!The Honorable Jaam L.Bzlckley

B-102963

!The Honorable Jaam L.Bzlckley

_ I United States Senate

' : Dear Senator Buokley:

On Jamary

30, 1974, you a&cd that we comider

you fkom Mr. Molle~~ President,

a coorplaint to

ad provide you

Hr. lML3.a con@ainedthat

l%KCk facoqrated,

with our findings and views., Specifi~lly,

F@Saia eie4lees

the

@#ix.79%lK9~&s,

4.%&

also statad that the Renegotiation Board (1) ide

obtains

only in gross figures

and does not disclose the net azmmts

recovered, (2) does not submit

0~1what it costs industry to

colnp3.y with its regulations and

118 feels these costs are astro~Wcal,

and (3) does not make appLeat the burden it places on other

Government agencies.

Mr. lblla requestedl that you. consider (1) having the Congress

revise and update the law so that it is eonasistcnt wfth the original

wanlag and intent,

(2) asking GAOto review to detemine whether renegotiation

is cast effective,

and (3) pe tting the act to eapire

June 309 1974.

.--.

On l&y 9, 1973, we completed Q review of the operatiorms and

activities

of the Renegotiation

copy of our repor% to the

Congress is ezwlosed.

IIn that P

e a nmberofrecomcndations to the Congress and the Ren

ation and effectiveness

of the

Aotivities

Subcormittee of the

tions reviewed the operations of the

mmy changes in the Rerncgotiatio

the Ccmmittce's report duted Dee

sion on Govcrrpient prOcuremez3t

ndatione with respect

to renegotiation.

These sze dismssed on

es 47 andk8ofthc

GAO

report mmtioned above.

our con4seRts ori r&T. l&u.a’a

8 cific

eompbints

foluw.

We talked with Rcnegotiatiorp Board officials

about the type of

situ&Mea I&. BUlla described ia his

les Of the s&mute detail

requird

by the Rencgotiatim

Act re

These officials

told

as that 8 difference ia color of e

bdnotordiaarilymakea

nonremegotiablc itear renegotiable

(see Renegotiation Regulations

1467.47). However, the b

and brown chaps

may have ban purchased

by the GemmU Services A afstration

for stock and, 8s such, were

2-j I

exempt frm renegotiatiort

under the exemption for csntrs&s which do

dtbte eomectlon with the nat,ional defense.

not have a direct and

The red ana green t&airs which

kM3.a belimes

are rsnsgotiable

were probably purchased tan

d&al Supply Schedule contractsor

These sales may also be exempt

directly

by 8 8iiU.t

under the staadsrrd

tioa.

We believe it highly desirable for Mr. kW.la to discuss his

situation and related reeordkeepisg requirements with the Rmegotiation Board. The &ard is atn&xas to assist eontractors in avoiding

unnecesss.ry eqense that amy remit

leteunderstandingof

requirements or aveileible

tioms 0

Mr. M~llst*s semiad sxasgle is eorreet to the extent that sales

st other Gove

to the St&e Department as well as to

rat agemiss

are not subject to reaegotiatisn

whereem sa.bs to the sUitary

departntentssrre.

Eowwer, ssindicsrtedprevious~,thep~oducts

being

sold by Molla, Inc., mtky quali

Sales to Qovermsent 8gencies

the act are not subjeot to r

such sales areincluded

in the comercial

sales

prodmt quddfy fer the

We reviewed av%bilabh

publ3.c info

ion to dekmaim whether the

r&W&s

8 %ot reflect ths net

which in many cases would reduce the

as nrnch as 75 peresnt.n

We f&undthat,aJ.t~the

Boarddoes rmt show szmualnst rscweries

in its annual rsports, it dees s

gate net ssmnt after

dednctioa ef FedeM Insome tam

ion of the Renegotiation

Act te the date of the anmml reporb.

Bm+rdidsntifleso!ilygross

Alse, we found that the Board set out mum&l net anmmt figures

ia its Febrmry 1‘7, 1972, prsaisentatioa (co&ti

e:,ir.

record) t@ the Stidttee

ora

! k Science-Veterams of the Rmse

ttee enAppropr

5.0~6 and *he net recovsamant of gmes e%e@ssi.v@profit

ericrawer+

~fsresrchofflscal~6blPsl~t~l~.

From

the data for that period, ws compute that nst rscoveries

smut

to

about 53 percent of gross detemsinations.

The difference is maizily

accounted for by the related Federal imosm t8x that is de-ted

from

the excessive pmflt

deters&nation in 8Wh ease so that a capany required to make a ref+und of excessive profits

can avoid the papermrk

andc~stsofappaying

foraFederaltaxrefmd.

Mr. IWl3.a suggests that the Board justifies

its tistence

oa the

brrsisof~~sit~~ed~i~st~.

Whilethismayappem

tebe iapart

4xmrect,oneofthe

stapparters ofthel~laet,I#r.

Carl

-2-3

Vinsoa, in testiumy

before Che'Houss Ways and Msans Camaittee in

' _ -( '-"Remgotiation

is not a revsme meastve.

August 1950, stated:

+ * + The objective of renegxMation

is not to raise reveme but to

hold prices down." Other Goverment officials

have indicated their

belief

that

the existence of renegotiation

prevents excessive profits

by inducing contractors to price more closely.

If these Biews are

accepted, then an important Justification

for the Boards8 dstence

is the amMance,

rather than the recovery, of excessive profits.

Unfortunately,

the mount of excessfve profit

avoided cannot be

meamred.

Our exmiaation

indicates that Mr. IMJa is correct in stating

that the Board does mt s&mit flgurss of the cost to industry for

cxmpliauce with its regulations.

There is no doubt that contractors

incur costs in recordkeeping to comply with the Renegotiation Act.

However, we know of no information

readily m&lable

that would disclose the amount imolved.

We are currently completing additional

rexkwsthat

relsteto

We will furnish yaa with copies of ths reports when

rsnegotiatioa.

they are issued.

In our future reviews of the Board, we will consider

the feasibility

of datemining

the cost effectiveness

of renegotiation.

If we can be of fhrther

assistance,

please call

peputg7

-muer -eral

of the United

States

EiRclosure

upon us.