been permitted by the contractor to accumulate until their ultimate presentation to the Navy in one overwhelming formal package, sometimes even years after the events concerned. They must be disassembled, analyzed, tested, and evaluated piece by piece, and that is a job demanding a complete negotiation team.

17. While I fully acknowledge that the lawyers must carry a share of the burden in claims settlements which may far exceed their participation in initial contract negotiation, I believe the settlement itself should continue to be conceived and treated as a negotiation within the constraints that our evaluation of the facts and law impose. In a recent speech, Deputy General Counsel Stein summarized the lawyer's role this way:

"Three determinations must ordinarily be made with respect
to a claim. It must be determined that if certain facts exist,
there is a basis for Government liability. Second, it must be
determined that those facts exist in the instant case. Finally,
the extent of the damage attributable to the Government must be
determined. As lawyers, we can claim virtually full responsi-
bility for the first determination. The second two determina-
tions must be made in concert with other members of the
negotiating team, and, as to them, we claim only the right
to participate in the determination; not the right to make the
determination.

"The principal friction seems to come in the area of document-
ing the claim. The documentation may relate to whether the
conditions that would give rise to Government liability have in
fact occurred, or it may relate to the extent of the damage
attributable to that cause. To some, this appears to be a
pricing action that non-lawyers are capable of handling as
they handle other pricing actions.

"But there is a basic difference between pricing claims and
pricing contract articles. When we pay this type of claim,
we are not buying something, we are paying damages, by
whatever name we call them. To do that with reasonable
confidence in the results, we must anticipate what a court or
Board would allow the contractor if the matter were adjudi-
cated in a judicial forum. That in turn requires us to have
an understanding of the evidence on which the claims depend,
both for the determination of legal entitlement and for the
determination of the quantum. And evidence is a subject that
lawyers ought to know something about."

18. Comments on your Four Specific Recommendations. With specific reference to the recommendations in paragraph 8 of your memorandum, I have the following comments:

a. I am directing the Navy legal member of the ASPR Committee to ask the ASPR Committee to consider the question of the allowability of costs associated with preparation and assertion of claims against the Government.

b. The use of outside legal assistance in the LongBeach subsidence case affords no precedent for the use of such assistance in the daily investigation and resolution of the Navy's chronic change order claims. In the subsidence case, the Government's case was presented by the Justice Department, not the Navy, and Justice determined to augment its legal expertise with the aid of three California lawyers. I consider that it is preferable that we develop and maintain an in-house capacity in OGC to perform the necessary legal analysis and defense against shipbuilding claims. We have increased our staff in the Naval Ship Systems Command to do this, and further increases may be necessary.

c. I agree, as stated above, that major claims should be reviewed by a group of qualified procurement, legal, accounting, and technical experts. The Contract Claims Control and Surveillance Group would appear to have these qualifications and although it is too early to evaluate its performance, I am hopeful that it will serve the intended purpose. A similar board in the Office of the General Counsel would seem to me to be an unnecessary duplication. Also, there is the requirement that claims settlements over $5,000,000 must be approved by the Assistant Secretary of the Navy (I&L).

d. The Navy maintains an Experience List of contractors who present special procurement problems. I do not believe that a contractor could, or should, properly be placed on this list merely because it makes frequent or repetitive claims. It would constitute an unjustifiable penalty to place upon a company which has done no more than to assert its contractual rights. There would be some merit in the concept of warning our procuring activities of those contractors which have repeatedly submitted unwarranted, invalid or grossly excessive claims, as a matter bearing upon any future finding of their responsibility and business integrity.

Reference: (a) NAVMAT NOTICE 4200 dtd 11 Jan 1972

(b) My memorandum for the General Counsel of the Navy dtd
May 10, 1971 subj: Shipbuilder Claims

1. I have just leamed of the new procedures established by reference (a) for handling contractor claims against the Navy. I am concerned because these new procedures appear to be a step in the wrong direction, particularly for the large complex shipbuilding claims we are encountering today.

2.

The new procedures provide for settlement of contract claims at the "lowest possible level in the contracting framework." Claims of $10 million or more are subject to review by a General Board consisting of selected senior flag officers in the Naval Material Command and the Office of the Chief of Naval Operations. This General Board is to be assisted by a Claims Board composed of "procurement executives" designated by COMNAVSHIPS, COMNAVAIR, CONAVORD and CONAVELEX. Presumably, assignment to the Claims Board is in addition to each procurement executive's normal full-time job. Reference (a) further provides that a Navy Deputy General Counsel will be an adviser to but not a member of the Claims Board.

3.

I consider a number of things to be wrong with this approach.

a. First, the new procedures make claims settlements a routine contract matter. Yet these claims, by their very nature, go beyond routine contract actions and therefore should be accorded special handling. Routine settlement of claims as an ordinary contracting matter will encourage more claims and will tend to undermine our contractual relations.

b. These claims usually involve complex questions of fact and of law; to properly resolve these matters requires both special expertise and legal training. My experience over a period of many years is that most Navy contracting officers and procurement executives are not adequately trained ar experienced to analyze and settle these large claims. Further, few flag officers possess the training, background, experience and judgment to deal with such claims; even fewer have the time to do so.

C. The settlement of claims, particularly large complex claims against the Government is principally a legal matter, not a contract negotiation. The Navy should not pay any claim or part or a claim that is not solialy grounded in fact or in law. Any claim not susceptible of factual determination should be rejected. Items not clearly supported by factual records or not susceptible of factual determination should, if pressed by contractors, be settled by the courts, not by the Navy.

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4. In reference (b) I pointed out that our contractors are exerting considerable effort to establish, early in their contracts, claims against the Government. Some contractors have set up large organizations with experienced lawyers, accountants and engineers - as meny as are needed develop claims against the Government. Often, they also engage outside claims experts in the legal profession to guide and assist them. The Government has no comparable body of talent to defend itself against these claims.

5. In reference (b) I also pointed out that to the extent contractors get more than they should in claims settlements, the Navy is not only subsidizing inefficiency but also undermining its own contracts. As long as contractors believe that the Germent will bail them out through: changes and claims, it will not be possible to achieve effective cost control, efficiency, or lower cots.

6. I would like to reiterate my recommendations in reference (b) for handling major claims against the Government:

a. I would assign primary responsibility to the Office of the General Counsel.

The Office of General Counsel should establish a Review Board composed of quailed legal, accounting and technical experts to carefully review proposed claim settlements and to eliminate from them any items not clearly supported by factual determination of entitlement and amount. The elimination of unsubstantiated items from negotiated settlements would compel contractors to keep proper records.

c. Whenever it is necessary to augment its own resources for legal analysis and defense against contractor claims, the Office of Coneral Counsel should obtain competent outside help - legal and technical. The use of outside legal firms to help the Government defend against claims would ease the burden on the small existing organizations. It would serve to expedite the review and settlement process, and would provide for the thorough analysis required to settle claims on their merits.

d. Government contracts should prohibit payment, directly or indirectly, of any costs associated with preparation or prosecution of claims against the Government. The Armed Services Procurement Regulation should be strengthened as necessary to implement this; and with no room for ambiguity, as is presently the case in many of its provisions.

e. The Office of General Counsel should promulgate a list of contractors who frequently or repetitively make claims against the Government, or who submit excessive or unwarranted claims. Procurement agencies should give consideration to a contractor's claims record in awarding new contracts.

7. I know of your strong desire to improve Navy procurement. I trust you will give full consideration to my recommendations. We must have procedures that will ensure that all claim settlements are adequately supported,