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who is very efficient might be penalized because he is not entitled to as much profit as one who is inefficient. It seems to me that is the wrong way to make these determinations. The inefficient contractor apparently has tried to claim that since he is not quite as efficient as the other, he is entitled to a higher contract and, presumably, excessive profits. Am I wrong in that analysis?

Mr. BURRESS. The first factor we are to take into account in determining excessive profits is a very precise instruction from Congress that in determining excessive profits, favorable recognition must be given to the efficiency of the contractor or subcontractor.

Mr. Talcott. If a contractor appears to have an excessive profit of a million dollars and is very efficient, you might allow that when you compared him with a contractor who has a million dollars but is not very efficient?

Mr. BURRESS. That is correct.
Mr. TALCOTT. I have no further questions.

MINIMUM REFUNDS

Mr. TIERNAN. On page 5, you make reference to minimum refunds of $40,000. You increase it to $80,000. Will you explain what that means ?

Mr. BURRESS. The contractor, first of all, has to have a million dollars or more in renegotiable business in a fiscal year before he has to file. Also, in his filing he indicates how much he has made. If we determined under the old minimum that his excessive profits would be less than $40,000—then under the application of the minimum refund rule we would not process that case any further.

Mr. TIERNAN. How do you determine excessive profits? Is it 6 percent of capital investment, or is it a very involved accounting formula?

Mr. BURRESS. There is no formula. That is where you have to take into account the statute that Congress has passed which sets out the various determining factors.

USE OF AUTOMATION Mr. TIERNAN. I apologize for my lack of knowledge of this whole subject. I am just getting into it.

Under data processing, which you refer to on page 7, that is electronic data processing techniques ?

Mr. BURRESS. That is correct.
Mr. TIERNAN. You are developing a system now?
Mr. BURRESS. Right.

Mr. TIERNAN. The capability of the system, I would assume, you will develop within the Board itself, or are you going to use other agency facilities?

Mr. BURRESS. We are going to use the computers of others. We will be renting time. I believe they will be GSA computers.

Mr. STONE. Time-sharing with GSA.

Mr. TIERNAN. Assuming that you are going into the system, once it is set up would it not be practical for you then to lower the floor from $1 million to $100,000, as has been recommended by Congress?

Mr. BURRESS. This is for Congress to decide. The floor is established by Congress.

EXTENSION OF ACT Mr. TIERNAN. So, when we extend the Board, we can do that in the act itself?

Mr. BURRESS. I might indicate that the Procurement Commission in its recommendations recommended that it be increased to $2 million.

Mr. TIERNAN. The Procurement Commission? That is a task force or congressional commission?

Mr. LENCHES. It was a commission established by Congress.

Mr. BURRESS. It has a broad base. It has congressional representation, and executive representation and public members.

Mr. TIERNAN. Mr. Brooks' committee recommended lowering, so we have a conflict.

What about the suggestion that it be done contract by contract?

Mr. BURRESS. This is the way it was in the very early days, but it was found, I think by Congress, to be too unfair and impractical. In other words, here you have a small contractor who has two contracts in his shop. On one he made money, and on one he lost. We come in and take some of the money away from him that he made on the one contract. He would argue:

"I was just about to break even on the total business. Now you take some of my money away and put me in a loss situation.”

Mr. TIERNAN. Except what has been suggested today, that if you have a large corporation with subsidiaries, they can certainly underbid a small contractor. That is the balance in the scales; is that correct?

Mr. BURRESS. It is one of the considerations. I think there you are talking about something more than just renegotiation on a contractby-contract basis. You are talking about the large contractors' right not to be renegotiated on a subsidiary-by- subsidiary basis.

Mr. TIERNAN. Thank you. No further questions.

SALARIES AND EXPENSES Mr. Boland. We will turn to the justifications and put the summary tables, pages 1 through 16, and all the organizational charts in the record.

[The material follows:]

RENEGOTIATION BOARD

SALARIES AND EXPENSES

For necessary expenses of the Renegotiation Board, including hire of passenger motor vehicles, services as authorized by 5 U.S.C. 3109, 254,900,000 $4,690,000 (Act of March 23, 1951, Public Law 82-9, as amended; Department of Housing and Urban Development; Space, Science, Veterans, and Certain Other Independent Agencies Appropriation Act, 1973.)

Appropriation 1973 $4,900,000

Estimate 1974 $4,690,000

JUSTIFICATION FOR APPROPRIATION

The Board's estimated cost for fiscal year 1974 is $4,690,000 as compared with $4,900,000 for fiscal year 1973. The funds requested will provide for an average employment of 220.5 in fiscal year 1974 as compared with 224.5 in fiscal year 1973.

Our estimates of the Board's workload in fiscal years 1973 and 1974 are based primarily on the volume of prime contract awards by procurement agencies in fiscal years 1971, 1972, and 1973, especially those by the Department of Defense and the National Aeronautics and Space Administration. It is expected that such awards will generate 4,875 filings by contractors in each of fiscal years 1973 and 1974, of which 450 will be assigned in each of those years to the Regional Boards for processing. The nature of cases assigned to Regional Boards in recent years changed considerably, resulting in an increase in the percentage of excessive profits cases, and consequently an increase in the processing time.

It is estimated that the declining backlog in the Regional Boards will reduce their completions from 650 in fiscal year 1973 to 500 in fiscal year 1974. The backlog of uncompleted assignments will drop from approximately 725 at the end of fiscal year 1973 to 675 at the end of fiscal year 1974, as compared with 925 on June 30, 1972.

The continuation of Regional Board determinations of excessive profits at a high level during fiscal year 1973 will result in a large number of cases that will be reassigned for final determination by the Statutory Board. A substantial number of these will not be completed during fiscal year 1973. It is estimated that 211 of such cases will be reassigned in fiscal year 1973 and 155 in fiscal year 1974. These cases require detailed and extensive study and analysis by the Headquarters staff and the preparation of technical reports to the Statutory Board and to contractors.

PURPOSE OF APPROPRIATION

The general purpose of the appropriation "Salaries and Expenses, Renegotiation Board" is to provide funds for salaries and all other expenses of the Renegotiation Board, created by the Renegotiation Act of 1951 (Public Law 9, 82nd Congress, approved March 23, 1951, and as amended September 1, 1954, August 3, 1955, August 1, 1956, September 6, 1958, July 13, 1959, July 3, 1962, June 30, 1964, June 30, 1966, October 24, 1968, and July 1, 1971.)

THE RENEGOTIATION PROCESS

Purpose and Scope. The Renegotiation Board has authority under the Renegotiation Act of 1951, as amended, to determine and eliminate excessive profits realized by contractors and subcontractors in the defense and space programs.

Renegotiation is conducted not with respect to individual contracts, but with respect to the receipts or accruals of a contractor under all renegotiable contracts and subcontracts in a fiscal year of the contractor.

Not all Government contracts are within the scope of the Act. The Act relates only to prime contracts with the Departments of Defense, the Army, the Navy, and the Air Force, the Maritime Administration, the Federal Maritime Commission, the General Services Administration, the National Aeronautics and Space Administration, the Atomic Energy Commission, and the Federal Aviation Administration; and to related subcontracts, including purchase orders. Moreover, certain types of contracts with these agencies and certain types of subcontracts are exempt, in whole or in part, from renegotiation.

The Act provides that a report must be filed with the Board by every contractor or subcontractor having receipts or accruals in a fiscal year which exceed $1 million ($25,000 in the case of brokers and manufacturers' agents) from contracts or subcontracts subject to the Act. Contractors or subcontractors with renegotiable receipts or accruals amounting to less than the above minimum need not file a report but may, if they choose, file a Statement of Non-Applicability.

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