Where, by reason of our report referral to the Department of Justice, it is determined that the contracting agency should suspend its responsibilities under the contract pending advice from the Department as to possible fraud aspects, we think it is appropriate to advise the contractor particularly as to the basis for the delay involved. This we do, in effect, by forwarding a copy of our report to the contractor. This gives the contractor an opportunity to protect its interest and to present its position vis-a-vis the Government.

We trust that this is responsive to your letter. If you desire, we will be glad to discuss the matters herein discussed with you or members of your staff. Sincerely yours,

JOSEPH CAMPBELL, Comptroller General of the United States.

HEDRICK & LANE,

1001 Connecticut Avenue NW., Washington, D.C.

COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, D.C., August 28, 1964.

(Attention of John D. Lane, Esq.)

GENTLEMEN: We refer to your letter of July 24, 1964, and to your supplemental memorandum of August 12, 1964, concerning the suspensions of costs totaling $4,255,504 made by the Department of the Navy under certain cost-plus-a-fixed-fee contracts assigned by the Westinghouse Electric Corp. to its Plant Apparatus Department (PAD). These suspensions resulted from actions taken by the Navy after consideration of our findings included in our draft reports on examination of these contracts.

Our final reports on these matters dated July 23 and December 26, 1962, B-146733 and B-146760, respectively, dealt with the pricing of subcontracts awarded by PAD to the Atomic Equipment Department (AED) of Westinghouse and concluded that the prices of such subcontracts were overstated as a result of Westinghouse's failure to exercise that degree of care required of a cost-plus-afixed-fee contractor in the expenditure of funds to be reimbursed to it by the Government. These reports were referred to the appropriate Government agencies, including the Department of Justice, with the recommendation that all available and proper action be taken to obtain proper recovery from Westinghouse.

The suspensions of costs made by the Navy under the contracts were not directed by our Office but were taken administratively in recognition of the Department's management responsibilities as the Government contracting agency. The responsibility of our Office in the matter effectively ceased upon issuance of the final reports to the Congress, and the implementation of the recommendations contained therein thereafter became an administrative responsibility. It is to be especially noted that our Office, in the exercise of its reporting jurisdiction, does not become involved in contract administration, but that our function is ordinarily limited to a review of Government financial transactions with a commitment duty to report to the Congress any deficiencies or irregularities ascertained from our review, together with our views and recommendations for corrective action.

We are unable to comply with your request that we "direct" the Navy to release the funds of Westinghouse now under administrative suspension, or to resort to the disputes clause procedure under the contracts involved. In that connection, we have been advised that the Department of Justice is investigating the transactions under the contracts and has advised the Navy to continue the suspensions of costs until directed otherwise. Any questions bearing on the legality of this situation are for consideration solely by the Navy and/or the Department of Justice. We do not believe that it would be proper for our Office to interject itself into a matter presently before those Departments for consideration and resolution as to the actions deemed appropriate.

Respecting the jurisdiction of the Department of Justice, we feel that the case of Sullivan v. United States, 348 U.S. 170, cited by you, provides ample justification for the Department to intercede in this matter. The court held: "It was not the purpose of the Executive order [No. 6166] to direct how the responsibility should be exercised but to fix it in the Department of Justice. How that responsibility was to be discharged was a matter for the Department.' See, also, particularly, paragraph 2 of section 5 of Executive Order No. 6166, quoted in a footnote to the court's decision.

We suggest, therefore, that further contacts in the matter be directed to the Department of the Navy and the Department of Justice.

Very truly yours,

JOSEPH CAMPBELL, Comptroller General of the United States.

APPENDIX 1B-INFORMATION ON GAO CONTRACT AUDITS, FISCAL YEARS 1959-64, AND FIRST HALF OF FISCAL YEAR 1965

COMPTROLLER GENERAL OF THE UNITED STATES,

Washington, March 11, 1965.

B-155327.

Hon. CHET HOLIFIELD,

Chairman, Military Operations Subcommittee,

Committee on Government Operations,

House of Representatives.

DEAR MR. CHAIRMAN: This is a reference to your letter of January 7, 1965. requesting summary data on contract matters contained in our audit reports to the Congress on contracts administered by the Department of Defense and the military departments, National Aeronautics and Space Administration, and the Atomic Energy Commission. The data is listed in the order mentioned in your letter and, in accordance with arrangements made with your staff, we have covered the fiscal years 1959 through 1964 and the 6-month period July 1964 through December 1964.

(1) Total number of General Accounting Office reports to the Congress concerning the above agencies:

The above figures do not include reports issued as a result of inquiries received from individual Members of the Congress and from chairmen of congressional committees.

(2) Number of these reports for each year dealing with contracting matters of the agencies noted above:

(3) Listing of those reports which included recommendations that these agencies attempt to collect voluntary refunds from contractors on the grounds of excessive pricing or overcharges:

Schedule I attached contains a listing of reports, exclusive of reports referred to the Department of Justice, in which the General Accounting Office recommended that recovery action be taken. It also includes the status of each case where recoveries were not made. Most of the recoveries obtained were the result of requests for voluntary refunds. However, some of the recoveries, as indicated, were the result of the exercise of contractual rights.

(4) Such information as our files contain as to the amounts of recoveries actually made, or reported to the General Accounting Office:

This information is included in schedule I attached.

(5) Where applicable, cases in which the agency failed to negotiate recoveries, or refused to attempt to negotiate recoveries for lack of legal or other grounds: This information is included in schedule I attached.

(6) The total number of cases referred to the Justice Department for action or possible fraud, misrepresentation, etc., with a listing of the cases referred to the Justice Department and the results achieved in such cases:

The following number of cases have been referred to the Department of Justice either by the General Accounting Office or by the agency involved:

Department of Defense-

National Aeronautics and Space Administration.......
Atomic Energy Commission__

Total__.

Number

of cases

39

2

41

We have requested the Department of Justice to furnish information on the results achieved in these cases, and when received we will furnish you a listing of the contractors, the amounts of excess charges reported by the General Accounting Office, and the status of the action on each case by the Department of Justice.

(7) A listing of those reports in which the General Accounting Office found that contracts made by contracting officers of the agencies were "illegal contracts" and the eventual results achieved in those cases:

This information is contained in schedule II attached. The listing on schedule II does not include decisions in response to bid protests and other referrals to our Office for legal opinion in which contracts have been found to be illegal, since these were not the subject of specific reports to the Congress.

(8) A listing of those reports in which the General Accounting Office took formal exception to the accounts of a disbursing officer with respect to contract payments, and the eventual results achieved in such cases:

This information is contained in schedule III attached.

(9) A listing of those reports in which the General Accounting Office directed the officials or disbursing officers of these agencies not to make payment under a contract, and the eventual result in such cases:

Our files disclose only one such case during the period covered by your request. This was in connection with our report B-146035, December 31, 1963, entitled "Erroneous purchase of a Technical Data Package From Westinghouse Electric Corp. for a $1,010,000 Department of the Navy." Since, at the time of our review, the Department of the Navy had reimbursed Westinghouse $655,000 of the $1,010,000 in question, we issued a notice of exception against the disbursing officer's accounts in that amount and directed the Department of the Navy to withhold payment of the balance or $355,000. (See schedule III attached.)

We plan to make no further distribution of this report unless copies are specifically requested, and then only after approval has been obtained or public announcement has been made by you concerning the contents of the report.

Sincerely yours,

JOSEPH CAMPBELL, Comptroller General of the United States.

48-132-65- -44

SCHEDULE I

Summary of cases reported to the Congress disclosing excessive prices negotiated or costs erroneously claimed and paid under Government contracts and status of agency action thereon, period July 1, 1958, through Dec. 31, 1964

$37, 000 Final negotiation by Department of
the Navy resulted in recovery of
$38,000. No legal basis for further
recovery.

Department of the Air Force closed
case without attempt to obtain re-
covery because of lack of misrep-
presentation of pricing data. As
shown by our report, the contractor
refused to furnish for negotiation any
data in support of its prices and thus
made no representation at all.
Contract price reduced by contracting
officer by unilateral decision as
provided for in the contract. Con-
tractor has appealed the decision to
the Armed Services Board of Con-
tract Appeals.

262, 000 Case under review by the Department of the Navy.

5,000,000

Navy Department withheld payment

by notice of suspension on dates
ranging from June through Septem-
ber 1962. By Aug. 17, 1964, the
suspensions had been converted to
formal disallowances. The contrac-
tor is expected to appeal.
The Department of Defense declined
to seek recovery based upon its
policy that adjustment of prices
should not be sought unless there is a
legal basis or unless the contractor
has made representations which
misled the Government negotiators.
By Report B-146718, Dec. 11, 1964,
GAO requested the Department of
Defense to reconsider application of
its policy in this case and recom-
mended that recovery be sought.
950, 000 Department of the Navy's request for
voluntary refund did not result in
recovery. Further action not taken
by Navy Department for lack of a
legal basis.

Navy Department withheld payment
by notice of suspension on dates
ranging from June through Septem-
ber 1962. By Aug. 17, 1964, the sus-
pensions had been converted to
formal disallowances. The con-
tractor is expected to appeal.

B-133122 May 1959.

Air Force..

68,000

1,240,000 Department of the Air Force will attempt to recover an additional $39,000 during negotiations of final prices. Concerning the remainder, the Air Force advises that it will reexamine its position and reply by Mar. 31, 1965.