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Philip W. Buchen Files
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The original documents are located in Box 59, folder "Renegotiation Board (2)" of the
Philip Buchen Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
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copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 59 of the Philip Buchen Files at the Gerald R. Ford Presidential Library
NO. 1966
THE RENEGOTIATION BOARD
Minutes of Meeting of
Friday, December 12, 1975
2000 M Street, N. W.
Washington, D. C.
9:00 A. M. - 9:55 A. M.
The following members were present:
R. C. Holmquist, Chairman
Rex M. Mattingly
Goodwin Chase
Norman B. Houston
C. U. Sylvester
The following were also present:
R. E. Rapps, Secretary to the Board
John B. Davis, Special Assistant to Mr. Chase
William M. Burkhalter
Donald S. Grenough
W. H. Harrison
George Lenches (Item 9, only)
1.
Approval of Minutes
The minutes of the meeting held December 9, 1975
were approved.
2.
California Computer Products, Inc. (1.975)
X
Request to File Late Application for
Commercial Exemption - Granted
There was submitted to the Board the memorandum
dated December 9, 1975, of the Deputy Director, Office of
Review, subject: "Request to file untimely Application
for Commercial Exemption, California Computer Products, Inc.,
Fiscal Year Ended June 30, 1975, LPI No. 87540," together
with an attached letter dated November 24, 1975, from the
contractor requesting permission to file an untimely
Application for Commercial Exemption for the fiscal year
indicated (Exhibit 1).
1
STATE FORD LIBRARY
THE RENEGOTIATION BOARD
Friday, December 12, 1975
The Board approved the recommendation of the
Deputy Director, Office of Review, that the contractor's
request for permission to file an untimely Application
for Commercial Exemption for the fiscal year ended
June 30, 1975, be granted.
3.
General Foods Corporation (1972, 1973 and 1974)
Request to File Late Application for
Commercial Exemption - Granted
There was submitted to the Board the memorandum
dated December 9, 1975, of the Deputy Director, Office
of Review, subject: "Request to file untimely Applications
for Commercial Exemption, General Foods Corporation, Fiscal
Years Ended April 1, 1972, March 31, 1973 and March 30, 1974,
LPI No. 13409,' together with an attached letter dated
December 5, 1975, from the contractor requesting permission
to file an untimely Application for Commercial Exemption
for the fiscal years indicated (Exhibit B).
The Board approved the recommendation of the
Deputy Director, Office of Review, that the contractor's
request for permission to file an untimely Application
for Commercial Exemption for each of the fiscal years
ended April 1, 1972, March 31, 1973 and March 30, 1974,
be granted.
4.
Minnesota Mining and Manufacturing Company (1972) X
3M Business Products Sales, Inc. (1972)
American Lava Corporation (1972)
Prehler Electrical Insulation Co. (1972)
Riker Laboratories, Inc. (1972)
Class A Clearances - Approved
There was submitted to the Board by the Deputy
Director, Office of Review, the Reviews of Determination
dated December 2, 1975, together with attachments, including
Final Opinions (Exhibits C through G, respectively),
relative to:
Minnesota Mining and Manufacturing Company
FYE 12/31/72
2
BERALD FORD.
THE RENEGOTIATION BOARD
Friday, December 12, 1975
3M Business Products Sales, Inc.
FYE 12/31/72
American Lava Corporation
FYE 12/31/72
Prehler Electrical Insulation Co.
FYE 12/31/72
Riker Laboratories, Inc.
FYE 12/31/72
As recommended by the Western Regional Board and
concurred in by the Deputy Director, Office of Review, the
Board approved clearances in the subject cases for the fiscal
years indicated.
Clearance Notices will be issued to the contractors by
the statutory Board, together with the respective Final
Opinions.
5.
Rockwell International Corporation (1972)
X
Rockwell Standard (Wallaceburg) Limited (1972)
Worcester Moulded Plastics Co. (1972)
The Heim Universal Corporation (1972)
Maine Electronics, Inc. (1972)
MGD Pneumatics Incorporated (1972)
AMFORGE Inc. (1972)
Nartrans Corporation (1972)
Navan Incorporated (1972)
Class A Clearances - Approved
There were submitted to the Board by the Deputy
Director, Office of Review, the Reviews of Determination
dated December 3, 1975, together with attachments, including
Final Opinions (Exhibit H through P, respectively), relative
to:
Rockwell International Corporation
FYE 9/30/72
GERALD vono LIBRARY
3
THE RENEGOTIATION BOARD
Tuesday, December 12, 2975
Rockwell Standard (Wallaceburg) Limited
FYE 9/30/72
Worcester Moulded Plastics Co.
FY Beginning 10/1/71 and Ending 3/31/72
The Heim Universal Corporation
FYE 9/30/72
Maine Electronics, Inc.
FYE 9/30/72
MGD Pneumatics Incorporated
FYE 9/30/72
AMFORGE Inc.
FY Beginning 12/8/71 and Ending 9/30/72
Nartrans Corporation
FYE 9/30/72
Navan Incorporated
FYE 9/30/72
As recommended by the Western Regional Board and
concurred in by the Deputy Director, Office of Review, the
Board approved clearances in the above cases for the fiscal
years indicated.
Clearance Notices will be issued to the contractors
by the statutory Board, together with the respective Final
Opinions.
Mr. Mattingly and Mr. Sylvester dissented.
6.
Kaiser Industries Corporation (1970 and 1971)
Henry J. Kaiser Company (1970 and 1971)
X
Kaiser Engineers, Inc. (1970 and 1971)
Kaiser Aerospace & Electronics Corp. (1970 and 1971)
Jeep Corporation (Formerly Kaiser Jeep Corporation) (1970)
Myers Drum Company (1970 and 1971)
Class A Clearances - Approved
There were submitted to the Board by the Deputy Director,
FORD LIBRARA
4
THE RENEGOTIATION BOARD
Friday, December 12, 1975
Office of Review, the Reviews of Determination dated
December 8, 1975, together with attachments, including
Final Opinions (Exhibit Q through AA, respectively),
relative to:
Kaiser Industries Corporation
FYE 12/31/70
Henry J. Kaiser Company
FYE 12/31/70
Kaiser Engineers, Inc.
FYE 12/31/70
Kaiser Aerospace & Electronics Corp.
FYE 12/31/70
Kaiser Industries Corporation
FYE 12/31/71
Henry J. Kaiser Company
FYE 12/31/71
Kaiser Engineers, Inc.
FYE 12/31/71
Kaiser Aerospace & Electronics Corp.
FYE 12/31/71
Jeep Corporation (Formerly Kaiser Jeep Corporation)
FY Beginning 1/1/70 and Ending 2/5/70
Myers Drum Company
FYE 12/31/70
Myers Drum Company
FYE 12/31/71
As recommended by the Western Regional Board and
concurred in by the Deputy Director, Office of Review, the
Board approved clearances in the above cases for the fiscal
years indicated.
5
FORD LIBRARY
THE RENEGOTIATION BOARD
Friday, December 12, 1975
Clearance Notices will be issued to the contractors by
the statutory Board, together with the respective Final
Opinions.
Mr. Mattingly and Mr. Sylvester dissented.
7.
Sverdrup & Parce1 and Associates, Inc. (1971 and 1973)
Class A Bilaterals - Approved
X
Sverdrup & Parcel and Associates, Inc. (1972)
Class A Clearance - Approved
There was submitted to the Board by the Deputy Director,
Office of Review, the Review of Determination (Exhibit BB),
dated December 5, 1975, together with attachments, including
a Final Opinion, relative to SVERDRUP & PARCEL AND ASSOCIATES,
INC., fiscal years ended December 31, 1971, December 31, 1972
and December 31, 1973. On May 9, 1975, the Western Regional
Board made and entered a recommendation that the contractor
realized excessive profits in the gross amounts of $80,000
for each of the fiscal years ended December 31, 1971 and 1973.
On May 21, 1975, the Western Regional Board made a finding that
the contractor did not realize excessive profits for the fiscal
year ended December 31, 1972. On May 19, 1975, the contractor
executed refund agreements prepared by the Western Regional
Board providing for the elimination of excessive profits in the
amounts of $65,724 and $66.909 (subject to appropriate adjustment
on account of Federal income taxes) for the fiscal years ended
December 31, 1971 and December 31, 1973, respectively.
As recommended by the Western Regional Board, and
concurred in by the Deputy Director, Office of Review, the
Board approved the aforementioned refund agreements and directed
that such agreements be duly executed on behalf of the
Government and that a fully executed copy of each be sent to the
contractor. Also, as recommended by the Western Regional Board,
and concurred in by the Deputy Director, Office of Review, the
Board approved a clearance in the subject case for the fiscal
year ended December 31, 1972. The Board approved the Final
Opinion. A Clearance Notice will be issued to the contractor
by the statutory Board, together with the Final Opinion.
6
FORD LIBRARY
THE RENEGOTIATION BOARD
Friday, December 12, 1975
8.
ARO, Inc., Also Known As Arnold Research
Organization (1971, 1972 and 1973)
X
There was submitted to the Board by the Deputy Director,
Office of Review, the Review of Determination dated December 5,
1975, together with attachments, including a Final Opinion
(Exhibit CC), relative to ARO, INC., also known as ARNOLD
RESEARCH ORGANIZATION, fiscal years ended December 31, 1971,
December 31, 1972 and December 31, 1973.
As recommended by the Western Regional Board and con-
curred in by the Deputy Director, Office of Review, the Board
approved clearances in the subject cases for the fiscal years
indicated.
Clearance Notices will be issued to the contractor
by the statutory Board, together with the Final Opinion.
9.
Distinguished Service Award - Kurt C. Behrens
The Board unanimously moved and adopted a Distinguished
Service Award (Exhibit DD) for Mr. Kurt C. Behrens, Deputy
Director, Office of Review, who has announced his retirement
from the Renegotiation Board. Each member of the staff present
personally, and on behalf of their offices, expressed their
sincere respect and affection for Mr. Behrens and their
unanimous accord with this action.
Mr. Grenough will be in charge of arrangements for a
luncheon honoring Mr. Behrens.
10.
Lockheed Aircraft Corporation (Consolidated) (1972)
Class A Case
Reference was made to the action of the Board on
December 9, 1975 (Minutes No. 1965-16), deferring the
subject case until December 12, 1975.
There was submitted to the Board by the Deputy Director,
Office of Review, the Review of Determination dated December 1,
1975, together with attachments, including a Final Opinion
7
SEAL FORD LIBRARY
THE RENEGOTIATION BOARD
Friday, December 12, 1975
(Exhibit EE), and a Supplemental Reviewer'
December 10, 1975 (Exhibit FF), relative to:
Lockheed Aircraft Corporation
Consolidated with: (wholly-owned subsidiaries)
Lockheed Air Terminal, Inc.
Lockheed Shipbuilding and Construction Company
Lockheed Aircraft International Limited
Lockheed Missiles & Space Company, Inc.
Lockheed Electronics Company, Inc;
Lockheed Aircraft Services Singapore Private Limited
Fiscal Year Ended December 31, 1972
Mr. Holmquist moved to assign this case to a Division
of the statutory Board in view of serious charges made by one
Member of the Board. The charges that were made were that
Lockheed had been shown in non-Board inquiries to be guilty
of gross negligence and gross inefficiency. The Board approved
this motion with Mr. Sylvester dissenting. Mr. Sylvester's
statement of dissent (Exhibit GG) is included as being a full
part of these minutes. Also included as being a full part of
these minutes is the memorandum dated January 7, 1976, presented
By Mr. Chase to the Board at the meeting of that date and
addressed to the Secretary to the Board (Exhibit HH).
11.
Adjournment
The meeting adjourned at 9:55 A. M.
12.
Final Actions Eliminating Excessive Profits
Final actions taken at this meeting regarding elimination
of excessive profits are as follows:
Agreements
$160,000
Unilateral Orders
None
Total
$160,000
Richard E. Rapps
Secretary
8
FORD LIBRARY
December 19, 1975
(Exhibit GG to Minutes of Board Meeting of December 12, 1975)
Lockheed Aircraft Corporation
Fiscal Year Ended 12/31/72
I reluctantly dissent from the Board's decision to
assign to a Division of the Board Lockheed Aircraft Cor-
poration for the fiscal year ended December 31, 1972.
This assignment was made as a result of a charge by
Mr. Chase that non-Board inquiries had shown Lockheed
Aircraft Corporation to be guilty of gross negligence and
gross inefficiency. This unsubstantiated charge, I sur-
mise, is the result of newspaper headlines rather than
hard evidence.
Lockheed was assigned to the Western Regional Board,
which after its review recommended to the Statutory Board
that a clearance be issued, and the Office of Review in
Headquarters concurred in this recommendation. With a
return on renegotiable sales in the review year of 3.3%,
further reduced to 0.5% after applying a $49,802,000 loss
carryforward, it is difficult for the writer to understand
what can be gained by assigning this case to a Division of
the Statutory Board.
Certainly, reported profits do not warrant such an
assignment which, therefore, must stand or fall on the
charge of gross negligence and gross inefficiency.
Section 103 of the Renegotiation Act allows as a cost
in a fiscal year costs exceeding revenue of the prior year,
provided that "such excess did not result from gross ineffi-
ciency of the contractor or subcontractor."
The Board's Administrative Letter 75-15 dated November
17, 1975, provides with respect to segmental losses in a
review year:
Where a loss is generated by one or more of the
segments, within the same fiscal year, the amount
thereof shall be allowed as an adjustment, in effect
a reduction of profits, of significant segments for
TOWN
B
- 2 -
which profits are considered high (and would be
considered excessive if considered separately).
Losses must also be examined for reasonableness
to make sure they are not the result of gross
inefficiency.
Nowhere in the Renegotiation Act of 1951 or in the
Board's Regulations is "gross inefficiency" defined.
Webster defines gross as "an overall total, exclusive of
deductions" and inefficiency as "not producing the effect
intended or desired" and "wasteful of time and energy" as
well as "incapable, incompetent."
Black's Law Dictionary defines the term "gross negli-
gence, which Mr. Chase also used, as follows (citations
omitted)
The intentional failure to perform a mani-
fest duty in reckless disregard of the consequences
as affecting the life or property of another; such
a gross want of care and regard for the rights of
others as to justify the presumption of willfulness
and wantonness.
equivalent to the words "reck-
less" and "wanton."
This definition not only provides us with the type
of finding which must be made to sustain the charge of
gross negligence but also provides considerable guidance
with respect to arriving at a definition of gross ineffi-
ciency. This is the concept of the degree of the ineffi-
ciency Congress must have intended when using the term
"gross inefficiency."
After extensive hearings in the Congress in 1971,
legislation was enacted (P. L. 92-70) establishing a loan
guarantee fund administered by the Emergency Loan Guarantee
Board. Lockheed Aircraft Corporation obtained a loan
guarantee of $250,000,000 from this fund. I just cannot
believe that Congress and the Emergency Loan Guarantee
Board would so reward a contractor who was guilty of gross
negligence and gross inefficiency.
According to a report in the Wall Street Journal
of December 11, 1975, Lockheed Aircraft Corporation, with
EAZO 12. TORE 1
- 3 -
contracts in excess of $2 billion, has replaced General
Dynamics as the nation's top defense contractor. This
announcement must be viewed in light of Section 1, Part 9
of the Armed Services Procurement Regulations, which pro-
vide that contracts are not to be entered into by the
Government except with contractors considered responsible.
Section 1.903.1(iii) further provides that contract-
ors must:
have a satisfactory record of performance
(contractors who are seriously deficient in cur-
rent contract performance, when the number of
contracts and the extent of deficiency of each
are considered, shall, in the absence of evidence
to the contrary or circumstances properly beyond
the control of the contractor, be presumed to be
unable to meet this requirement). Past unsatis-
factory performance, due to failure to apply
necessary tenacity or perseverance to do an
acceptable job, shall be sufficient to justify
a finding of nonresponsibility.
If Mr. Chase's charge is correct, and Lockheed Aircraft
Corporation is, in fact, guilty of gross negligence and
gross inefficiency, the Department of Defense, under its
ASPRS, ought not to be awarding defense contracts to Lock-
heed Aircraft Corporation. Are these officials derelict
in their duties?
How does the Board measure the efficiency of a con-
tractor? The Board has established the Office of Procure-
ment Affairs at Headquarters and similar offices in each
of its two Regional Boards. It is through these offices
that the Regional Boards and the Statutory Board obtain
information from the appropriate Department of Defense
officials relating to the performance or efficiency of
a contractor.
What type of reports has the Board obtained with
respect to Lockheed Aircraft Corporation for the year
under review as well as prior years? While there has
been criticism for cost overruns, missed delivery
for
VORB
schedules, and rejects in the C-5A Program and the
- 4 -
Cheyenne Helicopter, this criticism must be tempered in
that these products, on fixed-price contracts, required
state-of-the-art developments and because they were only
part of the contractor's defense business where the con-
tractor also received satisfactory and excellent perform-
ance reports. On an overall basis, then, the contractor
must be considered as a satisfactory performer. Were it
otherwise, Lockheed would not be the nation's largest
defense contractor today.
Does approval of a $250,000,000 loan guarantee; do
overall satisfactory performance reports; and does the
continuing award of defense contracts provide evidence
of gross negligence and gross inefficiency? I think not.
If we can put aside the reckless charge of gross
negligence and gross inefficiency, we can proceed to
examine the contractor in the aggregate, as required by
the Renegotiation Act of 1951. On the basis of the
figures presented by the Western Regional Board and the
Office of Review, the result, based on Board action with
other defense contractors, obviously is a clearance.
As stated previously, the margin of profits on rene-
gotiable sales is 3.3% with a net return on capital and
net worth of 5.7% and 23.6%, respectively, before the loss
carryforward and income taxes. These returns do not indi-
cate that profits are excessive, especially when consider-
ing the contractor's poor profit performance of prior years
on the contractor's capital accounts. In addition, after
applying the loss carryforward of $49,802,000 the return
on sales is reduced to one-half of one percent, with
return on capital and net worth of 0.9% and 5.5%, respect-
ively.
The Board's recently adopted Administrative Letter
75-15 entitled "Segmentation Analysis" requires that the
contractor be analyzed on a segmented basis. Such an
analysis discloses that, while profits from some segments
considered alone may appear high, they are not sufficiently
high to overcome losses of some $29,000,000 reported in two
other segments. Segments, again which also have satisfactory
performance ratings. These are losses which the majority of
the Board apparently refused to recognize in spite of the
requirements of the Act providing for aggregate renegotiation
FORD
CANADA
- 5 -
and in spite of the policy statement of the Renegotiation
Board embodied in the Administrative Letter.
In view of the Office of Accounting's finding that
the Region's accounting report is acceptable, I concur
with the Office of Review that the contractor's profits
are not excessive. Certainly, a contractor with the
volume of defense business which Lockheed has must be
very carefully scrutinized by the Board. However, the
review year has been before the Western Regional Board
and the Statutory Board for more than two years. The
assignment of this contractor to a Division of the Board
for further study and evaluation only adds to the rapidly
growing backlog of cases now at the Statutory Board.
Clearing Lockheed Aircraft Corporation with review
year profits of 3.3% renegotiable sales in the aggregate
would leave the contractor at a level considerably lower
than that at which other major aerospace contractors have
been recently cleared. It has been the writer's impres-
sion that the Renegotiation Board exists to recover
excessive profits not to expend its time and efforts on
cases which show net losses or profits so low as to
preclude any possible findings of excessive profits.
Christopher U. Sylvester
Board Member
at Board meeting of Jenuary 7,1976. RER
Original no copies, presented Sr Mr. chase
January 7, 1976 Ephibit HH
minutes 12/12/75
(1966) her
MEMORANDUM TO:
Richard E. Rapps
Secretary to the Board
FROM
:
Goodwin Chase
Board Member
The minutes of the December 12th Board Meeting were circulated
by your office.
Agenda Item No. 10, Lockheed Aircraft Corporation, last para-
graph, stated:
"Mr. Holmquist's motion to assign this case to a
Division of the Statutory Board was approved. Mr.
Sylvester dissented."
On December 15th, you circulated a substitution for Item 10, as
follows:
"Mr. Holmquist moved to assign this case to a
Division of the Statutory Board in view of serious
charges made by one Member of the Board. The
charges that were made were that Lockheed had been
shown in non-Board inquiries to be guilty of gross
negligence and gross inefficiency. The Board
approved this motion with Mr. Sylvester dissenting.
Mr. Sylvester's statement of dissent (Exhibit GG)
is included as being a full part of these minutes."
Concerning this substitution, I noted on the Coordination Sheet
under date of December 17th that:
"Last paragraph Agenda Item No. 10 is inaccurate.
I stated that 'charges' grew out of Congressional
investigation which were given widespread publicity."
STATE FORD
"C"
You have not noted my reference to the inaccuracy in the formal
substituted minutes. Therefore, I request you make this memorandum
a part of the minutes of December 12th.
In the interest of clarification, from the discussion of December 12th,
clearly the Board was about to grant Lockheed a clearance for Fiscal Year
1972. I thereupon related numerous reasons why the case should be
assigned to a Division of the Board. Among them I pointed out that the
Company had been charged in Congressional hearings with gross ineffici-
ency and mismanagement and that the charges had been given widespread
publicity. Istated further that we should examine the case to determine
if the charges are true and if so, the Board could not give carryforward
loss credits to the high profits of classes of contracts ranging from 15.8%
to 39.9%.
BERAU FORD LIBRARY
- 2 -
THE RENEGOTIATION BOARD
DATE : April 29, 1976
TO
: Goodwin Chase
Division Chairman
FROM : Norman B. Houston
Board Member
SUBJECT: Minutes of Division Meeting - April 28; 1976
Lockheed Aircraft Corporation, FYE 1972
Thank you for sending me a copy of the Minutes of our
meeting of April 28, 1976. There are errors, however,
that I wish to call to your attention.
At the top of page 3, the Minutes prepared by Mr. Davis
indicate that other Board Members desired to clear the
case. This is presumptuous and obviously an erroneous
conclusion growing out of the discussion preceding the
Board's action to reassign the case. The Minutes of
the Board Meeting December 12, 1975, indicate that four
of the five Board Members voted in favor of reassigning
Lockheed.
Your attention is also called to the fact that at no
time during the meeting did you relate the chronology
of events associated with the use of Mr. Driscoll's
services. The second and third sentence of the last
paragraph on page 2 should therefore be eliminated.
cc: Mr. Holmquist
Mr. Mattingly
Mr. Sylvester
Mr. Chick
Mr. Ralph Johnson
Mr. Grenough
Mr. John Davis
RBF-37 INTEROFFICE MEMO
4-70
April 29, 1976
MEMORANDUM FOR: Goodwin Chase
Subject: Comments on Minutes of Division Meeting held on
April 28, 1976 regarding Lockheed Aircraft
Corporation -- FYE 12-31-72
I appreciate receiving the minutes of our April 28th meeting
on Lockheed Aircraft Corporation. However, I believe there are
several errors in the minutes which I would like to call to your
attention.
On page 2 the second sentence of the second paragraph should
read:
"Mr. Mattingly said there should be If rather than
"
"Mr. Mattingly said there must be
You did not relate a chronology of events as indicated in the
final paragraph on page 2 and the first full paragraph on page 3, except
that you did indicate that the services of Mr. Driscoll were no longer
available to you.
In the final paragraph on page 2 which is continued on page 3
the minutes state that other members of the Board desired that
Lockheed be cleared. It is inaccurate to state that members desired
to clear the case since only one member voted not to assign the case
to a division.
(signed) Rex M. Mattingly
Rex M. Mattingly
CC: Mr. Holmquist, Chairman
Mr. Houston
Mr. Sylvester
Mr. Chick
TORO Lad LIBRARY
Mr. Ralph Johnson
Mr. Grenough
"E"
THE RENEGOTIATION BOARD
ATE
:
May 4, 1976
TO
:
Goodwin Chase
Board Member
FROM
:
R. C. Holmquist N
Chairman
SUBJECT: Lockheed Aircraft Corporation
Pursuant to your memorandum of April 28 to Messrs.
Mattingly and Houston, and the attached minutes of
your division meeting with them on the Lockheed case,
I would like to clarify one point.
Beginning at the bottom of page two of your minutes,
you state that " the possibility of gross inefficiency
was responsible for bringing about the assignment of the
case to a division of the Board rather than clearing it
as the other Board Members desired and the Western
Regional Board recommended. " This is an incorrect state-
ment inasmuch as it was I who said that since such serious
charges had been made in this case, it should be assigned
to a division for further review instead of being cleared.
The vote was four to one in favor of assigning the case
to a division. To state that all of the Board Members
other than yourself desired to have the case cleared
is inaccurate.
cc: Board Members
Mr. Grenough
Mr. Lambert
Mr. Chick
DERALO R. FORD DISBARY
8
RBF-37 INTEROFFICE MEMO
4-70
/11% Holigmail
FR
April 26, 1976
MEMORANDUM TO
:
Ralph Johnson
Chairman, Eastern Regional Renegotiation Board
FROM
: Goodwin Chase
Board Member
This is with reference to our discussion concerning request
for staff support in furtherance of the Lockheed Aircraft Corporation
Fiscal Year 1972 examination.
The Division will be benefited by the assistance of Mr.
Timothy Driscoll of your staff for what appears at this time to be
approximately 15 working days. You have advised me that Mr.
Driscoll is available. Thus I would appreciate his reporting to my
Special Assistant, Mr. Davis, at the earliest possible time.
cc: Board Members
Mr. Grenough
Mr. Chick
OFFICE E. FORD LIBRARY
THE RENEGOTIATION BOARD
:
April 29, 1976
TO
:
Goodwin Chase
Board Member
FROM
:
R. C. Holmquist /
Chairman
SUBJECT:
Lockheed Aircraft Corporation
Pursuant to your memorandum of April 26 to Ralph Johnson regarding
the possible use of Mr. Driscoll on subject case for approximately
15 working days, and our conversation yesterday morning regarding
this matter, it is important to make clear to everyone involved just how
we will proceed in helping your Division to expedite this case. I
am sure that you, as Division Chairman, will agree that this case is
an extremely important one which deserves the highest priority, and
which must be pursued in an orderly manner and with great thoroughness.
As indicated to you and Mr. Grenough during our discussion yesterday,
I asked Mr. Chick and Mr. Johnson for their thoughts in this matter,
and based upon this discussion, I believe the Headquarters staff can be
most helpful to you and your Division if we proceed as follows.
It would appear that the investigation you plan to make primarily in-
volves accounting issues. With this in mind, Mr. Chick plans to present
for the Division's consideration a draft of a letter to Lockheed
requesting certain key information. The status of the review at
present indicates that such a letter could be ready the first part
of next week, and Mr. Chick believes that a full reply could be
received from Lockheed in 30 days or less. When this response is
received, it should indicate where the investigatory work should be
done; that is, at one or more Lockheed locations. It would also
indicate the time that would be required to make the investigation
and the staffing needed to get the job done. The above, of course, is
in line with our usual procedure in handling a case of this kind, and
as I understand it, you have already agreed that this is a good plan
to follow.
Regarding your personal choice of Mr. Driscoll to work for a period of
approximately 15 days in developing the accounting information needed,
Mr. Johnson advises me that Mr. Driscoll is in the midst of wrapping up
an important case (Clark Equipment Company) and he would like him to
complete this work which will take a few more days. He also plans to
use Mr. Driscoll on a number of oil cases, but he has agreed that he
F-37 INTEROFFICE MEMO
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can work around this for this temporary period. In view of the
above situation, Mr. Driscoll will be loaned on a temporary basis
to the Office of Financial Analysis to work full time on this case.
If for some reason it is imperative that Mr. Driscoll be assigned
immediately rather than waiting until he can finish up the case he
is now working on, please discuss this with me and I will see what
can be done.
It is also the opinion of Messrs. Grenough, Chick and Johnson as well
as myself that inasmuch as this was originally a Western region case,
we should take advantage of the experience and background they have
on the subject and any guidance or help they might provide in carrying
out the investigation. We suggest, therefore, that your Division keep
this in mind.
If you feel that the above would in any way hamper the expeditious
handling of this case by the Division, please let me know.
cc: Board Members
Mr. Grenough
Mr. Chick
Mr. Johnson, ERRB
GERALD LIBRARY FORD
/ipr HSmgunci
April 29, 1976
MEMORANDUM TO :
Rex M. Mattingly, Division Member
Norman B. Houston, Division Member
SUBJECT
:
Lockheed Aircraft Corporation
Fiscal Year Ended December 31, 1972
The attached letter from Mr. Frederick Neuman, Deputy
Diréctor, Defense Contract Audit Agency, dated April 13, 1976,
is with reference to the review of renegotiation filings of the
Lockheed Aircraft Corporation by DCAA.
Mr. Neuman said the thrust of Item 2, page 2, was the
statement of the Lockheed representative (Mr. O'Hara) expressing
his Company and industry's displeasure with the pending legis-
lation (Minish Bill). Mr. Neuman assured me that his approach
to review of Lockheed's records was only for the purpose of
examining and reporting information.
I am also enclosing a self-explanatory copy of General
Counsel's memorandum of April 27, 1976, received in this office
the afternoon of April 28th.
Roadwinlhers
Goodwin Chase
Division Chairman
Attachments
CC: Board Members
Mr. Chick (2)
Gen Counsel
Mr. Grenough
BERALD TORD
I
TMENTID
Recd 1:00 P.m.
DEFENSE CONTRACT AUDIT AGENCY
CAMERON STATION
4/14/76
ALEXANDRIA, VIRGINIA 22314
13 April 1976
IN REPLY REFER TO
DD
Honorable Goodwin Chase
Renegotiation Board
2000 M St., N.W.
Washington, D. C. 20446
Re: Request for Review of Renego-
tiation Filing of Lockheed
Aircraft Corp.
Dear Mr. Chase:
As you know, after reviewing the material in our audit files
we found it necessary to obtain additional information from the con-
tractor, as well as access to its records covering the renegotiable
year ending 31 December 1972. Pursuant to your 26 March 1976 letter,
we approached the contractor at four different locations to obtain
this information (Lockheed Georgia Co. in Marietta, Ga.,; Lockheed
Shipbuilding and Construction Co. in Seattle, Washington; Lockheed
Space & Missile Co. in Sunnyvale, California; and Lockheed-California
Co. in Burbank, California) and were told that the matter had to be
referred to the corporate level for a policy decision.
On 31 March 1976, Lockheed advised that it would not give us
access to information or discuss RB-1 filings for the year 1972.
Lockheed considered it "illegal" for us to have any RB-1 reports
and believed it was outside the current statutes for the Board to
request audit assistance from DCAA.
On 1 April 1976, we arranged for a discussion at the corporate
office with officials of the company to obtain a complete understanding
of the reasons for their denial of access to records and information.
The following individuals attended this meeting on behalf of the Lock-
heed Aircraft Corp.:
Thomas J. O'Hara - Corporate Vice President - Contracts & Pricing
Charles Hardinghaus - Corporate Manager - Gov't Accounting Policy
During the early part of the discussion it became clear that the
contractor officials were not placing any great reliance on any legal
grounds, even though initially they cited various portions of the U.S.
Code as support for the alleged impropriety of the current DCAA inter-
face with the Renegotiation Board. Aside from any possible legal
objections, however, the officials made two additional points:
REVOLUTION
K. FORD LIBRARY
AMERICAN
BICENTENNIAL
1776-1976
DD
13 April 1976
Honorable Goodwin Chase
1. The current review placed DCAA in a position that would
be considered by industry to be in conflict with the basic DCAA advisory
role to DoD procurement in the pricing of contracts. They alleged that
DCAA and DoD contracting officers could use currently unavailable profit
data in a manner not now contemplated under the existing DCAA audit
mission.
2. Lockheed was espousing an industry position that renego-
tiation of profits on a divisional basis or product-line basis is not
equitable and not currently practiced; Lockheed was not prepared to
assist in any such undertaking at this time. The officials made
several general references to recent Renegotiation Board and congres-
sional deliberations on this issue. They further advised that Lockheed
was seeking several industry association actions to exert all possible
influence to defeat legislation that would establish such procedures.
The officials also implied that they would oppose the assignment of
audit assistance to any department or agency engaged in contract
administration.
As a result of this meeting we decided to conclude our review
with the information already obtained rather than to await the outcome
of this issue of Lockheed's denial of access to records. This decision
is in keeping with our agreement to furnish you whatever information we
can by mid-April 1976.
In light of the contractor's current attitude we will finalize
our interim report to you without the benefit of discussing our
comments and observations with the contractor. Accordingly, we cannot
be sure that all factual matters pertaining to the issues discussed
have been considered or whether our assumptions are fully supportable.
We plan to have a draft report available for discussion with you not
later than 16 April 1976.
FREDERICK NEUMAN
Deputy Director
2
FORD and LIBRARY
THE RENEGOTIATION BOARD
DATE :
APR 27 1973
Goodwin Chase
TO
:
Board Member
FROM :
General Counsel
Lockheed Aircraft Corporation
SUBJECT:
Fiscal Year Ended December 31, 1972
At your request this office has reviewed the
letter dated April 13, 1976 from Frederick Neuman,
Deputy Director, Defense Contract Audit Agency (DCAA),
concerning their study, at your request, of the rene-
gotiable filing of Lockheed Aircraft Corporation
(Lockheed) for its fiscal year ended December 31, 1972.
The letter states that in view of DCAA's inability at
this time to obtain additional data from ockheed, it
proposes to submit its interim report in keeping with
the Board's time schedule.
Although DCAA states that it does not believe
Lockheed was placing "any great reliance" on legal
grounds initially cited as support for its "alleged
impropriety of the current DCAA interface with the
Renegotiation Board," you desire a further legal opinion
on the Board's authority (1) to furnish DCAA with Lock-
heed's RB Form 1; and (2) to "request audit assistance
from DCAA."
The Board's authority to furnish copies of RB
Form l's or other information from the Board's files
to DCAA or any other procurement or other agency of
the Government is without question. RBR 1480.10 (a)
and (b) SO provide with respect to "Departments" named
in the Act when access to such information is necessary
to further the procurement activities of, or for the
performance of duties required by the Renegotiation Act
with respect to, such named "Departments." Further,
RBF-37 INTEROFFICE MEMO
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RBR 1480.10 (c) states that the Board in specific
instances will afford any agency of the Government
access to its records if the Board determines that
such access is in the best interest of the Government.
Since the inception of the Act, the Board from time to
time has furnished procurement and other agencies of
the Government with access to a variety of information
from the Board's files as the situation demanded, in-
cluding copies of RB Form l's. As a precautionary
measure and in order to avoid a possible misuse of the
information outside the particular Department involved,
the Board includes a caveat concerning the confidential
nature of the information contained in the furnished
document. Such a caveat was included in your letter
dated February 20, 1976 to Mr. B.B. Lynn, Director, DCAA,
forwarding a copy of the RB Form 1 in question.
Although we believe that furnishing DCAA with Lock-
heed's RB Form 1 for its fiscal year ended December 31,
1972 could be construed to be necessary to further DCAA's
procurement activities, it is clear that it is in the
Board's interest to supply the filing in seeking to
obtain supplemental data. The Act does not preclude such
disclosure.
With respect to the Board's authority to request
"audit assistance from DCAA" section 107 (c) of the Act
provides as follows:
* * The Board may, with the
consent of the head of the agency
of the Government concerned, utilize
the services of any officers or
employees of the United States, and
reimburse such agency for the ser-
vices so utilized. *
*
*
- 3 -
Although section 105 (e) (2) of the Act provides the
Board with the authority to request the IRS, with the
approval of the Secretary of the Treasury, to provide
"examinations and audits" under the Renegotiation Act,
sections 107 (c) and (d) of the Act clearly provide
that the Board may request and obtain assistance, in-
cluding "audit assistance" from any Government agency,
including DCAA.
Furthermore, the Department of Defense has pre-
scribed in ASPR 1-319 the types of renegotiation
performance reports and other information that will
be regularly furnished to the Board and subsection
(d) (xvii), in particular, states that "such other infor-
mation as may be particularly requested by the Renego-
tiation Board" shall be provided. We construe this ASPR
to authorize the furnishing to the Board of all available
information necessary for the Board to perform its duties
and functions, including supplemental audit information
or other data and the Board has often obtained internal
pricing, audit and other memoranda. Any available data
on types of contracts, divisions, or other segments of
the contractor's business would fit into this category.
Additionally, section 1-205.5 of DCAA's Contract
Audit Manual provides that "DCAA auditors will furnish
copies of DCAA audit reports and will permit Board
representatives to review audit working papers at DCAA
audit offices, when written requests are received from
the Board, for use in renegotiation proceedings." The
Board regularly obtains copies of DCAA audits and quite
often seeks clarifications and supplemental data from
DCAA.
- 4 -
Under the authority of section 107 (c) and (d)
of the Act, ASPR 1-319 and section 1-205.5 of the
DCAA Contract Audit Manual, the Board has clear authority
to obtain "audit assistance" from DCAA.
Bend
David M.F. Lambert
General Counsel
THE RENEGOTIATION BOARD
DATE :
April 30, 1976
TO
:
R. C. Holmquist
FROM :
C. U. Sylvester
SUBJECT:
General Counsel's review dated April 27, 1976 of
DCAA letter with respect to Lockheed Aircraft
Corporation, FY 12/31/72
Although I don't anticipate that either the Board
or the Division reviewing the Lockheed case will have
occasion to further utilize the services of DCAA in
this case, I do think a word of caution with respect
to General Counsel's subject review or opinion is in
order.
I believe General Counsel misreads the two sub-
sections of Section 107 of our Act and, in fact, failed
to read all of subsection (d). Subsection (c) entitled
"Personnel" which General Counsel relies upon in his
opinion, deals mainly with the establishment of the
Board and the logistics of immediately obtaining per-
sonnel. This provision relates to the loan of per-
sonnel subject to reimbursement of their parent agency.
It does not relate to the retaining of the services
of an agency as such.
General Counsel, to support his opinion, cites
subsection (d) entitled "Delegation of Powers." In
addition to authorizing the delegation of its powers
by the Board, except its power to promulgate its
regulations and its power to grant permissive exemp-
tions, this subsection also contains a limitation on
those persons or agencies to whom the Board may make
such a delegation. The limitation reads as follows:
"
But no function, power, or
duty shall be delegated or redelegated
to any person pursuant to this sub-
section or subsection (f) unless the
Board has determined that such person
RBF-37 INTEROFFICE MEMO
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"K"
- 2 -
(other than the Secretary of a
Department) is responsible directly
to the Board or to the person making
such delegation or redelegation and
is not engaged on behalf of any
Department in the making of contracts
for the procurement of supplies or
services, or in the supervision of
such activity
(Emphasis supplied)
You will note that the Board is prohibited from
making such a delegation to any person who is engaged
on the behalf of any Department in the making of con-
tracts for the procurement of supplies or services, or
in the supervision of such activity. The Defense
Contract Audit Agency appears to come within this pro-
hibition. The United States Government Manual 1975/
1976 describes the functions of DCAA as follows:
"DCAA performs all necessary contract
audit functions for the Department of
Defense and provides accounting and
financial advisory services to all
Defense components responsible for pro-
curement and contract administration.
These services are provided in connec-
tion with the negotiation, administra-
tion and settlement of contracts and
subcontracts. They include evaluating
the acceptability of costs claimed or
proposed by contractors and reviewing
the efficiency and economy of contrac-
tor operations. Other Government
agencies may request DCAA's services
under appropriate arrangements."
(Emphasis supplied)
I haven't taken the time to go to the source
document for all of DCAA's authority but I am sure the
source document would contain a similar description
of DCAA's functions. This description obviously
includes the services involved in the making of con-
tracts as well as the supervision of such activities
- 3 -
when it provides for the services to be provided in
connection with the "negotiation, administration and
settlement of contracts and subcontracts," and also
authorizes DCAA to provide accounting and financial
advisory services to all defense components respon-
sible for such procurement.
The language of Section 107(d) has remained un-
changed since its inclusion in the Renegotiation Act
of 1951. Senator George, in the Report of the
Senate Finance Committee accompanying H.R. 1724, quite
succinctly explained this provision when he said:
"The delegation power is limited in
that no function, power, or duty shall
be delegated or redelegated to any
person engaged on behalf of any depart-
ment in the making of contracts for
procurement of supplies or services
or engaged in the supervision of such
activity.'
This is the point I believe that Mr. Neuman was
addressing himself to in his first point on page 2 of
his letter to Mr. Chase summarizing Lockheed Aircraft
Corporation's objections to DCAA's audit of their
records.
General Counsel very quickly glosses over Section
105 (e) (2) of our Act which authorizes us in the interest
of economy and the avoidance of duplication of inspection
and audits to utilize the services of Internal Revenue
upon approval of the Secretary of the Treasury. It is
obvious from the section of our Act in which this sec-
tion appears that this is the provision Congress intended
to be used for the types of services we erroneously
FORD
- 4 -
sought from DCAA. Although DCAA was not in existence
at the time this provision was written, our Act has
been extended many times during the life of DCAA, and
the Congress thus far has not included DCAA in this
section.
Christopher U. Sylvester
Board Member
cc: Board Members
Mr. Chick
General Counsel
Mr. Grenough
Mr.
May 4, 1976
MEMORANDUM TO : Rex M. Mattingly, Division Member
Norman B. Houston, Division Member
FROM
: Goodwin Chase, Division Chairman
these
SUBJECT
: Lockheed Aircraft Corporation
Fiscal Year Ended December 31, 1972
It is not my purpose here to comment upon the conclusions
drawn by Mr. Sylvester in his memorandum to the Chairman, dated
April 30, 1976.
Mr. Sylvester has however stated ...
"I
don't
anticipate that either the Board or the Division
reviewing the Lockheed case will have occasion
to further utilize the services of the DCAA in
this case If
This is to advise you that my office and the Office of
Financial Analysis are utilizing the services of the DCAA and
intend to continue to do so. With the Agency's invaluable assis-
tance and in-put, essential information is being developed useful
to furthering our examination and analysis of the case. Moreover,
the DCAA is a cost-saving source of information that would otherwise
burden our already limited operating budget.
I hope to have your concurrence that the DCAA continue to
provide information available to them consistent with the best
interests of the Board and the renegotiation process.
cc: Mr. Holmquist
Mr. Sylvester
Mr. Chick
Mr. Grenough
General Counsel
SEALE FORD TIBRARY
Mr. Halmguril ph
5
May 5, 1976
MEMORANDUM TO : Rex M. Mattingly, Division Member
Norman B. Houston, Division Member
FROM
: Goodwin Chase, Division Chairman
Charr
SUBJECT
: Lockheed Aircraft Corporation
Fiscal Year Ended December 31, 1972
The attached DCAA Report is an overview of the Lockheed
Aircraft Corporation's costs that in the auditor's opinion is sufficiently
significant to merit an in-depth audit.
The information represents, for the most part, a composite
of audits developed by DCAA of the Lockheed Corporation's subsidiaries
and divisions. While much of the information will be highly useful to
us, in some instances the writer has expressed a philosophy of possible
application to the renegotiation process that is not applicable under
our existing regulations and the Renegotiation Act.
cc: Mr. Holmquist
Mr. Sylvester
Mr. Chick
Mr. Lambert
Mr. Grenough
TOID LIBRARY
THE RENEGOTIATION BOARD
DATE : May 5, 1976
TO
: Goodwin Chase
Board Member
FROM : R. C. Holmaui RCN
Chairman
SUBJECT: Your Memorandum of May 3, 1976 re
Lockheed Aircraft Corporation
FYE 1972
In reading your memorandum of May 3, I find several state-
ments which appear to be inaccurate and/or misleading, and
I would like to comment on them as follows.
You seem to feel that your authority as Division Chairman
has been abrogated, I do not understand how you can arrive
at such a conclusion since my memorandum of April 29 to you
indicates clearly that Mr. Driscoll is available to work on
the Lockheed case, and his availability has not been rescinded.
However, as I have indicated to you, it is my judgment, as
well as that of Messrs. Grenough, Chick and Johnson, that we
should proceed on this important case in an orderly manner
as outlined in this same memorandum. I stated further that
if it is imperative for Mr. Driscoll to be assigned immediately
instead of waiting for him to finish the case he is now working
on, I would see what could be done.
Your statement, "That the oversight responsibility of the
Division Chairman is being stifled by procedural limitation
not heretofore practiced by the Board" is questionable. There
is no intention, nor to my knowledge has there been any effort
on the part of anyone, to stifle a thorough and expeditious
review of the Lockheed case. As to a change in practice of
how cases are handled, I perceive no significant difference
between the way this case is being processed and other cases,
except perhaps for the fact that you have sought the assistance
of the Defense Contract Audit Agency in the investigation.
I take exception to your statement about your "insistence that
the Board review the Regional Board recommendation
As
I pointed out in my separate response to the minutes of your
divisional meeting on April 28, it was at my insistence,
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4-70
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as Chairman of the Board, that this case was assigned to
a division. Please refer to the Board minutes of
December 12, 1975.
You state that your efforts are meeting with increasing
resistance from Board Members and the Director of Operations.
This is a serious charge. I am not aware of such resistance,
and since it is my responsibility as Chairman to stop any
such resistance immediately, I would like to have the
particulars on this accusation so that I can take appro-
priate action.
Your reference as to how Mr. Driscoll became involved in
working on the case is somewhat cloudy to me, particularly
with regard to the sequence of events. For instance, it is
my understanding that you and/or Mr. Davis approached Mr.
Driscoll about working on the case without first informing
either Mr. Kandt, Mr. Johnson or Mr. Grenough, all of whom
are in supervisory positions over Mr. Driscoll. In any
event, Mr. Johnson did make Mr. Driscoll available. Mr.
Driscoll is still available, as indicated in my memorandum
of April 29, and I only asked that, if possible, his
working on the Lockheed case be delayed until he finishes
up the case he is now working on.
I am somewhat confused by your statement that you have
concluded that the case and its involvements are beyond
the time-frame capability of your staff. This case, like
all other cases, will require the assistance of the Office
of Financial Analysis in the development of the case, and
Mr. Chick is fully aware of this. He will give you all
the help necessary in reviewing this case.
Your memorandum states that I suggested the Board should
use the Western Regional Board to fulfill the audit require-
ments in the development of the Lockheed case. This is a mis-
statement, and I want to correct it. What I said was that
since the Western Regional Board had already completed its
work on this case, the experience and background they have
SEAL Febo ENTRARY
- 3 -
developed in connection with it could be helpful in the
investigation now being made by your division. In this
connection, you referred to the Western Regional Board's
glaring oversight of critical data disclosed in your
review of the RB-1 and case file. I think that you ought
to wait until all of the facts are in before drawing such
conclusions. It seems premature to indict the Western
Regional Board with this kind of criticism.
You go on further to refer to "obvious information" your
office and the Office of Financial Planning has developed.
I presume you mean the Office of Financial Analysis. At
this point that Office is in the midst of its review of
this case and has made no report, nor, as far as I know,
drawn any conclusions. So again, I think you are a bit
premature with such statements.
You also refer in your memorandum to your visit to the
Los Angeles office where according to you two officials
said that their work was being directed by the Statutory
Board and their independent judgment on the method and
depth of analysis was not being considered. This is a
serious charge, and I would like to have further details
as to when this took place and who the officials were.
As you know, the Statutory Board does not interfere with
the independent judgment of the Regional Boards.
I hope this memorandum will be helpful in clarifying the
record. Meanwhile, I trust this case is moving ahead as
quickly as possible under the arrangements outlined in
my memorandum of the 29th.
CC: Board Members
Mr. Grenough
Mr. Chick
Mr. Johnson, ERRB
Mr. Broselow, WRRB
TORDO LIBRARY
May 6, 1976
MEMORANDUM TO : R. C. Holmquist, Chairman
FROM
: Goodwin Chase, Board Member
SUBJECT
: Your Memorandum of May 5, 1976 re
Lockheed Aircraft Corporation
Fiscal Year Ended December 31, 1972
Your memorandum of May 5 is distressing and leaves me no
responsible alternative but to restate the facts as I related them to
you yesterday morning.
(Your Memorandum, Paragraph 2)
My authority as a Board Member and Division Chairman has
been abrogated. After having gone through channels, Mr. Driscoll
performed services for my office and the Office of Financial Analysis
until suddenly on April 26, without my knowledge, he was ordered
by the Director of Operations to return to the Eastern Region. Your
later memorandum of April 29th was written after the fact and I had
brought the matter to your attention.
(Your Memorandum, Paragraph 3)
My oversight responsibility as Division Chairman has been
stifled. Among other occurrences, Mr. Sylvester's legal memorandum
of April 30th challenging authority to call upon the Defense Contract
Audit Agency, together with the Director of Operations withdrawing
Mr. Driscoll, stifled my efforts. I did not seek the assistance of
the DCAA. Mr. Don Grenough, then Director of the Office of Accounting,
properly initiated the original inquiries and I made appropriate addi-
tional requests thereafter.
(Your Memorandum, Paragraph 4)
Indeed, you should refer to the Board Minutes of December 12,
1975, wherein it is stated:
"Mr. Holmquist moved to assign this case to a
Division of the statutory Board in view of serious
charges made by one Member of the Board."
STATE R. FORD LIBRARY
But for my insistence, the case would have been cleared.
(Your Memorandum, Paragraph 5)
Refer to Paragraph 3 above.
(Your Memorandum, Paragraph 6)
I am the source of your "understanding." I related to you
on two occasions that Mr. Davis, at my request, casually inquired
of Mr. Driscoll how his workload was coming, and Mr. Driscoll
said he was finalizing a case which would catch him up, or something
to that effect. Learning of that, I then went through channels.
(Your Memorandum, Paragraph 7)
As I told you yesterday morning and related in my memorandum,
the time frame capability problem of my staff refers to the 2,000 pages
of documents pertaining to gross inefficiency, thus the need for Mr.
Driscoll.
(Your Memorandum, Paragraph 8)
In our meeting on April 28th, you stated that we should use the
Western Regional Board for our audit because we are having budgetary
problems and that the $3,000 I requested for the audit may not be
available. I insisted that it would not be appropriate for the Western
Region to be in control of the audit after it had recommended a clearance.
I have expressed approval of the Region assisting us.
With reference to the glaring oversight of critical data disclosed,
the fact is I have that information and will be pleased to discuss it with
you at any time you wish.
(Your Memorandum, Paragraph 9)
The fact is, the Office of Financial Analysis has made a pre-
liminary report to me of the information it has developed and on April 28th,
I reported that information to the Division.
- 2 -
SEAL N. FORD
(Your Memorandum, Paragraph 10)
I stand firmly behind my statement regarding advice given me
by officials of the Western Regional Board. The fact is, the Statutory
Board did direct the affairs of the Region and judging by the Lockheed
Aircraft Corporation recommended clearance, I suspect it may still be
doing so. The two people who advised me gave me concrete evidence
of the interference. Should I disclose names, their positions would
be jeopardized.
(Your Memorandum, Paragraph 11)
I agree that your memoranda and discussions with me indicate
that you are injecting yourself into the Lockheed case, of which I am
the Division Chairman.
cc: Board Members
Mr. Grenough
Mr. Chick
Mr. Johnson, ERRB
Mr. Broselow, WRRB
SERVICE R. FORD LIBRARY
- 3 -
THE RENEGOTIATION BOARD
DATE :
July 7, 1976
TO
:
J. S. Lieberman, Jr., Acting Director
Office of Financial Analysis
FROM :
H. M. Chick, Director
General Counsel
SUBJECT:
Lockheed Shipbuilding & Construction Co.
FYE: 12/31/72
I think it is important that I bring you up-to-date on
developments on the Lockheed case as of yesterday morning when
I was still Director of the office.
I took Bob Moreland, Jack O'Connor, Tim Driscoll and Henry
Miller to Mr. Chase's office in the morning for essentially a
brief rundown by Jack and Tim of their activities for the past
week and a half in connection with Lockheed and their trip to
Seattle. The reports of both Jack and Tim were concerned with
the Technical Analysis Reports (TAR) of the Navy with respect
to the claims filed by Lockheed Shipbuilding with respect to
the contracts completed in this year, and information from the
Navy and the FBI concerning the same thing.
Jack 'Connor and Tim Driscoll indicated that it would take
them from one to two weeks to produce a report on the investi-
gations conducted in Seattle, therefore it was concluded that we
must await this report and Lockheed's response to our accounting
letter of May 13, 1976 and an analysis thereof before we could
decide on the next course of action.
FORD LIBRARY 07VU30
RBF-37 INTEROFFICE MEMO
4-70
Some items in this folder were not digitized because it contains copyrighted
materials. Please contact the Gerald R. Ford Presidential Library for access to
these materials.
THE WASHINGTON POST
Friday. July 9. 1976
D15
Jack Anderson and Les Whitten
Auditing Lockheed
The incredible Lockheed Aircraft
"DCAA did attempt to pursue such
Corp., plagued with mismanagement,
audit activities in two of our divisions,"
on the brink of bankruptcy, under fire
reported Thomas J. O'Hara, a corporate
for bribery, had the temerity recently
vice president, in an April 1 memo,
to chase federal auditors from its door.
"but I refused to grant them access/'
The industrial colossus is dependent
He contended that the Renegotiation
upon the Pentagon for a whopping $2
Board should be conducting the audit,
billion worth of business a year. The
declaring militantly: "The industry
July 12, 1976
MEMORANDUM TO DIVISION MEMBERS: Rex M. Mattingly
Norman B. Houston
SUBJECT: Lockheed Aircraft Corporation
Fiscal Year Ended December 31, 1972
Attached is a copy of Mr. Thomas J. O'Hara's letter of
April 1, 1976 to Mr. J. M. Turner, Assistant Director, Aerospace
Procurement Service, Aerospace Industries Association of America,
Inc., which I discussed last week with:the Chairman and brought
to your attention this morning in Executive Session.
For your information, I have assurance from Mr. Frederick
Neuman, Deputy Director, Defense Contract Audit Agency, that
neither he nor his assistant discussed with Mr. O'Hara or anyone
at the Lockheed Corporation that "The Board has had several dis-
cussions with DCAA and has made available to DCAA several
renegotiation filings of major defense contractors, for its review
and analysis,' and further that I" brought the matter to the
personal attention of the members of the Renegotiation Board and
obtained legal clearance from his General Counsel that such request
was proper under the provisions of current legislation."
Mr. Neuman stated that his conference with Mr. O'Hara was
in the presence of his assistant and another Lockheed executive. He
further stated that until my telephone conversation, he did not know
I had discussed the matter with the Board or had a legal opinion.
Attachment
charge
Goodwin Chase
CC: Mr. Holmquist
Board Member
Mr. Sylvester
FORD 3. LIBRARY SERVICE
"R"
LOCKHEED AIRCRAFT CORPORATION
BURBANK, CALIFORNIA 91520
April 1, 1976
Mr. J. M. Turner
Asst. Director Aerospace Procurement
Service
Aerospace Industries Association
of America, Inc.
1725 De Sales Street, N. W.
Washington, DC 20036
Dear Eiff:
Subject: DCAA Role of Audit Function for Renegotiation Board
Attached for your information is the text of a recent letter (probably mid-March)
from Goodwin Chase of the Renegotiation Board to Eernie Lynn, DCAA, requesting the
assistance of DCAA in auditing Lockheed's renegotiable filing for FY/1972. DCAA
mid attempt to pursuc such audit activities in two of our divisions but I refused
to grent them access. This afternoon I had an informal discussion in my office
with Fred Neuman of DCAA, and believe the conversation will be of interest to you.
scussed the fact that the Comptroller General noù issued triu reports last year
ghting alleged deficiencies in the Renegotiation Board's handling of its
IC
ties. Several recommendations were made by GAO to improve the Board's opera-
tions, including, inter alia, a recommendation that the Board perform more detailed
audit of contractors' filings and utilize the services of the IRS and DCAA in that
regard. The Board has had several. discussions with DCAA and has made available to
DCAA several renegotiation filings of major defense contractors, for its review
and analysis. When Mr. Neuman informed Mr. Chase that DCAA would have to visit a
contractor's plant and inspect records at that plant before it could make valid
comments on 8. filed report, Mr. Neuman requested that Mr. Chase send a formal
written request to DCAA to inspect such records for the stated purpose. Before
transmitting the attached text to DCAA, Mr. Chase supposedly brought the matter to
the personal attention of the members of the Renegotiation Board and obtained legal
clearance from his General Counsel that such request was proper under the pro-
visions of current legislation.
We further discussed the fact that under the proposed legislation in the Minish
Bill (which has passed the House and is, hopefully, stalled in the Scrate) DCAA will
De specifically ordered to assume a greater role in assisting the Renegotiation
Board in audit activities. I gathered that Mr. Neuman would like to gauge the
extent of manhours involved in such an exercise in order that DCAA may be in a
position io request the appropriate additional personnel if the Minish Bill should
Decome law.
Mr. Noumen queried me us to why I had "chased" his auditors away, I explained
thought their activities in that regard were improper, under my concept Griend
LOOK ro LOCKHEED ΓOK LEADERSHIP
X.S.m Terner
-2-
April 1, 1970,
lation activities should be conducted. I explained that renegotiation
ncc an excess profit tax and should be handled like any other corporate
natter; that DCAA involvement in such function provided & "grave potential for
11 since they would be conducting other audits in the came timefrane relating
bats incurred under incentive contracts and with respect to allowable costs for
period. I told him I considered it imprudent on DCAA's part to accede to the
est of Mr. Chase. I told him that the request of the Board seemed inconsistent
the literal language of the existing Renegotiation Act, as well as the existing
S & Regulations of the Board, to say nothing of the fact that since passage of
present legislation in 1951 the DCAA has never been involved in connection with
audit of renegotiable filings. The DCAA presently complains it is overburdened
is quite dilatory in fulfilling its main function of assisting DOD Contracting
ccr, etc. -- to blindly take on this added significant function could only
ate further its capability to perform its main function.
discussion was frank and without rancor. Neither Mr. Newman nor I disputed the
its of cither side --- we just stated the facts as we knew them and the opinions
had with respect thereto. We parted on a most friendly note with Mr. Neuman
recing to bring the matter to the attention of Mr. Lynn and Mr. Chase promptly.
ould suggest that Industry must line up its argument as to why the DCAA's role
gotiation is ill-advised, illegal and/or improper. You will note further
ase's letter refers to analysis of the "sales, cost and profit data of the
tona' various renegotiable product lines." This is consistent with the pro-
st last Fall of the Renegotiation Board that it henceforth would analyze
on such a basis despite the explicit language in the present Statute.
Neuman did state that Lockheed was the only company that DCAA had attempted to
dit for the Rencgotiation Board. Whether they will now try it out on some other
Durpany or persist in their efforts to audit us is undecided.
im attaching a legal observation from my most capable attorney, Maury Paradis,
nat advances some cogent arguments. Others should consider what further arguments
mdustry can advance. Moreover, we must not be unmindful of the audit language in
the Minish Bill if it should surface in the future (I think June 30 is the drop-
read date)
Sincerely,
Tom
Thomas J. O'Hara
Vicc President
Contracts and Pricing
FORD
ments
STATE
LIBRARY
i. K. Cook
v. F. Knutze
J. C. Fogarty
V. N. Marafi
J. Freeman
N. L. Robert
D. A. Niport
N. J.. Smith
M. L. Peradis
G.G.Mmdppl
JOW/RJ/CBH
THE RENEGOTIATION BOARD
REPORT OF:
X
Telephone Conversation
Personal Interview
Conference
X
Headquarters
Regional Board
Wednesday, July 14, 1976 - 8:45 a.m.
(Date and Time)
Lockheed Aircraft Corporation
(Contractor's Name)
(Asgmt. or LPI No.)
FYE December 31, 1972
(Contractor's Address)
(F/Y/E)
(Contractor's Tel. No.)
Frederick Neuman, Deputy Director, DCAA
NAME OF ALL PERSONS CONFERRING:
Goodwin Chase, Board Member
REPORT OF DISCUSSION:
Mr. Frederick Neuman, Deputy Director, DCAA, advised me by
telephone this morning that my request for his auditors to return to
Lockheed, should the contractor consent, has been denied.
Mr. Neuman advised the request was taken up with Assistant
Secretary of Defense McClary.
Referring to the Jack Anderson column of July 9th, Neuman said
the decision was based on the desire that the DCAA should "lay low."
Mr. Neuman assured me that in the event any representative of
the Board makes a Lockheed plant visit, their resident auditors will be
pleased to cooperate in any way they can, but such cooperation would
be limited to information already developed.
Mr. Neuman considered my request that DCAA re-enter Lockheed
as "informal" and indicated he would appreciate our not considering it
a formal request.
I hastened to thank Mr. Neuman for the contribution he and DCAA
have made for the Board and assured him that my request was indeed
informal.
and
SEAL FORD
Interviewer(s) Goodwin Chase
(Use other side or separate blank sheet for additional space if needed)
Board Member
Form RB 68
4-67
(over)
cc: Board Members, Office of Financial Analysis, General Counsel, H. Miller,
J. O'Connor, T. Driscoll, Central Files
"s"