exceeding $100,000 should be taken into account in considering whether or not the circumstances warrant the review and analysis of detailed cost data and the obtaining of cost certifications from contractors. ITEM III--RESPONSIBILITY OF CONTRACTORS Defense Procurement Circular No. 9 dated 18 June 1964 and Item No. III of Defense Procurement Circular No. 17, are hereby extended. Marginal code for specifying lines upon or between which changes have been made in the ASPR material: This Circular is canceled at the end of six months after the date on which it goes into effect, unless it is specifically canceled at an earlier date or by publication in the ASPR. Reproduction Authorized. APPENDIX 3L-DOD POLICY ON REQUESTS FOR VOLUNTARY MEMORANDUM FOR THE ASSISTANT SECRETARY OF THE ARMY (I&L) SUBJECT: THE ASSISTANT SECRETARY OF THE AIR FORCE. (MAT) Interim Policy on Requesting Voluntary Price Adjustment from The purpose of this memorandum is to provide interim policy guidance on sccking contract price adjustments in situations in which the Government cannot claim an adjustment as a matter of legal right. The question of seeking such adjustments has generally arisen as the result of audit reports by GAO questioning the reasonableness of contract prices and recommending that efforts be made to obtain adjustments. These recommendations have often been based on considerations of fairness and equity rather than on legal grounds. Lately, to an increasing extent, the same question has occurred as the result of procurement reviews by Defense audit agencies and other Defense activities. Although the clause entitled "Price Reduction for Defective Pricing Data" (ASPR 7-104.29) provides a contractual basis for price adjustment, it does not cover the full range of situations in which equitable grounds may exist for seeking a voluntary adjustment. Also, we will probably continue for some time to come to receive GAO reports and other procurement reports dealing with contracts negotiated before the defective data clause went into effect. For these reasons, and because of the increasing number of cases involving requests for voluntary price adjustment, a statement of policy on this subject is considered necessary. Treatment of this matter in ASPR or in a DOD directive is under consideration. In the meantime it is requested that the military departments and DSA be guided by the following interim policy: 1. It is essential that the integrity of Defense contracts be maintained. Seeking a price adjustment without a claim of legal right will be considered an extraordinary remedy to be resorted to only when it is determined that both of the following conditions exist: (a) The Government was overcharged in the pricing of a Defense contract or inadequately compensated for the use or purchase of Government-owned property, and (b) retention by the contractor or Subcontractor of the amount in question would be contrary to good conscience and equity. 2. In view of the seriousness of any request for voluntary price adjustment, the decision as to whether or not to seek an adjustment will be made at a sufficiently high level in the military departments and DSA to assure an adequate consideration of the facts and equities in each case as well as a reasonable consistency of approach in handling such cases throughout DOD. If any case involves more than one department, uniform action is mandatory. 3. When a determination has been made that the Government's equitable position is sound and that efforts to obtain an adjustment are required by the public interest, such efforts should be vigorously pursued. 4. All personnel concerned with negotiation, administration, auditing, and review of procurement will be responsible for reporting any instance where a request for price adjustment appears to be required in accordance with this policy so that appropriate action may be promptly taken. 5. Seeking a voluntary price adjustment presupposes the absence of a legal basis for recovering the amounts in question or for obtaining other relief. Where legal remedies may exist, care will be taken to avoid actions which would jeopardize the effectiveness of these remedies. The accompanying staff paper, furnished for information purposes, discusses the basis of the foregoing policy and provides additional guidelines which should be helpful in promoting an effective and reasonably uniform implementation of this policy. In order to assure the flexibility necessary for sound judgment in this area, these additional guidelines should be considered as suggestions rather than requirements. Attention is directed to the need for thorough analysis and justification of position in any case in which a GAO recommendation to seek an adjustment is not complied with, particularly when such recommendation is contained in a final report addressed to the Congress. Attachment 48-132 O - 65 - 62 SIGNED THOMAS D. MORRIS Assistant Secretary of Defense QASD(I&L) Staff Paper Memorandum on Requesting Voluntary Price Adjustments from Contractors Actions taken by the military departments on recommendarequest voluntary price adjustments. In many of its reports on defense procurement issued since 1959, the General Accounting Office has recommended that the military departments attempt to obtain voluntary refunds or price adjustments from contractors. This recommendation has appeared most frequently in cases in which GAO concluded that the Government had been improperly overcharged in the pricing of contracts or had been inadequately compensated for the use of Government-owned industrial facilities and other property. The military departments, have, as a rule, concurred in this recommendation. Efforts by the military departments to obtain adjustments in such cases have resulted in the recovery of very substantial sums, with refunds in some cases amounting to hundreds of thousands of dollars. These results were noted with approval by the Subcommittee for Investigations of the House Armed Services Committee during the course of hearings in early 1961 in which a number of excessively priced contracts reported by GAO were reviewed. 2. Questions resulting from attempts to obtain refunds; need for statement of policy. With the increase in the number of GAO reports recommending refunds, questions have been raised as to the effect of requests for price adjustment, unsupported by any claim of legal right, on the integrity of defense contracts. Questions have been raised also as to the proper circumstances under which refunds should be sought for example, whether the Government should seek a refund under one contract when the contractor's average profit on a series of contracts was not excessive. In general there appears to be considerable uncertainty as to when a refund should be sought and how much of an effort should be made to obtain a refund once it is determined that a refund is in order. This suggests the desirability of a statement of policy for uniform application by all activities. It is recognized however, that broad discretion is needed in dealing with matters which involve equitable considerations and which necessarily depend to a large extent on personal opinion and judgment. This memorandum does not therefore attempt to establish a precise formula or hard and fast rules. Instead it proposes a broad statement of policy and some procedural guidelines which may be helpful in responding to recommendations in GAO reports and in other cases in which the question of voluntary price adjustment arises, for example when the existence of excessive prices is established through reviews by Defense audit agencies and other Defense activities. |