GAO's agreement to work cooperatively with Navy in determining the validity of the Westinghouse contentions; but that, if unwarranted contingencies were found to be present, Navy would attempt recovery in cooperation with the Department of Justice, forwarded December 11, 1962. GAO final report containing Westinghouse reply, dated October 20, 1962, to the GAO draft report as well as GAO reviews on said reply; advising of referral to the Navy and to the Department of Justice; and recommending to the Navy, in cooperation with the Department of Justice, to take all available and appropriate action to obtain proper recovery, transmitted September 20, 1963. DOD letter to GAO enclosing copy of DOD statement for the Bureau of the Budget, described below, and advising that case was being used to advise cognizant personnel in the military departments and DSA regarding the importance of reviewing contractor's cost estimates even where certificates of accuracy, currency, and completeness of cost and pricing data have been received, dated November 27, 1963. Comprehensive Navy memorandum furnished to the Department of Justice, dated December 20, 1963. Navy letter to the Department of Justice requesting advice on whether unpaid balance of $272,447.54 under the contract should be paid to Westinghouse or withheld, letter dated August 20, 1964. Letter from the Department of Justice advising that payment of unpaid balance under the contract was considered prejudicial to the Government's interests and, accordingly, should not be made, letter dated August 27, 1964. Following numerous consultations between Navy and Department of Justice personnel regarding aspects of negotiation for settlement being conducted by the Department of Justice with Westinghouse, and review of argumentative memorandums and financial information submitted to the Department of Justice, Department of Justice advised Navy that Westinghouse had submitted an offer in compromise of $1,025,000, by letter dated April 26, 1965. Navy recommended acceptance of the Westinghouse offer of compromise, by letter dated May 5, 1965. GAO Report B-146833, December 19, 1963 28. Title: "Excessive Price Paid for Propulsion Reductions Gears Purchased From Westinghouse Electric Corp., Sunnyvale, Calif., Department of the Navy" (OSD Case No. 1711). GAO finding: A contract for gears for an amphibious transport dock vessel included rework cost although Westinghouse had successfully produced identical gears without having to perform any rework. Had Westinghouse advised Navy of this fact, it would have been in a position to obtain a lower price. GAO estimate of unnecessary costs: $64,900. Time period of GAO report: GAO review conducted December 1961 to December 1962. BuSHIPS contracts covered in the review were awarded from June 3, 1959, to November 15, 1960. DOD comments on GAO finding: ASN (I. & L.) by letter of February 18, 1964, to GAO advised that a material fact in this case was not known by the Navy nor the prime contractor negotiators. Namely, that the gears were completed, but accounting records not being currently posted, did not disclose that rework was unnecessary. In these circumstances, the Navy considers a refund unwarranted. DOD comments on costs: While the amount of overpricing is difficult to determine, the Navy concurs that the GAO amount of $64,900 is not unreasonable. DOD corrective action: Demand has been made on the contractor for refund in the amount of $64.900, and he has declined to make any adjustment. However, efforts are being continued to negotiate a settlement. Navy postscript, May 14, 1965 GAO has been asked by the Navy to consider additional facts submitted by Westinghouse, with a view toward withdrawal of the GAO recommendation. GAO Report B-146035, December 31, 1963 29 Title: "Erroneous Purchase of a Technical Data Package From Westinghouse Electric Corp., for $1,010,000, Department of the Navy" (OSD Case No. 1558). GAO finding: The Navy contracted to pay Westinghouse for a technical data package although it had already acquired unlimited rights to use all the significant data included in the package. GAO estimate of unnecessary costs: $1,010,000. Time period of GAO report: The draft report was dated July 28, 1961. It reviewed a contract dated July 8, 1960. DOD comments on GAO finding: DASD (procurement) by letter of March 25, 1964, concurred in a statement by the Navy disagreeing with the GAO finding. Although the Navy had, under earlier contracts, acquired extensive quantities of technical data and the rights thereto, this data was not all-encompassing and was not sufficient to permit the efficient establishment of a completely new production line by another company (Pratt & Whitney). By the terms of this contract, Westinghouse undertook to furnish additional data and to perform other services not required under any prior contract. These services were essential for the economical and timely production of the J-34 engine by Pratt & Whitney and, without these services, additional costs far in excess of the value of this contract would have been incurred. DOD comments on costs: No unnecessary costs were incurred. Navy postscript, May 14, 1965 CHRONOLOGY Navy fixed-price prime contract for $1,010,000 with Aviation Gas Turbine Division, Westinghouse for transfer of technical information, dated July 8, 1960. GAO notice of exception to disbursing officer's accounts, in amount of $655,000 previously paid, and to the balance of $355,000 remaining unpaid under the contract, dated June 12, 1961. GAO draft report confirming exception taken to the entire amount paid or payable under the terms of the contract, report transmitted July 28, 1961. Navy reply to GAO draft report stating that the matter would be investigated, appropriate action taken, and GAO informed of results, reply transmitted November 13, 1961. GAO final report advising that GAO was taking appropriate action to recover the $655,000 already paid by Navy, and reaffirming its advice that remaining payments under the contract be withheld, report dated December 31, 1963. Following GAO reaffirmance of exception upon Navy request to reconsider, Navy withholding, by deductions from Westinghouse vouchers, to recover $655,000 previously paid, accomplished January 17, 1964. DOD letter to GAO requesting reconsideration of its position in view of the strong Navy opposition but forwarding copy of DOD statement for the Bureau of the Budget, classified "For Official Use Only" to avoid possibility of prejudicing the Government in the event of litigation; and copy of such a statement with transmittal letter also furnished to Representative Dawson, chairman, House Government Operations Committee, pursuant to his request; letters dated March 25, 1964. DOD statement for the Bureau of the Budget "For Official Use Only," forwarded March 26, 1964. GAO has advised that it is withholding further action on this case pending the receipt of a brief, for which an opportunity to submit on behalf of Westinghouse was requested in July 1964. Although it was then anticipated that this memorandum would be forthcoming within 2 to 3 weeks, it is understood that this time schedule has not been possible for Westinghouse to meet in view of the priority given to its other GAO cases. GAO Report B-146892, August 28, 1964 30. Title: "Rent-Free use of Government-owned Facilities in Production of Commercial Aircraft Engines by Pratt & Whitney Aircraft Division of United Aircraft Corp., East Hartford, Conn." (OSD No. 1559). GAO finding: During the period of 1951 through 1959, Pratt & Whitney used Government-owned facilities on a rent-free basis in the production of about 10,700 commercial piston aircraft engines. Such rent-free use was granted on condition that any benefits to commercial production which resulted from the use of Government-owned facilities would be reflected in the prices of military engines There were in fact such benefits, and in the absence of a specific identification thereof in the record of negotiation of prices paid by the Government for military engines, the GAO report concludes that they were not reflected in such prices. GAO estimate of unnecessary costs: $5 million. Time period of GAO report: GAO review during unknown period prior to 1961. Time frame of DOD actions reviewed 1951 through 1959. DOD comments on GAO finding: In the absence of fraud, misrepresentation or mutual mistake there is no basis for setting aside the various contract actions authorizing rent-free use of the Government-owned facilities and fixing prices for the production of Government engines. The rent-free use was known to both parties. They also knew that substantial military engineering and other costs were being allocated to commercial work with resulting benefits to the Government. Such benefits were reflected in the prices paid by the Government for military engines and are considered to have offset rent-free use of the Government facilities. DOD comments on costs: DOD concludes that prices and costs were fair and that there were no unnecessary costs. DOD corrective action: The business relationship with Pratt & Whitney Aircraft is complex and under constant review and surveillance. The primary objective is to obtain good aircraft engines at equitable prices. DOD considers that this objective is being met. Navy postscript, May 14, 1965 The Navy believes the position stated herein to be sound; therefore, further action is not contemplated. GAO Report B-146780, January 13, 1964 31. Title: "Improper Disposition of Refunds of Group Insurance Premiums by Grumman Aircraft Engineering Corp., Bethpage, N.Y." (OSD case No. 1727). GAO finding: Grumman did not give the Government credit for a portion of refunds it received from a group insurance plan it maintains in its company. Since about 90 percent of Grumman work was on Government contracts during this period, the majority of the refunds would have accrued to the benefit of the Government, thus reducing the contract price. GAO estimate of unnecessary costs: $449,000. Time period of GAO report: The GAO draft report was dated February 1963. The GAO reviewed 1952 to 1961, inclusive, and recommended that the Navy inquire into the disposition of prior group insurance refunds dating to 1940. DOD comments on GAO findings: ASTSECNAV(FM) responded on behalf of SECDEF by letter of March 26, 1964, to GAO. DOD agreed with GAO. DOD comments on costs: The credits due the Government for 1953 through 1961 were found to be $421,000, rather than $449.000 as reported by GAO. Similar credits from 1940 through 1952 were $712,000. DOD corrective action: The amounts applicable to the period from 1953 through 1961 are being deducted from current Grumman billings to the Government. Demand has been made for recovery of the credits applicable to the years prior to 1953. Navy postscript, May 14, 1965 The Navy has disallowed $421,000 (applicable to the period from 1953 through 1961) from 1962 overhead costs. Demand was made for recovery of credits in the amount of $713,806, applicable to the years prior to 1953; however, GAO has concurred in this action not being pursued. The recovery action was terminated since accounting for those insurance costs incurred prior to 1953 was accepted as reasonable and allocable, based on supplemental data provided by Grumman. GAO Report B-146733, January 31, 1964 32. Title: "Overpricing of Ship Propulsion Boilers Purchased Under Fixed-Price Contract NObs-76301 Negotiated With Foster Wheeler Corp., New York, N.Y.," Department of the Navy (OSD case No. 1773). GAO finding: The price that the Bureau of Ships negotiated with Foster Wheeler for boilers amounting to $1,722,300, was at least $132,200 greater than the costs Foster Wheeler could reasonably expect to incur plus profit at the rate of 10 percent of such costs, the rate used in Foster Wheeler's price proposal. GAO estimate of unnecessary costs: $132,200. Time period of GAO report: The GAO draft report was dated May 15, 1963. It covered the buying of main propulsion boilers in October 1958. DOD comments on GAO finding: DASD (procurement) by letter of April 6, 1964, concurred in the basic GAO finding that the contract price was excessive because of unsatisfactory cost data submitted by the contractor. DOD comments on costs: Navy computations indicate avoidable costs of $141,000. DOD corrective action: Abundant policy guidance has been issued and put into effect during the period of more than 5 years since the negotiations in question took place. There are now mandatory requirements for prenegotiation audit reviews to verify contractor's cost and pricing data. Reviews of contractors' estimating systems have also been expanded. ASPR 7-104.41 now provides a contractual right for contracting officers to examine contractors' records for the purpose of verifying cost and pricing data in fixed-price noncompetitive procurements. By this means, practical effect can be given to ASPR 7-104.29 which provides for price adjustment in cases in which the contracting officer determines that the contract price was significantly increased because of effective cost or pricing data. These safeguards, together with Public Law 87-653, will help minimize pricing problems resulting from incomplete, inaccurate, or noncurrent cost or pricing data. With respect to obtaining an adjustment in this case, the matter has been referred to the Department of Justice, for examination before any administrative action is undertaken to obtain a refund. Navy postscript, May 14, 1965 In November 1964, the Department of Justice entered a civil suit in the Federal District Court of New York. The Government is seeking double damages in the amount of $282,000. As of this date, no trial date has been set. GAO Report B-146733, February 6, 1964 33. Title: "Overpricing of Nuclear Reactor Components Purchased From Westinghouse Electric Corp., Pittsburgh, Pa., Under a Cost-Plus-a-FixedFee Contract Awarded by the Bureau of Ships, Department of the Navy" (OSD case No. 1787). GAO finding: Plant Apparatus Division, Westinghouse, under Navy cost-plusa-fixed-fee contracts, awarded a subcontract for 35 pumps and 16 casings to Atomic Equipment Division (AED), Westinghouse, without obtaining AED's estimated cost of performance or information as to actual incurred costs in prior production of similar components. GAO estimate of unnecessary costs: $705,000. Time period of GAO report: GAO review conducted January 1963 to June 1963. Navy prime contracts (5) involved in this report were dated March 5, 1957, through June 4, 1959. DOD comments on GAO finding: ASN (FM) by letter of August 8, 1963, to GAO agreed with the GAO findings that, although the subcontracts were let on the basis of price proposals obtained and recommended by the prime and also comparisons with the price of prior procurements, the price of this subcontract was not reasonable. DOD comments on costs: The GAO report alleges that information was available at the time of award of the subcontract that indicated a profit of 10 percent could be realized and the price could still have been $705,000 less. An after-thefact audit by Navy auditors indicates that the excess profit above 10 percent is approximately $500,000. DOD corrective action: This matter has been submitted to the Department of Justice for the purpose of coordinating action to effect recovery from the contractor. The ASPR Committee has designated a subcommittee to study pricing between divisions of a prime contractor with particular reference to allowance of costs under CPFF contracts. Navy postscript, May 14, 1965 This is the third of three coolant pump cases for nuclear reactors involving Westinghouse Electric Corp., B-146733, dated February 6, 1964 (OSD case No. 1787). Navy cost-plus-fixed-fee prime contracts with Westinghouse for components for S5W reactor compartment of nuclear submarines: NOb's 72250, dated March 5, 1957. NOb's 72379, dated January 30, 1958. NOb's 77127, dated June 4, 1959. Fixed-price subcontract for 35 pumps and 16 casings (including exercise of option for 10 casings) with Atomic Equipment Division (AED) of Westinghouse for $3.99M (56-PR-18007-P and Change Notice No. 2 thereto. Between April and June 1959.) GAO draft report alleging overpricing of $705,000 on fixed-price subcontract; June 18, 1963. Navy reply to GAO draft report forwarded to GAO indicating general concurrence with recommendations; August 8, 1963. GAO final report, B-146733, indicates its understanding that Navy had withheld sufficient funds on Westinghouse; however, no separate suspension or withholding has been made by Navy in this third pump case. Report also requests Navy and Department of Justice to cooperate in recovery and asks to be advised of any proposed settlement; February 6, 1964. DOD acknowledgment to GAO of DOD concurrence in final report; February 10, 1964. DOD advice to Representative Dawson, chairman of House Government Operations Committee, pursuant to his request; February 13, 1964. Comprehensive Navy report to the Department of Justice; October 16, 1964. It is understood that a comprehensive Westinghouse memorandum, dated April 5, 1965, relative to this third pump case has been submitted by Westinghouse to the Department of Justice. The Navy has not received a copy of such memorandum, presumably because no disallowance has yet been taken in this case and hence there is no administrative appeal now pending. This and the other two pump cases, as well as B-146760, dated February 12, 1964, all involve subcontracts placed by the Plant Apparatus Department (PAD) of Westinghouse. They are all under active consideration by the Department of Justice; and the Navy is in frequent communication with that Department in regard to them. GAO Report B-146760, February 12, 1964 34. Title: "Overpricing of Nuclear Submarine Components Purchased by Plant Apparatus Division, Westinghouse Electric Corp., Under Two Subcontracts Awarded to Edwin L. Wiegand Co., Pittsburgh, Pa.” (OSD Case No. 1804). GAO finding: PAD acting as a prime contractor for the Navy awarded two subcontracts to Wiegand Co. for five 664 S-5W pressurized heaters and heater terminal connectors on a negotiated basis for $671,000. The Navy paid (1) $234,000 more than was warranted because the prices were negotiated without obtaining and analyzing Wiegand's most recent experienced costs and (2) $46,000 more than warranted for connectors because Wiegand charged higher prices than other suppliers would. GAO estimate of unnecessary costs: $280,000. Time period of GAO report: GAO review conducted September 1962 through June 1963. The two subcontracts which are the subject of this report were awarded in May 1960 and November 1961. DOD comments on GAO finding: (1) Navy's consent to Wiegand's subcontracts were based on PAD's recommendation of prices obtained from two available suppliers and also on a comparison with prices paid on prior procurements. As to |