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63. "Excessive Prices Negotiated for Installation and Test of Radar Systems Under Negotiated Fixed-Price Contract With Avco Corp., Electronics Division, Cincinnati, Ohio," B-133143, July 31, 1964 (OSD Case No. 1935).

The GAO made findings that unnecessary costs of $119,200 were incurred because the contractor's price was excessive and did not reflect recent cost experience in 1963 negotiations.

In response to the draft report, the contractor refunded the full amount cited by the GAO.

The Air Force disagreed with GAO's criticism that insufficient analysis of costs had been performed. It reported that cost and price analysis had been performed, but that informal data had been available to the contractor that had not been disclosed.

64. "Overstated Material Cost Estimates Included in Firm Fixed Prices Negotiated for T-37 Airplanes Produced by Cessna Aircraft Co., Wichita, Kans.," B-146918, August 18, 1964 (OSD Case No. 1929).

The GAO made findings that the contractor included overstated cost estimates of $275,300 and overhead of $51,500, or a total of $326,800 in increased costs. GAO indicated that the contractor had not complied with its pricing certificate, and recommended recovery by the Air Force in coordination with the Justice Department.

The Air Force agreed with the GAO. Since the case was referred to the Justice Department by the Air Force in accordance with the GAO recommendation, no settlement could be arranged until the Department of Justice had completed its review.

The contractor offered a refund of the entire amount, but pointed out that the items cited by GAO were only human errors amounting to 1.5 percent of the $51 million in contracts involved.

Subsequent to the committee hearings, the Justice Department agreed with Air Force views, and approved, on July 14, 1965, a settlement in full proposed by the contractor. The contractor made a full refund to the Air Force.

65. "Overstated Cost Estimates for Miscellaneous and Minor Outside Production Items Included in Incentive Target Prices Negotiated With the Boeing Co., Seattle, Wash., for KC-135 Airplanes," B-146916, August 18, 1964 (OSD Case No. 1881). The GAO made findings that unnecessary costs of about $541,590 were incurred because the contractor submitted overstated cost estimates in 1960 and 1961 contracts in the amount of $1,475,100. GAO recommended recovery and review of similar contracts.

The Air Force conducted a complete audit and disagreed with GAO except as to certain duplicated costs contained in the contractor's proposal. A supplemental agreement was made to reduce the incentive profits of the contractor by $60,573. The Air Force noted that the contracting office had used a different estimating method to determine the reasonableness of the price proposal, and that a con

siderable reduction was negotiated in the original pricing of the three contracts ($19 million on the three contracts, the fixed prices of which totaled over $280 million).

The case has been in the jurisdiction of the Justice Department since August 1964. On March 23, 1966, the Justice Department advised the Air Force that after full consideration of the case, it had determined that civil action was not warranted, and had closed its file and referred the case back to the Air Force. The Air Force has closed its file on the case, after further review.

(Note: As of July 1, 1966, the Renegotiation Board had issued clearances for the contractor's renegotiable contracts for the years 1956 through 1962. Such action is in effect a finding that there were no excess profits under the standards of the Renegotiation Act of 1951 for those years.)

66. "Unnecessary Testing Costs Included in the Prices of Klystron Tubes Purchased From Radio Engineering Laboratories, Inc., Long Island City, N.Y.," B-146919, September 24, 1964 (OSC Case No. 1889).

The GAO made findings that unnecessary costs of $65,000 were incurred because the prices negotiated for tubes included costs for testing that was no longer needed, that the contractor did not inform the Air Force of the unnecessary testing, and did not reduce its prices in 1962 negotiations. The GAO recommended recovery.

The Air Force agreed with the GAO as to findings and recommendations except that its audit showed only $60,443.88 in excess costs, because GÃO had considered too many tests as unnecessary. The Air Force believed there was misrepresentation by the contractor. The contractor refused to make a voluntary refund.

The Justice Department had jurisdiction of the case from September 1964, but on July 20, 1965, referred the case back to the Air Force suggesting action under the defective pricing clause in the

contract.

The Air Force contracting officer took action to set aside the amount in question under the contract. The contractor appealed the action. The appeal is now No. 11052 on the docket of the ASBCA, set for hearings in October 1966.

67. "Uneconomical Leasing of Motor Vehicles for Use in Assembly and Checkout Operations at Minuteman Missile Launch Sites and Avoidance of Congressional Controls Relating to Acquisition of Motor Vehicles," B-146876, October 2, 1964 (OSD Case No. 1867).

The GAO made findings that unnecessary costs of $1,852,000 were incurred because the Air Force allowed the contractor to lease vehicles, rather than supply the vehicles as Government-furnished equipment. The GAO said that the use of some 188 of these 1,634 vehicles by Government personnel avoided congressional controls on the purchase of vehicles for official use, but that the statutory controls would permit. the military services to buy vehicles for the use of contractors without having them charged against numerical ceilings. The GAO recommended purchase of vehicles by the Government in this situation, and

recovery of the vehicles after the end of work for Government use or disposal.

The Air Force specifically disagreed with the finding of $1,852,000 in excess costs. It was convinced that the procedures followed were the best available under the circumstances of the contract. The arrangement was considerably less expensive than duplicated vehicle. pools by the Air Force and/or one or more contractors.

The DOD agreed that some costs could have been saved by the actions proposed by GAO, but believed that 5 U.S.C. 78 precluded the purchase of vehicles for contractors except as specifically authorized by the Congress in annual DOD appropriation acts.

DOD has promulgated procedures to require early determinations of the best method of procuring vehicles for projects of this kind. Where feasible and legal, the GAO suggestions will be followed if they could result in lower costs.

68. "Unnecessary Costs Incurred in the Procurement From A-C Spark Plug Division of General Motors Corp. of BombingNavigational System Components Manufactured by International Business Machines Corp.," B-146942, October 5, 1964 (OSD Case No. 1883).

The GAO made findings that unnecessary costs of $754,000 were incurred by the Air Force because it purchased components indirectly through the prime contractor, instead of buying them from the manufacturer and supplying them as Government-furnished material, in 1961 procurements. GAO recommended reviews to give greater assurance that components be purchased from actual manufacturers.

The DOD and Air Force disagreed with GAO. There were system changes which required prime contractor integration work. DOD disagreed on the policy to use increased amounts of Governmentfurnished equipment solely to save money, if this would affect system reliability.

The GAO believed the prime contractor could be suitably paid for his technical integration efforts without buying wholly subcontracted components through him and paying him a profit on their cost. GAO believed this can be done and savings realized without adverse effect. on equipment reliability.

69. "Overpricing of Valves Purchased From the Garrett Corp. AiResearch Manufacturing Division, Phoenix, Ariz., by General Dynamics Corp., Astronautics Division, San Diego, Calif., for the Atlas Intercontinental Ballistic Missile," B-146945, October 16, 1964 (OSD Case No. 1966).

The GAO made a finding that unnecessary costs of $80,900 were incurred because the subcontractor submitted overstated cost estimates in 1962 price negotiations. The GAO recommended recovery.

The Air Force agreed with GAO finding and recommendation, although it took the position there was no willful withholding or intent to withhold information from the Government. After review by the Justice Department from September 1964 to July 1965 to determine the question of whether there was any fraud involved, the Air Force was permitted to accept a recovery. The subcontractor refunded $80,900 to be credited to Air Force prime contracts.

70. "Overstated Cost Estimates Included in Target Prices Negotiated for B-52G Airplanes Produced by the Boeing Co., Wichita Branch, Wichita, Kans.," B-146705, November 24, 1964 (OSD Case No. 1943).

The GAO made findings that about $1,261,000 in excessive profit costs were incurred because the contractor included cost estimates for sustaining tooling labor, production labor, and subcontracting of about $7,575,500 in target costs in 1959 and 1960. GAO said that recovery of $60,400 by the Air Force was inadequate and recommended full recovery by the Secretary of Defense and better documentation of negotiations.

The Air Force concurred only in overstatements on target prices attributable to subcontract and contract termination estimates of $597,340 resulting in reduced incentive profits of $60,400, and arrangements were made to recover this amount.

DOD took the position that adequate tests of reasonableness were made of other estimated costs at the time of negotiation, and there is no basis for further contract price adjustments. DOD has promulgated new policies to require better documentation of negotiations.

The Air Force did not agree that the estimated costs for sustaining tooling labor and production labor should be adjusted because it belived that adequate tests of reasonableness of these estimated costs were made by the Air Force at the time of negotiations.

(NOTE.-As of July 1, 1966, the Renegotiation Board had issued clearances for the contractor's renegotiable contracts for the years 1956 through 1962. Such action is, in effect, a finding that there were no excess profits under the standards of the Renegotiation Act of 1951 for those years.)

71. "Overstatement of Target Cost of AN/FPS-7 Radar Equipment Under Fixed-Price Incentive Contracts AF 30 (635)-12300 and AF 30(635)-11072 With General Electric Co., Heavy Military Electronics Department, Syracuse, N.Y.," B-133251, November 25, 1964 (OSD Case No. 1891).

The GAO made a finding that unnecessary incentive profit costs of about $103,000 were incurred because the contractor failed to use current cost data in making target cost estimates for 1958 and 1959 contracts. GAO recommended recovery.

DOD agreed with the GAO finding and recommendation. The Air Force attempted to obtain an adjustment in the target prices of $538,000, to eliminate $103,000 in incentive profits. The contractor offered to grant a downward adjustment on contract -12300, provided the Air Force would agree to accept an upward adjustment on contract -11702. The Air Force could not accept the offer for two reasons: (a) acceptance would have violated the principle of ASPR requiring that each contract be considered on its own, without right of set-off one against the other; and (b) acceptance would have resulted in an overall increase in cost to the Government because of the interplay of cost-sharing arrangements and profit ceilings under the respective contracts.

Since there was no legal basis for recovery, the Air Force closed the case.

72. "Unnecessary Costs Resulting From Indirect Procurement of Transmitters From Hamilton Standard Division of United Aircraft Corp.," B-146882, November 30, 1964 (OSD Case No. 2009).

The GAO made a finding that unnecessary costs of $104,000 were incurred because the Air Force bought transmitters from the prime contractor instead of procuring them directly from the manufacturer to supply as Government-furnished equipment. GAO recommended recovery and a study of the whole problem of GFE procurement.

The Air Force agreed that the decision to procure TED-9 transmitters as contractor-furnished material, rather than directly from the manufacturer, was of questionable merit. The basis for the decision was a desire to avoid the administrative time required to process a military interdepartmental purchase request. The TED-9 was substituted for the AN/GRT-3 transmitter, the costs for which were already included in the prime contract. The Air Force stated that it would investigate to determine whether or not any costs for the TED-9 were duplicative of those for the AN/GRT-3. A detailed audit review found no duplicated costs, and therefore no basis for a refund.

The Department of Defense reexamined and expanded its policy guidance with respect to Government-furnished equipment, and new Air Force regulations and emphasis have been directed at these

matters.

73. "Overstated Costs Included in Price of Turbojet Engine Parts Purchased From Solar Aircraft Co., San Diego, Calif., by General Electric Co., West Lynn, Mass.," B-146860, December 10, 1964 (OSD Case No. 1942).

The GAO made a finding that unnecessary costs of $65,000 were incurred because the subcontractor submitted certified cost estimates that were excessive in relation to current cost data, and the prime contractor did not perform adequate review of the estimates.

The Air Force had difficulty in identifying GAO figures, but decided to try to effect recovery from the prime contractor. The subcontractor refused to make a refund.

After negotiation, the prime contractor made a voluntary refund of $65,000 which the Air Force accepted in final settlement of all the questions raised in the report, in July 1965.

74. "Overpricing of Buffer Amplifiers Purchased From HRB-Singer, Inc., State College, Pa., by the Boeing Co., Wichita Branch, Wichita, Kans., for B-47 Aircraft," B-146954, December 28, 1964 (OSD Case No. 1971).

The GAO made a finding that the prime contractor accepted, without cost information, and without competition, prices that were 120 percent higher than recently experienced costs. The difference between the prices and experienced costs was $86,440. GAO recommended recovery.

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