i. company employees and officials have thoroughly investigated the facts surrounding the claim, and

ii. the conclusions drawn from discovered facts reasonably and accurately reflect the material damages or contract adjustments for which the Navy is allegedly liable."

This procedure will have little or no effect in stopping the difficulties being encountered. Worse yet, it palliates serious problems rather than cures them,

4. The above procedure is deficient in the following ways:

a. The senior management official should sign the certificate rather than one of his subordinates,

b. The certificate should assure that all data bearing on the claim, whether or not favorable to the company's position, has been disclosed and that the data is accurate, complete and current. The affidavit requires none of this.

In short, the implementation does not elicit the right assurances from! the right man. Even if the affidavit, as written, were demonstrably false and even fraudulent, it is hard to see how it could be the basis of a lawsuit; if there is no creditable threat of court action, how does such en affidavit provide any incentive for the senior corporate official to ensure that data presented is accurate, complete and current?

5. My reasons for recommending that the Navy obtain a proper certificate on claim submittals were given in reference (b):

"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 I previously recommended, the certification should be
submitted at time of claim submission, rather than after final agree-
ment 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 dis-
closed. I think you would find fewer cases of inflated or unsupported
claims if my recommendations in this area were adopted."

6. I consider that obtaining a proper certification of contractor claim submittals would be an important step in getting accurate, complete and current information in a timely fashion so that claims may be processed in a logical and efficient manner. It is extremely wasteful for Government personnel to review submission after submission while the contractor changes the facts, slanting some, failing to disclose others, and only signing the Truth-in-Negotiations certificate after the claim has been negotiated to settlement--sometimes after years of submissions and resubmissions. The Litton claim against the Navy for construction of SSN's 680, 682 and 683, which I summarized in reference (e), is a good example of such a case, The Government needs the assurance that accurate, complete and current data has been submitted by the contractor when the Government's team begins work on a claim, as well as at the conclusion of negotiations.

7. I recognize that ASPR policy is to obtain only one certificate under P.L. 87-653--at the end of negotiations. It was not always this way, and I recommend that in major claims (those in excess of $1 million) we require an appropriate certificate as recommended above with the initial submission and at the conclusion of negotiations.

8.

I recommend that paragraph 4.c of NAVMAT NOTICE 4200 be rewritten and that ASPR 3-807.4 be changed as appropriate.

: 9,

I would appreciate being informed of what action you take with regard to my recommendations.

3. Rebane

H. G. Rickover

Copy to:

Assistant Secretary of the Navy
(Installations and Logistics)

Commander, Naval Ship Systems Command
Office of the General Counsel

92-782 0 - 82-6

1. On March 26, 1973, senior officials from the Naval Material Command, the Office of General Counsel, and the Naval Ship Systems Command, met with you to discuss how the Navy could better deal with its large backlog of contractor claims. You expressed concern at the large Navy backlog of shipbuilding claims, the likelihood of having to cancel ships if the Navy cannot successfully defend itself against these claims, and the substantial time and effort of key Navy officials being consumed by these claims to the detriment of other Navy work. You asked for recommendations.

2.

I recommended that the Navy contract with outside firms who could assist the Navy in preparing its defense against these claims. I am convinced that the Navy cannot devote sufficient time, effort and talent to handle the claims properly and still carry out its primary functions. By contracting for this work, the Navy would be in a better position to see that the claims work is prosecuted by specialists on a coordinated and full time basis. The various claims cross so many organizations within the Navy that their evaluation is cumbersome and responsibility is diluted.

3. I recognize that what I am suggesting is different from the way Government agencies have typically handled these problems. However, the Government has never before been faced with anything approaching the magnitude and complexity of the shipbuilding claims that are being presented against the Navy today. When private companies are confronted with extensive litigation, they generally hire outside counsel even when they have attorneys on their staffs. In this way they can obtain the services of specialists and additional people to handle peak workloads and litigation without disrupting on-going work. But I am proposing something broader than just hiring outside attorneys.

4. A professional group of outside lawyers, technical personnel and procurement experts working full time could develop the capability to do much of the claims evaluation work better than it is being done today. This is not to say that Government employees are less intelligent than contractor personnel, it is just that they are overloaded and hampered by the system. In my own case, I found I had to go outside Government and procure nuclear design and manufacturing work from private industry. Only in that way have I been able to focus responsibility properly and direct the work. I believe the same benefits could accrue for the Navy if it subcontracted claims work. The Government would, of course, continue to guide the work, make the final decisions and, if necessary, present its own case in court.

5. The General Counsel disagrees with this approach and recommends hiring more Government lawyers to handle claims. After investigating the matter, he reported to you by memorandum dated April 12, 1973, that no one in the Navy has authority to hire outside counsel to handle claims asserted hy contractors. He further stated that the Navy would get more for its money by hiring Government lawyers than it would by contracting with outside firms; that there are statutory restrictions regarding the hiring of outside counsel to represent the Government in litigation; that these restrictions could be construed as applying to claims prior to the institution of court action; and that statutory restrictions would effectively limit the pay of consultants to the Federal salary scale. He recommended that alternative solutions be explored in order to achieve adequate legal staffing within the Navy.

6. It is not apparent to me from the General Counsel's memorandum that all possibilities of getting outside assistance have been explored and are foreclosed by existing statutes. For example:

a. His memorandum gives the impression that outside assistance would have to be handled as a consulting arrangement where employees could not be paid more than Government employees. However, in other areas, the Department of Defense has been able to contract with consulting firms or other outside groups, such as the Logistics Management Institute, for specific jobs without limiting salaries to the Federal salary schedule. If these arrangements can be justified, it is not apparent to me why contracts for the preparation of legal and technical analyses, briefs and recommendations for the Government in the area of shipbuilding claims would run afoul of statutory restrictions on the hiring of consultants.

b. His memorandum addresses the legal problems involved with hiring outside counsel to represent the Government in a court of law. It states that in such cases, the attorney would have to be designated a Special Assistant Attorney General, and his compensation would be limited by law to $12,000. The memorandum does not say that the Attorney General is precluded from obtaining outside assistance when a Government attorney tries the case.

C. His memorandum states that the law could be construed to preclude contracting out for assistance in connection with claims because no court has ruled otherwise. The phrasing of this conclusion implies that the opposite construction is also possible.

7.

Based on the above, I urge that the Navy make every effort to obtain outside assistance in working off the current claims backlog. In this regard I recommend the following:

a. The Navy should request a formal ruling from the Comptroller General as to the legality of a Navy contract with an outside firm for the purpose of analyzing specific claims, gathering data, preparing recommendations and the like. The contract would provide for technical and procurement support as well as legal assistance.

b. In the event the Comptroller General rules there is no legal way the Navy can obtain such assistance under contract, the Navy should request assistance from the Attorney General under Section 364 of the Department of Justice Act which, according to the General Counsel's memorandum, provides as follows:

"Whenever the Head of a Department or Bureau gives the
Attorney due notice that the interest of the United States
require the service of counsel upon the examination of
witnesses touching any claim, or upon the legal investiga-
tion of any claim, pending in such Department or Bureau, the
Attorney General shall provide such service,"

c. If the Attorney General concludes he is barred by statute from contracting for the requisite assistance, the Navy should propose appropriate legislation to permit such arrangements,

8.

I would appreciate being advised of what action you take in this