LETTER TO (Sanitized) ACCOUNTING MANAGER FAIRCHILD SPACE AND DEFENSE SYSTEMS FROM (Sanitized) CONTRACTS MANAGER

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP66B00728R000400020019-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 12, 2016
• Document Release Date: May 1, 2002
• Sequence Number: 19
• Publication Date: September 15, 1964
• Content Type: LETTER

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F AI R C H I L.LD 313 FAIRCHILD DR., MOUNTAIN VIEW, CALIFdRNIA 81041.415-862-5011 - CABLE FAIRSEMCO MOUNTAIN VIEW CALIFORNIA
CAMERA AND INSTRUMENT
C' F==1 P O R A T I O N
REC,D
SE 1 7 1964
P. B. H.
STATINTL
Accounting Manager
Fairchild Space and Defense Systems
300 Robbins Lane
Syosset, L. I., New York
September 15, 1964
The enclosed vignette (or the D.O.D./contractor corres-
pondence "where the good guys win")is one of the few examples
that I know of where misapplication of the ASPR's at a local
level has been hurriedly corrected at Headquarters. If you have
similar case histories, I would be interested in receiving what-
ever you might have.
Enjoyed very much dining with you and Larry while you
were here, and I shall make a point of calling on you if and
when I get back to Syosset.
STATINTL
DOCUMENT NO. _-------
NO CHANGE IN CLASS. 1
CLASv. CPr,!,'G!11 70: TS
NEXT REVEEW DATE'-
AUTH: DATE. ` 2 REYIEWERI-064540
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 1. In order for this office to f rni ~h inf~,rm.,;tion on c~;rrcr;t
uovernment procurement to into-e_
it would be appreciated if d :;ovez?a,aort contractin/; officers,
you.*
ou.
information: ic..1 Would provide the follow,
r-,
a. A list of all Government end use prime and sub fixed-price
contracts, which contain the defective pricing clause, completed by
your company during the year 1962 and t;arou October of 1963. This
contract.- ; should contain the fo11ow1ng information for each prime and sub
DEPARTMENT OF THEE AIR FORCE
HEADQUARTERS UNITED STl,?r.S AIR FORC[
WASHINGTON IS. D.C.
A?NOI. 1069 East Meadow Circle, Palo Alto, California, 9L303
.uwic,, Request for Information
:: Dec 63
STATINTL
(1) Contract number any./or pu;?chat o order
(2) game of customer
(3) End iten(s) produced
-'~'- (L) J.ctual cost
(5).Contract price
2.
Your compliance by 30 December 1963 will be appreciated,
101,
an Carlos I
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Grr+BMT L,'-
Chat
copies to:
AI?~LG=~a~-C
STATINTL
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December 16, 1963
Mr. Gilbert L. Ktifahl
Chief
USAF Auditor General Branch Office
10G9 Last Meadow Circle
Palo Alto, California
Dear Mr. }cufahl:
Your latter, dated December 11, 1963, requested that we
furnish you our actual cost records for completed Fixed
Price Government Contracts. The apparent purpose of t ,%o
request is to check the accuracy of our estimates since
reference is made to the "Price Reduction for Defective
Cost or Pricing Data" clause.
It is our understanding that this clause is not intended
to give the Audit Agencies the right to audit actual costs
incurred in the performance of the contracts in which it
is included. We quote from a statement made to Y71:Mt% by
Mr. G. C. Bannerman, Deputy Assistant Secretary of Defense
(procurement) discussing informally the current DOD think-
ing on Public Law 87-653 and ASPRs ......But it should
be noted that our audit provision for firm fixed price
contracts does not purport to give the Government any
right to examine actual costs of performance which are
incurred after the price is fixed - rather it is: for the
purpose of verifying that cost data submitted are accu-
rate, complete and current as of the time of their sub-
mission." Further, we have been assured that under no
circumstances is this clause to be used as a method of
converting all Fixed Price Contracts into "Redeterminable
Downward Only" or *CM* contracts.
Therefore, consistent with DOD Policy as we understand it,
we must refuse to furnish your office with the information
requested.
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Mr. Gilbert E. 1 ufuhl
D?ccmber 16. 1963
Page 2
wo are forwarding your letter to our Marketing Division
for reference to DOD so that we may obtain a clarifica-
tion oA-a policy.
Wry truly yours,
EITEL McCULLOUGHO INC.
STATINTL
STATINTL
Controller
Contracting Officer, S.B.
Contract Management District, Palo Alto, Calif.
STATINTL
bcc (3)
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December 17, 1963
Department of Defense
Washington 25, D. C.
Attentions A5P Comittee
Col. W. W. Thybony, Chairman
subjects Audit of Actual vs. Estimated Coate on
Firs Fixed Price Contracts
6ontleman s
We enclose a copy of a latter recently received from
our cognizant Governmer_t Audit Agency, requesting a
listing of actual costs and contract prides on contracts
containing the defective pricing clause.
As you know, industry was worried that hindsight i,aaad
an actual performance costa compared with original
estimates would be utilized to determine price adjust-
ments for defective cost data. Industry was repeatedly
assured during discussions pertaining to the iuplem;tntation
of PL 87-643 that audit provisions for firm fixed price
contracts does not purport to give the Government any
right to request or examine actysl costs of performance
which are incurred after the ptLce is fixed -- rather it
is for the purpose of verifyin-; that cost data submitted
are accurate, complete and curie t as of the time of
their submission.
In view of the above, we would Oppreciata receiving a
restate?ent of policy with rezjs$at to the audit of or
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I
,) vi
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:mac:; ~,xr 17, 1963
P age Two
use of actual coats of performance on firm fixed price
contracts for use in defective pricing determinations.
Your early reply will be appreciated in order not to
unduly delay our reply to this letter.
Very truly yours.
Kanager
Goverment Marketing
W Badb
Laalosure
STATINTL
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OPPICE OF THE ASSISTANT SECRETARY OF DEFENSE
WANW OTOM, P.C. lwol
2 4 DEC 1963
STATINTL
San Carlos, C ornia
Dean
STATINTL
Thank you for your letter of 17 December enclosing a copy of a letter which
you had received from the Branch Office of the Air Force Auditor General
requesting data on actual costs incurred under fixed price contracts.
You are quite right in your understanding that, in the development of regu-
lations pursuant to Public Law 87-653, the Department agreed with industry
representatives that the cost data we would seek for negotiated, non-
competitive, firm fixed price contract under this statute would only be that
which was available at the time of certification. The Department agreed
that it would have no right to audit costs incurred after the date of certifi-
cation on such contracts. The "Audit and Records" clauses adopted in
ASPR for this purpose make it clear that the Department does not have any
such right.
As part of these discussions with industry representatives it was agreed
that the actual costs of performing fixed price contracts would be of interest
to government contracting officers only in connection with the pricing of
following contracts for the same item. Where cost data is required for this
purpose, it would be requested, furnished and certified, as appropriate, in.
connection with the pricing of the follow-on contract. Hence, there is no
need to request it, and it should not, in fact, be requested, in the admini-
stration of the contract under which the costs are incurred.
I am informed by Dr. Borth, the Deputy Assistant Secretary of Defense
(Accounting and Audit), that instructions consistent with the foregoing state-
ment will be furnished to the contract audit activities of the Department.
nce r ely,
GRAEME C. BANNERMAN
Deputy Assistant Secretary
of Defense-(Procurement)
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DEPARTMENT OF THE AIR FORCE
HEADQUARTERS UNITED STATES AIR FORCE
WASHINGTON 25, D. C.
REPLY TO USAF Aud Cen Br Ofc
ATTN OF : 1069 East Meadow Circle, Palo Alto, California, 94,303
SUBJZCT s Our Request for Information on Fixed-Price 30 Dec 63
Contracts and Subcontracts
STATINTL
Eital-McCullouth, Inc.
1. Reference is made to our letter of 11 Dec 63 in which we asked for certain
information on all Government end-us. prime and sub fixed-price contracts
completed by your company during the years 1962 and 1963.
2. Subsequent to the date of our letter, we received clarification from
higher headquarters on the subject matter. As a result of the clarification,
we withdraw our request of 11 Dec 1963 for information on fixed-price
prime and subcontracts.
GILBERT Z.'KUFA L Copies to:
Chief- AFAUDG-WE-C
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