DEPARTMENT OF THE NAVY IN REPLY REFER TO 08-562 11 DEC 1972 MEMORANDUM FOR THE CHIEF OF NAVAL MATERIAL Suoj: Ref: Encl: 1. Recommendations for improving Navy claims procedures based on (a) My memorandum dtd 11 Feb 1972 for the Chief of Naval Material, subj: Claims Procedures (b) My memorandum àtà 9 Aug 72 for the Chief of Naval Material, same subject (c) My memorandum dtd 19 July 1972 for the Chief of Naval Material, (1) Actions to be taken by the Supervisor of Shipbuilding, In references (a) and (b) I made recommendations for handling major claims against the government. In reference (c) I amplified those recomendations based on my experience with the subject Litton submarine claim. Reference (d) was your response to reference (c). 2. Reference (d) stated general agreement with the thrust of my recomendations and then commented on each of them. However, there are several points that I believe can and should be clarified with regard to reference (a). These are identified below: a. I recommended that the Navy reject promptly claims that are not adequately supported and documented. Reference (a) enclosed a CM policy statement which establishes criteria for rejecting claims submitted on a "total cost" or "total time" approach. However, some major claims inaquarely supported by the contractor, do not fall into the "total cost" or "total time" category. Therefore, I recommend that your policy statement be expanded to require rejection of all claims that are not adequately supporteu and documented. b. I recommended that contractors who repeatedly submit unfounded claims not be considered for future business. Reference (a) states that when it is determined that existing statutes or regulations have been violated vigorous action should be taken. I believe it is a mistake for the Navy to continue to do business with contractors who submit unfounded 08H-582 claims even if such action does not violate existing statutes or regulations. I recommend that, as a minimum, a contractor's past poor record in the claims area be treated as a negative factor in evaluating that company's proposals for future business. C. I recommended that the senior company cfficial in charge of the plant or location involved be required to identify, upon submittal of the claim that he has personally reviewed the claim and all supporting data and that the information contained therein is current, complete and accurate. Further, I recommended that he also certify that all information in the company's custody or control, bearing on the claim, whether or not it is favorable to the company's position, has been disclosed. Reference (d) states that the thrust of my recommendation is already provided in certain statutory remedies including the Truth-in-Negotiations Act. However, it is my view that the Navy's procedures need to be strengthened to make the most out of current statutory remedies and to discourage the submittal of inflated and exaggerated claims. The Navy does not currently require that cost and pricing data be certified by top management and does not require certification until after negotiations are complete. When an item in the claim is challenged by Navy negotiators, the contractor frequently substitutes another in its place. Some contractors seem to set predetermined dollar targets for their subordinates and this encourages exaggeration and inflation in claims. It would help curtail this practice if the Navy would require the senior company official in charge of the plant or location involved to certify personally the validity of the claim and the accuracy and completeness of the supporting data so that he, rather than his subordinates, would bear the penalty of false statements. Also, as previously recommended, the certification should be submitted at time of claim submission, rather tnan after final agreement has been reached. In this way government personnel would not have to waste their time evaluating information which has not been thoroughly checked and certified by senior contractor management. Moreover, the contractor should certify that all information relating to the claim, not just data favorable to his position, has been disclosed. I think you would find fewer cases of inflated or supported claims if my recommendations in this area were adopted. d. I recommended that contractors be required to differentiate between factual and judgmental data in their claims and that factual statements should be keyed to specific supporting documents. Reference (a) agrees with. this recommendation and stated that the matter would be referred to the ASPR Committee. My experience has been that the SPR Committee infrequently acts with dispatch. I recommend that you implement this requirement for Navy contracts while the ASPR Committee is deliberating. 084-532 e. I recommended that field contract administration offices be required to maintain a daily record of significant events occurring during the life of each contract. The record should be supplemented by photographs, references to key documents and personnel, and other information necessary to insure a complete and independent record of contractor performance in the event of subsequent claims. Reference (d) agrees with this recommendation and states that this will be directed by a Navy Procurement Directive and other mears. At this time I do not believe that any formal instructions have ceen issued or that any action has been implemented at the field level, although I believe there has been general agreement among Navy officials on this matter for several years. In the absence of such directives, I met recently with the Supervisor of Shipbuilding, Pascagoula, and in one morning we worked out an agreement on the procedures he should follow to better mssct the government against claims by Litton. Enclosure) is a copy of this agreement. NAVSHIPS procurement and contract administration officials approved these arrangements that same day. The need to start documenting contract performance is important and urgent. I recommend that we accelerate on efforts to establish overall guidance in this area throughout the Navy. In summary, I recommend that the Navy: a. romptly reject inadequately supported or documented claims. The policy enunciated in enclosure (1) to reference (d) should be made applicable to all claims, and not limited to claims submitted on a "total cost" or "sotal time" basis. Treat as a negative factor in evaluating a company's proposal for Jute business, a record of repeatedly submitting large, unfounded claims or a course of conduct designed to frustrate the settlement of claims. C. Require the senior company official in charge of the plant or Location to certify at the time of claim submission that (1) he has personally reviewed the claim and all the supporting data, (2) the data is current, ponplete and accurate, and (3) all information bearing on the claim within the company's custody or control has been disclosed, whether or not it is favorable to the company's position. α. Implement within the Navy, pending ASPR action, the decision to require contractors to differentiate between factual data and judgment in their claims and to key facts to specific supporting documents. e. Immediately implement the decision to require field contract administration offices to maintain a daily record of significant events cccurring during the life of the contract; this should be supplemented by photographs, references to key documents and personnel, and other appertaininformation. 086-582 4. I expect that in the future we will see more, not less, claims activity. Our procedures for handling these claims should, therefore, be strengthened without delay to help put the Navy in the best possible position to defend itself against unwarranted and unfounded claims and to discourage submittal of such claims. 5. I would appreciate being informed of what action you take with regard to my recommendations. If San Rakove .Rickover Copy to: sistant Secretary of the Navy Commander, Naval Ship Systems Command Ref: Recommendations for Improving Navy Claims Procedures (a) My memorandum dtd 9 Aug 72 for the Chief of Naval Material, subj: Recommendations for improving Navy claims procedures based on experience gained from Litton Systems, Incorporated, Ingalls Nuclear Shipbuilding Division, claim against the Navy under contract N00024-68-C-0342 for construction of SSN's 6S0, 682, and 683 (b) My memorandum dtd 11 Dec 72 for the Chief of Naval Material, same subject (c) Your memorandum of Oct 5, 72, same subject (d) Your memorandum dtd Jan 19, 73, subj: Recommendations for Improving Navy Claims Procedures (e) My memorandum dtd 19 Jul 72 for the Chief of Naval Material, subj: Ingalls Nuclear Shipbuilding Division, Litton Systems, Inc., claim against the Navy under N00024-68-C-0342 for construction of SSN's 680, 682, and 683 with encl (1) thereto 1. In references (a) and (b) I recommended specific actions to improve Navy claims procedures. In reference (c), you concurred in the thrust of those recomme lations and, by reference (d), you forwarded enclosures implementing them. Since you and the Assistant Secretary of the Navy (Installations and Logistics) have expressed approval of these recommendations, I am concerned because the implementation of one of them is so wide of the mark as to constitute no improvement at all. 2. This recommendation as originally presented in reference (a), reads: 3. "The senior company official in charge at the plant or location The Navy's implementation of this recommendation reads: "C. The Navy should require, at the time of initial submission of a claim, that a responsible senior official authorized to commit the company submit an affidavit representing, to the best of his knowledge and belief, that |