Now, some of these decisions appear in the annual volume of "Decisions of the Comptroller General." They are also discussed in our annual report, and in other publications which come out of the office. So here you have a procedure where an important procurement function of the Government is really carried by us.

Mr. ROBACK. Since we are on that subject, in a sense, you are acting as an adjudicator of the agency.

Mr. CAMPBELL. Yes, sir.

Mr. ROBACK. Either in resolving bid protests or issues in dispute in the award of contracts, and this adjudication function has grown out of your authority to-is not explicit in any law but is a derivative of your authority to allow payments in the final analysis.

Mr. CAMPBELL. That is correct.

Mr. ROBACK. So in exercising this adjudicative function you frequently give, you might say, advisory opinions to agency disbursing officers or administrative heads who do not want to make a mistake and later get called to account for it, so they get your opinion. Why do you not then review all these agency contracts and say, "This is OK." Then you would not have the problem of all these adjudicative matters. Why do you not do that?

Mr. CAMPBELL. Too many of them.

Mr. KELLER. It would just be physically impossible to do it. Mr. ROBACK. Well, you give advance opinions on all the other requests that come in. You cannot turn down anybody's request.

Mr. KELLER. No; we cannot. We are required by law to give a decision to the head of an agency or any certifying or disbursing officer.

Mr. ROBACK. Are you stating that it is only a matter of resources that prevents you from giving an advisory opinion as to the legality of an advertised bid contract form and procedure?

Mr. KELLER. I understood your question to be-don't we review every Government contract and every purchase order? I could not guess how many hundreds of thousands there are each year.

REVIEW OF BID PROTESTS

Mr. ROBACK. You spend hundreds of thousands of hours adjudicating the mistake afterward, whereas if you took a quick look to see whether the formal requirements were met, or whether there was any defect in the wording, or whether the transportation estimates were going to be finite, or whether the specifications were such that nobody was disadvantaged, why you could look that over in 2 minutes and "This looks OK to me.'

say,

Mr. CAMPBELL. Most of our problems arise with dissatisfied contractors. In other words, it is not the agency that concerns us so much. It is the contractor who did not get the contract.

Mr. ROBACK. But the contractor would not have any protest if you in advance declared that this was a legal award in most cases.

Mr. KELLER. I would not venture a guess as to how many people you would have to have to do that.

Mr. ROBACK. Well, you never really tried to find out whether it could be done.

Do you think it is a good idea or not?

Mr. KELLER. Offhand, I do not think so. But I am willing to consider it.

Mr. HOLIFIELD. I see some worried looks on some of your colleagues. Mr. KELLER. They will have to do the work.

Mr. CAMPBELL. I have to take it seriously. It is a serious question and I would like to-I will reserve

Mr. BAILEY. It is my recollection, Mr. Chairman, that the procurement statistics prepared by the Department of Defense show the area of contract actions over a period of a year to be in the millions. Mr. ROBACK. But not all of those are contested.

Mr. BAILEY. They are not all new contracts nor are they all contested.

Mr. ROBACK. But is it not true that bid protests have been coming in almost pro forma?

Mr. KELLER. No; I do not think so.

Mr. ROBACK. You do not think so?

Mr. KELLER. No.

Mr. ROBACK. I mean in certain trades, or certain areas, bid protests are coming in automatically. It is almost a game.

Mr. KELLER. I have found that the number of protests changes depending on how tight the economic situation is. In other words, companies are more liable to protest when business is bad. However, protests have increased over the years, but I do not think it is automatic. There are many, many procurements made and no protest is filed.

Mr. ROBACK. Well, you would rather, instead of having the burden of looking them all over, wait to see whether there is any issue.

Mr. KELLER. I do not object to looking them over, Mr. Roback. I think it would really be a very costly proposition, and I do not know whether it would really be worthwhile or not.

Mr. CAMPBELL. Our own experience indicates that it is rather constant, beginning in 1959, right on through 4 or 5 years. It is about 1,700 or 1,800 cases a year.

Mr. ROBACK. If you have some relevant statistics which would illuminate the record on that, would you submit those?

Mr. KELLER. Yes, sir; we would be glad to.

(The information follows:)

Contract cases handled by the Office of the General Counsel, 1960-64

It is estimated that 65 to 70 percent of the contract cases involve bid protests. Mr. LATTA. Mr. Chairman.

Mr. HOLIFIELD. Yes, sir.

GAO EXERCISE OF STATUTORY RESPONSIBILITY

Mr. LATTA. At that point may I ask whether or not you are then completely ignoring section 312 of the Budget and Accounting Act of 1921, which directs that the "Comptroller General shall investigate at the seat of Government or elsewhere, all matters relating to the receipt, disbursement, and application of public funds," et cetera-you are more or less ignoring that section.

Mr. CAMPBELL. I do not think so.

Mr. LATTA. Well, that says "all." Then in your statement it says "directs the Comptroller General to investigate all matters relating to disbursement and application of public funds."

In view of what you have been saying here, how do you explain this section?

Mr. NEWMAN. Well, in taking a look at expenditures we tackle it from a number of different ways.

Now, let us get down to an installation. This could be an air station, a missile site, contractor's plant, and so forth. The disbursement vouchers for payrolls, materials, and contracts are paid at various locations. These vouchers are now audited by the internal auditors within the agency at the sites. In addition, these vouchers are sent to the finance centers which are located at four principal points; the Navy in Cleveland, and the Air Force in Denver, and the Marines are here in town, and the Army at Indianapolis. Now, at that point again they are audited by a military administrative audit group. At the finance centers we have a few hundred people reviewing the audit performed and making additional tests of all types of vouchers and expenditures contract payments, travel, military payrolls, and so forth. Civilian pay we handle separately from the military pay. Eventually all the expenditures you are talking about are audited either by the internal auditors or by ourselves.

Now, the extent to which we audit will depend upon the manner in which the internal auditors and the administrative auditor performs their job. We would check their internal controls, the type of errors that are coming up repeatedly at installations. Again it is audit by exception-the deficiency area. Next we go out to the installation and try to determine the cause of the deficiency and try to stop the errors in the future.

So basically we are covering the area of receipts and disbursements in a professional manner.

Mr. LATTA. I did not get that from the colloquy that took place here before you came in, and I am glad to hear that you are complying with this statute.

Mr. KELLER. I would like point out, Mr. Latta, that when Congress enacted the Accounting and Auditing Act of 1950, and I am referring specifically to title 31, section 67, of the United States Code, it provided that the audit conducted by the General Accounting Office shall be in accordance with the principles and procedures and under such rules and regulations as may be prescribed by the Comptroller General.

I make this point because I think the 1950 act does give some discretion to the Comptroller General as to the type and extent of audit he is going to conduct.

It was recognized in the legislative history of the 1950 act that spot audits would have to be made and selective examinations would have to be made.

Mr. LATTA. Then you are saying that the 1950 act actually amends in principle the 1921 act?

Mr. KELLER. I would say it supplements it.

Mr. LATTA. Well, it would have to amend it in principle, and not supplement it, because this is very specific. It says "All matters." Mr. KELLER. That is right.

Mr. CAMPBELL. In 1921, Mr. Latta, I think we could and did audit every piece of paper. Today there would not be enough railroad trains to bring the papers into Washington nor enough warehouses in which to store the paper. So we have to use some discretion. However, and as Mr. Newman pointed out, and I hope you understand, that where we find in a given operation a good internal audit control and we are reasonably sure that nothing has happened in that particular operation, we feel that it would be a waste of Government money to duplicate that audit.

ACCESS TO CONTRACTOR RECORDS

Mr. ROBACK. Regarding the law which carries your right of access to the contractor's books, the language in the law contains the words "directly pertinent."

Now, in your testimony you said that access ought to provide all the relevant, I mean all the underlying data. Do you put any limitation on access? In other words, is there any concept of relevance, is there anything which is impertinent in your view?

Mr. KELLER. I would answer that, Mr. Roback, by saying that anything that is related to the performance of the Government contract in question. And, at least to my mind, the legislative history of the 1951 act supports that interpretation. We would certainly be excluded from any commercial business that the contractor happens to be carrying on in its plant. We would have no right to the records behind these transactions.

Now, the word "directly" as I am sure you are aware, was inserted on the floor by Congressman Hoffman in the way of an amendment. Mr. ROBACK. Who was concerned that this might become a "snooping" operation?

Mr. KELLER. I quote from the Congressional Record, of October 17, 1951. Congressman Hoffman said:

The purpose is to limit the snooping that may be carried on under this bill, which we do not have the votes to defeat.

Now, that is the only statement. There is no further explanation or reply. And it is difficult to understand what the Congressman did intend when you consider that he was attempting to defeat the bill as a whole. But we certainly have considered his statement, along with the other legislative history in arriving at an interpretation.

Mr. ROBACK. I want to discuss this further, but not at this point, Mr. Chairman, for reasons which you are aware of.

Mr. HOLIFIELD. General Campbell, a reorganization plan may come up on the floor very shortly, and at this point we are going to excuse you and your associates. We will have the staff and the members look at your statement, which we will include at this point in its entirety in the record. And we will make arrangements with you for further hearing appearances, if we may.

Thank you very much.

(Mr. Campbell's statement in full is as follows:)

STATEMENT OF HON. JOSEPH CAMPBELL, COMPTROLLER GENERAL OF THE
UNITED STATES

Mr. Chairman and members of the subcommittee, on our appearance before this subcommittee on May 10, 1965, I was asked if I had any comments concerning the testimony of the Honorable Paul R. Ignatius, Assistant Secretary of Defense (Installations and Logistics) and if so, what was my reaction to his testimony. I have now had the opportunity to review his prepared statement and I would like to make some comments which I believe should be of interest to you and the members of this subcommittee.

The Assistant Secretary of Defense mentioned three areas of disagreement between the General Accounting Office and the Department of Defense; namely, (1) integrity of contracts, (2) pricing policy, and (3) Government involvement in contractor operations. I would like to briefly express our views on the subject of these disagreements. We believe it is quite understandable that there should be occasional disagreements on particular cases, in fact we believe it to be a healthy condition. Since reasonable people can disagree in the evaluation of a given set of facts, we strongly feel that an analysis of the facts and circumstances of the particular cases mentioned by the Assistant Secretary is essential to an informed conclusion. Therefore, we would like to recite some of the facts concerning the cases in which the Department of Defense says it disagrees with us and to present the reasoning we used in reaching the conclusions stated in our reports. As a preface to a discussion of these cases, however, we feel it desirable to emphasize the distinctions between negotiated contracts and advertised fixedprice contracts. Under negotiated contracts, prices frequently are established on the basis of a mutual understanding by both contracting parties as to the contractor's prior, and/or estimated future, costs of performance. Negotiated contracts take many forms, including firm fixed price, and each provides for access by our office to the contractor's books and records directly pertinent to transactions under the contract. Under advertised contracts, prices are established by the normal forces of competition. Our office does not have right of access to contractors' records under these contracts, except in the case of change orders negotiated after December 1, 1962, which are in excess of $100,000. For the most part, our contract audit reports have dealt with the negotiated type of contracts. However, we also have an audit responsibility with respect to the agencies' administration and use of advertised procurement. For that reason a few of the cases mentioned will involve advertised fixed-price contracts.

INTEGRITY OF CONTRACTS

As was pointed out in the testimony of the Assistant Secretary of Defense, it is the policy of the Department of Defense that "seeking a price adjustment without a claim of legal right will be considered an extraordinary remedy to be resorted to only when it is determined that both the following conditions exist: (a) The Government was overcharged in the pricing of a defense contract or inadequately compensated for the use or purchase of Government-owned property, and (b) retention by the contractor or subcontractor of the amount in question would be contrary to good conscience and equity."

We do not disagree with this policy-in fact we try to adhere to the same policy in reaching conclusions on whether or not to recommend that the Departof Defense seek voluntary refunds. Where we may be in disagreement is on the question as to whether retention of an unearned profit or "windfall," if you will, by the contractor or subcontractor would be contrary to "good conscience and equity."

In the U.S.S. Bainbridge case (Report B-146718, dated March 18, 1964) we recommended that the Secretary of Defense obtain a price adjustment of about $5 million. The Department of Defense advised us that attempts to obtain a price adjustment were unwarranted. The facts disclosed in our report in the Bainbridge case, insofar as we know, have not been challenged by the Department of Defense. Briefly they are as follows:

For over 3 years Bethlehem Steel Co. performed under a letter contract dated September 26, 1958, which called for the preparation of detailed working plans and other data for the U.S.S. Bainbridge, as well as for the construction of the ship itself. Under the terms of the letter contract, Bethlehem was to be reimbursed for costs, with certain limitations, until definitive terms were negotiated. During this time, Bethlehem and the Navy exchanged several offers and