Organization and Operation. Operations are conducted at the Headquarters Office and two Regional Boards. The Eastern Regional Renegotiation Board serves the eastern part of the United States and the Western Regional Renegotiation Board serves the western part.

For a contractor whose renegotiable receipts or accruals in a fiscal year exceed the applicable minimum, the renegotiation process begins with the filing of a Standard Form of Contractor's Report. To compile the report, a contractor must segregate his renegotiable from his non-renegotiable business and must also determine the costs and expenses allocable to each such segment. Generally, all amounts deductible for Federal income tax purposes are allowable as costs in renegotiation to the extent allocable to renegotiable business.

All reports of contractors are examined at the Headquarters Office. Those reports showing renegotiable receipts or accruals below the "floor" (Statements of Non-Applicability) are reviewed for acceptability. Where filings are above the "floor," and the profits are obviously non-excessive, the Headquarters Office issues a clearance notice to the contractor. All other above the "floor" cases are assigned to a Regional Board for renegotiation, usually on a geographical basis.

Authority has been delegated to the Regional Boards to complete those cases in which renegotiable profits before income taxes are $800,000 or less (Class B). In any such case, if a clearance is issued or a refund agreement is entered into with the contractor, the action of the Regional Board is final; if agreement is not reached with the contractor, the case is reassigned to the Headquarters Office. The Regional Boards also process cases of greater magnitude (Class A). In such cases their authority is limited to recommending determinations to be made by the Statutory Board. These cases are also reassigned to the Statutory Board for further proceedings and completion.

Renegotiation proceedings are relatively informal and non-adversary in nature. The Act provides that the Board shall endeavor to reach an agreement with a contractor on the amount of excessive profits, if any, and that the Board shall issue an order determining excessive profits only if an agreement is not made.

92-005 O 73 pt. 1 3

The Board's determination in each instance reflects its judgment on the application of the following statutory factors to the facts of the specific case: efficiency of the contractor, reasonableness of costs and profits, net worth and capital employed, extent of risk assumed, nature and extent of contribution to the defense effort, and character of business. It is apparent that no formulae or pre-established rates can be used to determine whether profits are, or are not, excessive in any given case.

REFUND DETERMINATIONS AND VOLUNTARY PRICE REDUCTIONS

During FY 1972, 178 determinations of excessive profits were made totaling $40,190,577. Since the Board's inception through FY 1972, 4,333 determinations of excessive profits have been made totaling $1,135,737,153 before adjustment for Federal income and excess profits tax credits.

During FY 1972, contractors reported in connection with renegotiation proceedings, voluntary refunds and voluntary price reductions amounting to $9,425,109. (These refunds and price reductions are to be distinguished from price reductions made pursuant to contract provisions.) Such voluntary refunds and price reductions totaled $1,371,630,024 since the establishment of the present Board.

APPEALS TO THE COURT OF CLAIMS

When a contractor does not agree with a determination of excessive profits, the Board issues a unilateral order directing the contractor to pay to the Government the amount of excessive profits to be refunded. Under the Act, until July 1, 1971, contractors had a right to petition the Tax Court of the United States for a redetermination. By amendment to the Act, effective July 1, 1971, petitions are now filed with the Court of Claims.

Since the inception of the Board, through FY 1972, 318 of 612 unilateral orders issued by the Board were appealed to the courts. Sixty-three such appeals occurred during FY 1972. As of the end of that year the courts had disposed of 189 cases. The courts upheld the Board's determination in 99 cases. Details are set forth in the following table:

The number of contractors' filings above the "floor" and the number and complexity of such filings assigned to the Regional Boards are major factors in the Board's workload.

Filings below the "floor" are also a factor. During FY 1972, 2,074 such below the "floor" filings were received at the Headquarters Office and were reviewed for acceptability. It is estimated that approximately 2,000 below the "floor" filings will be received in each of fiscal years 1973 and 1974.

Administration of the exemption of commerical articles and

services contributes to the Board's workload. In FY 1972, the Board acted on 201 applications for exemptions in the total amount of $486,330,760.

The following table shows the actual number of above the "floor" filings received and processed at the Headquarters Office in fiscal years 1970-1972, and the estimates for 1973-1975.

450

450 450

*The sum of the clearances and assignments to Regional Boards
does not equal filings received due to the difference between
beginning and ending inventory.

The actual number of filings assigned to and completed by the Regional Boards in FY 1970-1972, and the estimates for FY 1973-1975 are shown below: