oversight

Fees Allowed Nonsponsored Not-for-Profit Organizations by Various Government Agencies

Published by the Government Accountability Office on 1971-11-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

REPORT    TO THE CONGRESS’

                        IIIIIRIIlllllIlllllllllllllll
                              LM095465




Fees Allowed Nonsponsored
Not-For-Profit Organizations
By Various
Government Agencies B-14687o




BY THE COMPTROLLER   GENERAL
OF THE UNITED STATES
                  COMPTROLLER        GENERAL     OF      THE      UNITED    STATES
                                   WASHINGTON.    D.C.         20548




B-146810




To the President   of the Senate    and the
Speaker  of the House   of Representatives

           This is our       report  on fees allowed    nonsponsored                         not-for-
profit     organizations        by various   Government      agencies.

         Our review  was made pursuant          to the Budget     and Account-
ing Act, 1921 (31 U.S.C.         53), the Accounting      and Auditing   Act
of 1950 (31 U.S.C.     67), and the authority        of the Comptroller      Gen-
eral to examine     contractors’       records   as set forth   in 10 U.S.C.
2313(b).

        Copies    of this report           are being  sent to the                    Director,   Office
of Management        and Budget,           and to the departments                        and agencies
mentioned      in the report.
                                                                   .                                      hi




                                                                       Comptroller       General
                                                                       of the United     States




                           ‘50TH   ANNIVERSARY                   1921-     1971
      COMPTROLLERGENERAL'S                                   FEES ALLOWED NONSPONSORED NOT-FOR-PROFIT
      REPORTTO THE CONGRESS                                  ORGANIZATIONS
                                                                        BY VARIOUS GOVERNMENT                                           ?
  I                                                          AGENCIES B-146810
  I

      DIGEST
      ------

      WHYTHE REVIEW WASMADE

  1          In a previous      report,     the General      Accounting       Office     (GAO) advised           the
             Congress    that there      was need to improve          Federal      agencies'       guidelines        for
             contracting     research     work with Government-sponsored                 nonprofit        contractors
             (B-146810,     February     1969).   These are nonprofit              organizations          sponsored
             by an agency which has assumed responsibility                     for providing          sufficient
             work and revenues         to ensure   retention      of capabilities            acquired to meet
             Government     needs.

             In addition         to contracting          with sponsored              nonprofit      organizations,            Govern-
             ment agencies          obligated       during       fiscal      year 1969 about $260 million                     for
             basic and applied             research      to be performed              by nonsponsored          not-for-profit
             institutions          other     than colleges           and universities.              For comparison            pur-
             poses,       GAO has now examined             into agency policies                and practices          in the
             allowance        of fees to nonsponsored                 not-for-profit           organizations          at six De-
  I          partment       of Defense         and eight       civil     agency offices           that award cost-plus-
  I          fixed-fee        contracts        for research          with not-for-profit             organizations            on a
             significant         scale.

             At three     of these larger            nonsponsored        not-for-profit         research     institutes,
             information      was obtained           on Government         fees received.          These three        were
             selected     because     their      clients      include      nearly       all departments     of the
             Government     and because          they are generally             in competition        with universi-
             ties    and other    not-for-profit            organizations,           both sponsored       and nonspon-
             sored,     as well as with commercial                 organizations,           for the award of Govern-
             ment research       projects.

             GAO's review      did not include        an evaluation       of the reasonableness          of profit
             ranges prescribed        in Government      regulations        for payment    to either       commer-
             cial  or nonprofit       organizations,       the profits        or fees paid,     or the profits
             or fees actually       earned.       A comparison      was made of fees allowed           nonspon-
             sored not-for-profit         organizations       in relation        to profit   rates   allowed
’ I          commercial    organizations.


      FIil@IiVGS ANL)COX'LUSIONS

             In many      instances,   nonsponsored     not-for-profit       organizations     which pay no
             Federal      income taxes on fees earned on Government               work are allowed      approx-
             imately      the same rate of fee on estimated            costs   that commercial     profit-
             making      organizations    receive   for doing similar        work.



      Tear Sheet
                                                                        z                  WO%26,1971
                                                                                                                    I
                                                                                                                    I
                                                                                                                    I
                                                                                                                    I
                                                                                                                    I
                                                                                                                    I
Most Federal     civil  agencies    do not make any distinction        between     tax-                             I
                                                                                                                    I
exempt organizations       and commercial    organizations     in computing      fee ob-                            I
jectives.      The Atomic    Energy Commission     (AEC), however,     developed                                    I
guidance  in 1963 for considering         the tax posture    of not-for-profit          orga-                       I
                                                                                                                    I
nizations    in fee negotiations.                                                                                   I
                                                                                                                    I
                                                                                                                    I
GAO's detailed        analysis      of contracts      awarded    by six civil         agency procure-               I
ment offices       during     a 4-year    period    to the three       not-for-profit        organi-                I
                                                                                                                    I
zations      showed that      the composite      weighted     average     fee rate was only                         I
0.6 of a percentage           point   less than the average          fee paid commercial           or-              I
ganizations.                                                                                                        I
                                                                                                                    I
                                                                                                                    I
The average    varied    substantially             for each of the six procurement                      offices,    I
                                                                                                                    I
from 0.4 of a percentage           point         more for one agency on fees paid                     to one        I
not-for-profit      to 2.1 percentage              points    less for another agency                  on fees       I
                                                                                                                    I
it paid to another       not-for-profit.                (See pp. 8 to 16.)                                          I
                                                                                                                    I
The Department      of Defense      (DOD) revised       its procurement        regulati    ons in
                                                                                                                    :
December 1966 in recognition           of the tax-exempt           status   of not-for-profit                       I
organizations.        Fee objectives       in contracts       with such organizations          were                 I
                                                                                                                    I
to be adjusted      by application       of a special       factor      of minus 3 percentage                       I
points     where the proceeds      of the contract         were not subject         to Federal                      I
income taxation.                                                                                                    I
                                                                                                                    I

During    a 2-year     period     after       issuance    of the revised procurement                   regula-      I
                                                                                                                     I
tion,   the composite         weighted        average   rate of fee paid the three                    nonprofits     I
by DOD was only 1.2 percentage                   points   less than the average   fee                 paid com-     I
mercial    organizations.           (See      pp. 17 to 22.)                                                        r
                                                                                                                    I
                                                                                                                     I
DOD reported         to GAO that   there  was nothing   in its written      policy to the                            I
                                                                                                                     I
effect     that    fees to nonprofits     are to be less than fees to commercial          or-                        I
ganizations.           GAO is of the opinion    that application      of a minus 3 percent-                         I
                                                                                                                    I
age point       adjustment    would have such a result,        all other  factors  being                            I
equal.                                                                                                              I
                                                                                                                     I
                                                                                                                    I
In GAO's opinion,            most agencies       of the Federal              Government      have not given          I
adequate      recognition         to the tax-exempt            status      of not-for-profit            organi-      I
                                                                                                                    I
zations     nor to the need for an appropriate                        adjustment       of fees to place             I
them on an equitable              basis with their           commercial         competitors.          Without
this    recognition         nonsponsored      not-for-profit             organizations        may have a            1
                                                                                                                    I
competitive         advantage       when dealing      with Government              agencies,       such as           I
that which results             from their     ability        to retain        and use a higher           percent-   I    ’
                                                                                                                    I
age of earnings           to improve      physical      plant       and technical         capabilities.
                                                                                                                    ;
The nonsponsored        not-for-profit        research    institutes          included      in GAO's re-            I
                                                                                                                    I
view do not agree that            their  fees should      be so adjusted.               They contend                I        L
that    the Congress,       in granting     tax exemption,         recognized         the need for,                 I
                                                                                                                    I
and encouraged      the development         of, independent          not-for-profit           organiza-             I
tions     as being in the public         interest      and that      therefore        adjustments       of          I
                                                                                                                    I
fees based on this          tax exemption       would defeat       congressional           policy     and           I
intent.      The institutes         did not identify      the basis for their               contention.             I
                                                                                                                    I
                                                                                                                    I
                                                                                                                    I
                                                                                                                    I
                                                                                                                    I
                                                      2                                                             I
                                                                                                                    I
                                                                                                                    I
                                                                                                                    I
    I
    I
    I
        .          GAO's review      of legislative        background    material     concerning    tax exemption
    I              of not-for-profit        organizations       did not disclose       any consideration      of
                   the fee structure        other     than the stipulation        by the Congress       that none
                   of the net earnings         of the not-for-profits          should    inure   to the benefit
                   of any private      individual.


            RECOiWdENDATIONS
                          OR SUGGESTIONS

                  In a draft of its report provided             to various     Government    agencies     and the
                  three      contractors,    GAO had proposed      that the Director,       Office    of Manage-
                  ment and Budget (OMB), head an interagency                study leading       to the develop-
                  ment of a Government-wide         policy     governing    the negotiation        of fees to not-
                  for-profit         and commercial organizations,       which gives consideration           to the
                  tax posture of each type of organization.                 (See p. 23.)

                   GAO also suggested      that,   pending        the development      of the Government-wide
                   policy,    each agency reevaluate           its current     policy    and take steps neces-
                   sary to ensure     that fee payments           are adjusted      to adequately   recognize
                   the tax-free    status    of not-for-profit          organizations.


            AGENCYACTIONS AND UNRESOiVEDISSUES

                   Comments    on the    draft   report    were   received     from   the    agencies    and contrac-
                   tors.
.   1
    1              The General    Services     Administration          proposes     to convene an interagency
                   task group to develop         an appropriate         temporary     Federal  Procurement       Regula-
                   tion which would provide          uniform     civilian       agency adherence      to a require-
                   ment for adjusting       fee payments       in recognition         of the tax-free     status     of
                   not-for-profit     organizations.          (See pp. 25 and 26.)

                   The Department       of Health,     Education    , and Welfare      and    the Department    of
                   Transportation       are developing      interim    guidelines      for    issuance.     (See p.        24.)

                   The National       Aeronautics        and Space Administration         (NASA) says that,     as
                   an interim      measure,      it will    caution   buying    personnel     to consider   the
                   tax-exempt      posture     of contractors       when negotiating       fees with not-for-
                   profit    organizations.         (See p. 26.)

                   DOD believes       that   its guidelines are adequate,     that   they have generally
                   been followed        by procurement    activities, and that a study by OMB would
                   not prove to be productive          in appreciably  changing    fee rates  to not-for-
                   profit   organizations.         (See p.     27.)

                   The Agricultural        Research   Service  and the        Agency for International            De-
                   velopment     recognize     the need for guidelines          but are awaiting       the     results
                   of the study by OMB.           (See P. 25.)
                   OMB believes    that  the legislative         charter       of the Commission        on Govern-
                   ment Procurement     would include         any study      of contractor   fees.        Therefore,


            Tear Sheet
                                                                     3
  although      OMB would work       with the Commission           and the affected agencies,               ’   ,
  OMB feels      that it would       be premature to take           the   leadership.        (See
  P. 28.)

  GAO believes       that   OMB is the appropriate             agency to assume the respon-
  sibility    for ensuring        that    the procurement         regulations      of all agencies
  reflect   a single      overall      Government       policy    for determining         fees to be
  paid to the tax-exempt            organizations.           It is particularly         suited   to this
  task because it is a permanent                organization        (as contrasted        with the Com-
  mission   on Federal       Procurement),         has overall       management      and coordination
  functions     within    the executive         branch,      and has experience         in procurement
  matters.      (See p. 32.)

   GAO’s defense profit                study report     of March 17, 1971 (B-159896),                  recom-
   mended that            OMB take the lead in interagency               development        of uniform
   Government-wide            guidelines       for determining        profit    objectives        for nego-
   tiating         Government      contracts      that will     emphasize      consideration         of the         t
   total      amount of contractor             capital    required      when appropriate,           where ef-       /
   fective         price    competition      is lacking.        Such an interagency           study could in-       ;
   corporate           the development       of a policy       governing     negotiation        of fees to          I
                                                                                                                    1
    not-for-profit           organizations.                                                                         I
                                                                                                                    1

                                                                                                                    1
MATTERS
      FORCONSIDERATION
                    BY THECONGRESS                                                                                  ,1

   GAO is bringing     this matter    to the attention        of the Congress     in            view of
   the need for a Government-wide         policy    governing    the negotiation                of fees
   to not-for-profit       and commercial    organizations,      which recognizes                 the tax
   posture     of each type of organization.
                          Contents
                                                                  %a32
DIGEST                                                              1

CHAPTER

  1       INTRODUCTION                                              5

  2       NEED FOR GOVERNMENT-WIDE        GUIDELINES AND
          IMPROVEDAGENCYPRACTICES TO ENSUREADE-
          QUATE CONSIDERATION OF CONTRACTORS'TAX-
          EXEMPT STATUS                                             8
              Civil agency fee rates to nonsponsored
                not-for-profits        comparable to commer-
                cial fee rates                                     8
                   Procurement regulations         of most
                      civil     agencies do not distinguish
                      between the exempt nonprofits         and
                      taxpaying commercial organizations            9
                   AFC fee policies       and practices    give
                      recognition      to contractors'   tax
                      posture                                      13
              DOD fee policy recognizes tax posture
                but objective       of policy is not fully
                achieved                                           14
                   Comparison of DOD not-for-profit
                      rates with commercial rates                  17
                   Comparison of DOD fee rates before
                      and after Defense Procurement
                      Circular     50                              19
                   Ineffectiveness       of Defense Procure-
                      ment Circular      50                        20

   3      AGENCYAND CONTRACTORCOMMENTSAND OUR
          EVALUATION                                               23
              Civil agencies using Federal Procurement
                Regulations     generally    concur in need
                 for guidelines                                    24
              General Services Administration         to
                 convene interagency      task group               25
              NASA would participate        in determination
                 of need for guidelines                            26
                AEC favors a Government-wide policy but
                  questions need for uniformity                 27
                DOD believes OMB study would not prove
                  to be productive                              27
                OM3 to await action by Commission on
                  Government Procurement                        28
                Contractor  comments                            28
   4       CONCLUSIONSAND RECOMHENDATION                        31

   5       SCOPE OF RiZVIEW                                     33
APPENDIX

   I       Comparison of weighted average fee rates
             negotiated by, selected civil  agencies
             with three nonsponsored not-for-profit
             institutes and commercial organizations            39

   II      Comparison of weighted average fee rates
             negotiated by selected DOD organizations
             with three nonsponsored not-for-profit
             institutes and commercial organizations            40

 III       Comparison of weighted average fee rates
             negotiated     by DOD with three nonsponsored
             not-for-profit     institutes  before and after
             issuance of Defense Procurement Circular
             50 on December 30, 1966                            41

           Comments by Departments       and Agencies:

   IV          Department   of Health,       Education,   and
                 Welfare                                        42
  V            Department   of Transportation                   46
  VI           Department   of Agriculture                      48
 VII           Department   of State                            50
 VIII          General   Services   Administration              53
APPENDIX

      IX        National Aeronautics             and Space Admin-
                  istration                                             54

      X         Atomic      Energy Commission                           57

      XI        Department        of Defense                            59

  XII           Office      of Management and Budget                    65

  XIII          Principal     officials       of Government agen-
                   cies responsible         for administration
                   of activities        discussed in this re-
                   port                                                 66

                                 ABBREVIATIONS

AEC        Atomic     Energy Commission

ASPR       Armed Services         Procurement      Regulation

CPFF       cost-plus-fixed-fee

DOD        Department      of Defense

GAO        General    Accounting        Office

GSA        General     Services       Administration

           Department      of Health,       Education,    and Welfare

NASA       National      Aeronautics       and Space Administration

NIX        National      Institutes       of Health

OMB        Office     of Management and Budget

                                      GLOSSARY

The terms "not-for-profit"  and "nonprofit"    are used inter-
changeably in this report to identify    a scientific  organiza-
tion that (1) performs research for the Federal Government,
(2) is exempt from paying Federal income taxes on its
Government work under section 501(c)(3) of the Internal
Revenue Code, and (3) operates under a not-for-profit   corpo-
rate charter.
A nonsponsored not-for-profit    organization--as opposed to a
Government-sponsored nonprofit organization--is     defined for
purposes of this report as one for which no Government
agency has assumed responsibility    to provide sufficient
work and revenues to ensure retention of acquired capabili-
ties to meet Government needs.
A commercial organization is defined for purposes of this
report as one that (1) performs research for the Federal
Government, (2) operates under a corporate charter for
profit-making purposes, and (3) pays Federal income taxes
on profits.
COMPTROLLERGENERAL'S                                 FEES ALLOWED NONSPONSORED NOT-FOR-PROFIT
REPORTTO THE CONGRESS                                ORGANIZATIONS BY VARIOUS GOVERNMENT
                                                     AGENCIES B-146810


DIGEST
----_-


WHYTHE REVIEW WASMADE

     In a previous       report,     the General     Accounting       Office     (GAO) advised           the
     Congress    that    there was need to improve            Federal      agencies'       guidelines        for
     contracting      research     work with Government-sponsored                nonprofit       contractors
     (B-146810,     February      1969).   These are nonprofit             organizations          sponsored
     by an agency which has assumed responsibility                     for providing          sufficient
     work and revenues          to ensure  retention      of capabilities           acquired        to meet
     Government     needs.

     In addition         to contracting           with sponsored              nonprofit      organizations,            Govern-
     ment agencies           obligated       during       fiscal     year 1969 about $260 million                      for
     basic      and applied         research      to be performed              by nonsponsored          not-for-profit
     institutions          other      than colleges           and universities.              For comparison            pur-
     poses,       GAO has now examined              into agency policies                and practices          in the
     allowance        of fees to nonsponsored                  not-for-profit           organizations          at six De-
     partment       of Defense          and eight       civil     agency offices           that award cost-plus-
     fixed-fee        contracts         for research          with not-for-profit             organizations            on a
     significant         scale.

     At three     of these larger            nonsponsored       not-for-profit         research     institutes,
     information      was obtained           on Government         fees received.         These three        were
     selected     because their          clients     include       nearly      all departments      of the
     Government     and because          they are generally            in competition        with universi-
     ties    and other    not-for-profit            organizations,          both sponsored       and nonspon-
     sored,     as well as with commercial                organizations,           for the award of Govern-
     ment research       projects.

     GAO's review      did not include        an evaluation       of the reasonableness          of profit
     ranges prescribed        in Government      regulations        for payment    to either       commer-
     cial  or nonprofit       organizations,       the profits        or fees paid,     or the profits
     or fees actually        earned.      A comparison      was made of fees allowed           nonspon-
     sored not-for-profit         organizations       in relation       to profit    rates   allowed
     commercial    organizations.


FINDINGS AND CONCLUSIONS

     In many instances    , nonsponsored     not-for-profit         organizations     which pay no
     Federal  income taxes on fees earned on Government                  work are allowed      approx-
     imately  the same rate of fee on estimated               costs   that commercial     profit-
     making organizations      receive   for doing       similar    work.
Most Federal     civil  agencies   do not make any distinction        between     tax-       '
exempt organizations       and commercial    organizations    in computing      fee ob-
jectives.      The Atomic   Energy Commission      (AEC), however,    developed
guidance  in 1963 for considering         the tax posture   of not-for-profit          orga-
nizations    in fee negotiations.

GAO's detailed        analysis      of contracts       awarded    by six civil         agency procure-
ment offices       during     a 4-year     period    to the three       not-for-profit        organi-
zations      showed that      the composite       weighted     average     fee rate was only
0.6 of a percentage           point    less than the average          fee paid commercial           or-
ganizations.

The average    varied    substantially             for each of the six procurement                      offices,
from 0.4 of a percentage           point         more for one agency on fees paid                     to one
not-for-profit      to 2.1 percentage              points   less for another agency                   on fees
it paid to another       not-for-profit.                (See pp. 8 to 16.)

The Department      of Defense      (DOD) revised      its procurement        regulations     in
December 1966 in recognition           of the tax-exempt          status   of not-for-profit
organizations.        Fee objectives      in contracts       with such organizations          were
to be adjusted      by application      of a special       factor      of minus 3 percentage
points     where the proceeds      of the contract        were not subject         to Federal
income taxation.

During    a 2-year     period    after        issuance    of the revised procurement                   regula-
tion,   the composite        weighted         average   rate of fee paid the three                    nonprofits    '
by DOD was only 1.2 percentage                   points   less than the average    fee                paid com-
mercial    organizations.           (See      pp. 17 to 22.)

DOD reported         to GAO that   there  was nothing   in its written                       policy to the
effect     that    fees to nonprofits     are to be less than fees                       to commercial    or-
ganizations.           GAO is of the opinion    that application      of                 a minus 3 percent-
age point       adjustment    would have such a result,        all other                   factors  being
equal.

In GAO's opinion,            most agencies       of the Federal             Government       have not given
adequate      recognition         to the tax-exempt            status     of not-for-profit             organi-
zations     nor to the need for an appropriate                        adjustment       of fees to place
them on an equitable              basis with their           commercial        competitors.           Without
this    recognition         nonsponsored      not-for-profit             organizations        may have a
competitive         advantage       when dealing      with Government              agencies,      such as
that which results             from their     ability        to retain       and use a higher            percent-
age of earnings           to improve      physical      plant       and technical         capabilities.

The nonsponsored        not-for-profit        research    institutes          included      in GAO's re-
view do not agree that            their  fees should      be so adjusted.               They contend
that    the Congress,       in granting     tax exemption,         recognized         the need for,
and encouraged      the development         of, independent          not-for-profit           organiza-
tions     as being in the public         interest      and that      therefore        adjustments        of
fees based on this          tax exemption       would defeat       congressional           policy     and
intent.      The institutes         did not identify      the basis         for their       contention.




                                                       2
   GAO's review      of legislative         background    material     concerning    tax exemption
   of not-for-profit         organizations        did not disclose      any consideration      of
   the fee structure         other     than the stipulation        by the Congress       that none
   of the net earnings          of the not-for-profits          should    inure   to the benefit
   of any private       individual.


RECOMMENDATIONS
              OR SUGGESTIONS

   In a draft         of its report   provided     to various     Government     agencies     and the
   three      contractors,     GAO had proposed       that  the Director,       Office     of Manage-
   ment and Budget (OMB), head an interagency                  study leading       to the develop-
   ment of a Government-wide           policy     governing    the negotiation         of fees to not-
   for-profit         and commercial   organizations,       which gives      consideration       to the
   tax posture          of each type of organization.          (See p. 23.)

   GAO also suggested      that,   pending        the development      of the Government-wide
   policy,    each agency reevaluate           its current     policy    and take steps neces-
   sary to ensure     that   fee payments         are adjusted      to adequately   recognize
   the tax-free    status    of not-for-profit          organizations.


AGENCYACTIONS AND UNRESOLVED
                           ISSUES

   Comments    on the    draft    report   were    received     from   the    agencies    and contrac-
   tors.

   The General    Services     Administration          proposes     to convene   an interagency
   task group to develop         an appropriate         temporary      Federal Procurement        Regula-
   tion which would provide          uniform     civilian       agency adherence      to a require-
   ment for adjusting       fee payments       in recognition         of the tax-free      status     of
   not-for-profit     organizations.          (See pp. 25 and 26.)

   The Department       of Health,     Education,      and Welfare      and    the Department    of
   Transportation       are developing      interim     guidelines      for    issuance.     (See p.        24.)

   The National       Aeronautics       and Space Administration         (NASA) says that,     as
   an interim      measure,      it will   caution   buying    personnel     to consider   the
   tax-exempt      posture     of contractors      when negotiating       fees with not-for-
   profit    organizations.         (See p. 26.)

   DOD believes      that   its guidelines         are adequate,     that   they have generally
   been followed       by procurement      activities,      and that a study by OMBwould
   not prove to be productive           in appreciably        changing    fee rates   to not-for-
   profit   organizations.        (See p.       27.)

   The Agricultural        Research   Service and the          Agency for International    De-
   velopment     recognize     the need for guidelines           but are awaiting   the results
   of the study by OMB. (See p. 25.)

   OMB believes    that  the legislative          charter       of the Commission        on Govern-
   ment Procurement     would include          any study      of contractor   fees.        Therefore,


                                                      3
   although     OMB would work        with the Commission  and the affected                 agencies,            ,
   OMB feels     that it would        be premature to take the leadership.                    (See
   P. 28.)

   GAO believes       that OMB is the appropriate               agency to assume the respon-
   sibility    for ensuring        that    the procurement         regulations      of all agencies
   reflect   a single      overall      Government       policy    for determining        fees to be
   paid to the tax-exempt            organizations.           It is particularly        suited   to this
   task because       it is a aermanent          organization        (as contrasted       with the Com-
   mission   on Federal       Procurement),         has overall       management     and coordination
   functions     within    the executive         branch,      and has experience        in procurement
   matters.      (See p. 32.)

   GAO's defense          profit     study report      of March 17, 1971 (B-159896),                recom-
   mended that OMB take the lead in interagency                         development       of uniform
   Government-wide           guidelines      for determining         profit    objectives      for nego-
   tiating        Government     contracts      that will      emphasize      consideration       of the
   total     amount of contractor            capital     required     when appropriate,          where ef-
   fective        price   competition      is lacking.         Such an interagency          study could    in-
   corporate          the development      of a policy       governing      negotiation      of fees to
   not-for-profit          organizations.


MATTERSFOR CONSIDERATIONBY THE CONGRESS

   GAO is bringing    this matter    to the attention        of the Congress     in              view of
   the need for a Government-wide        policy    governing    the negotiation                  of fees
   to not-for-profit     and commercial     organizations,      which recognizes                   the tax
   posture    of each type of organization.




                                                     4
                                 CHAPTER1

                              INTRODUCTION

        In 1962 the President   sent a report to the Congress
entitled    "Government Contracting    for Research and Develop-
ment" (the Bell Report).       The report stated that it had
been the practice     of Government agencies in contracting        for
research and development with not-for-profit        organizations,
other than universities,      to cover all allowable    costs and
also to provide a fee.

       The reason for paying a fee to not-for-profit                organi-
zations    is, according to the report,          quite different       from
the reason for paying a fee to profit-making                contractors:
the profit-making      contractor      is engaged in business for
profit    and this profit     and the return to shareholders             &d
investors     can only come from the fee.          Although there are
no shareholders      in not-for-profit       organizations,      the Bell
Report found two sound reasons to justify               payment of a "de-
velopment" or "general        support"    allowance or fee to such
organizations:
                                                                            .-
         --To provide some degree of operational         stability     and
            flexibility   to organizations    otherwise bound to the
            precise limitations    of cost financing     of specific
            tasks, the allowance to be used to even 'out the vari-
            ations in income resulting     from variations       in the
            level of contract   work.

         --To conduct some independent,   self-initiated research
            in order to obtain and hold highly competent scien-
            tists  and engineers.

       In February 1969 the General Accounting Office reported
to the Congress1 on the needs of Government-sponsored       non-
profit   organizations  for fees,    For comparison purposes, we
also obtained information     on selected nonsponsored not-for-


1"
      Need for Improved Guidelines   in Contracting    for         Research
     with Government-Sponsored   Nonprofit Contractors,"            B-146810.

                                       5
profit    research institutes.    The nonsponsored not-for-profits
generally     took the position  that, because they compete for
Government and commercial contracts      with private   industry,
they should not be compared with the sponsored not-for-
profits.      This led to our review of the Government's prac-
tices in awarding fees to nonsponsored organizations.

       The objectives     of our review were to evaluate existing
guidelines     for awarding of fees to nonsponsored not-for-
profit    organizations    oncost-plus-fixed-fee          (CPFF) contracts
for research and development,            including   their implementa-
tion by agencies of the Government, and to compare tax-
exempt fee payments awarded to such not-for-profit                 organi-
zations    on Government research work with fee payments
awarded to taxpaying commercial organizations,                with whom
the not-for-profits       compete.      Cur review did not include
nonprofit     educational   institutions        that do not usually     re-
ceive fees on research and development contracts.

      For the review, we selected three of the larger non-
sponsored not-for-profit      research institutes.      These three
were chosen because their clients        include practically     all
departments    of the Government and because they are generally
in competition    with universities     and other not-for-profit
organizations,    both sponsored and nonsponsored,        as well as
with commercial organizations,       for the award of Government
research projects.

        Due to the confidential    nature of the fee data included
in this report,     the names of the research institutes     are
not shown. They are called institutes         A, B, and C. Their
identities     were made known to the heads of Government agen-
cies in letters     transmitting   draft copies of the report for
their review and comment. The president         of each of the re-
search institutes      has been informed of the designation     of
his institute.

        Institute      A performs about 70 percent of its research
for the Federal Government, a large portion             under CPFF con-
tracts.        It uses its fees from Government research contracts
primarily        to further    its growth and development,    including
independent research,            and to cover expenses which are not
reimbursed under existing            Government procurement regula-
tions.
      Institute  B engages in many different    kinds of activi-
ties,   a major one being research.    We obtained   contract
and fee information    at one research location    which accounts
for more than one third of institute     B's total   research vol-
ume. About two thirds     of the research revenue at this lo-
cation comes from the Federal Government.

       Institute       C performs about 75 percent of its research
for local,       State,    and Federal Governments,     and the remainder
for industrial         organizations.      Its fee income is used sub-
stantially       for growth,      independent research,   and costs which
are not reimbursed under Government contracts.

        The three organizations  do not pay any Federal income
taxes on fees earned on Government work but, in some in-
stances,    pay taxes on earnings from sales to commercial cli-
ents where the research is not of benefit     to the general
public.

      According to figures        published by the National         Science
Foundation,     in fiscal   year    1969    Government    agencies  obli-
gated approximately       $260 million        for basic and applied re-
search with not-for-profit          institutions,      other than colleges
and universities      and sponsored nonprofits.            The three non-
sponsored not-for-profit         research institutes        covered in our
review reported      combined revenues from Government agencies
of approximately      $95 million      in calendar year 1968.

        A total  of 14 Government procurement offices,           eight
civil    and six DOD, were included in the review.
                               CHAPTER2

               NEED FOR GOVERNMENT-WIDEGUIDELINES

                  AND IMPROVEDAGENCYPRACTICES

      TO ENSURE ADEQUATECONSIDERATION OF CONTRACTORS'

                          TAX-EXEMPT STATUS

        In many instances,  nonsponsored not-for-profit            organi-
zations which pay no Federal income taxes on Government work
are allowed approximately        the same rate of fee on estimated
costs that commercial profit-making           organizations     are al-
lowed for doing similar     work.      Most agencies of the Federal
Government, when determining        fee payments on research con-
tracts,    had not given adequate recognition          to the tax-exempt     .
status of these not-for-profit         research institutes.         In our
opinion,    an appropriate  adjustment      in fees is necessary if
agencies are to contract      with these tax-exempt organizations
in a manner which treats       them on an equitable        basis with
their commercial competitors.

CIVIL AGENCYFEE RATES TO
NONSPONSOREDNOT-FOR-PROFITS
COMPARADLETO COMMERCIALFEE
RATES

      On the basis of our analysis      of 108 contracts,    totaling
about $9.9 million,      awarded by six selected civil    agency
procurement offices      to the three nonsponsored not-for-profit
organizations     during the period 1965 through 1968, we found
that the composite weighted average rate of fees paid to
these not-for-profit       institutes was about 7.1 percent.       At
these same six procurement offices,       we made an analysis      of
50 similar    contracts    awarded to commercial organizations
during the same period, which showed that the composite
weighted average rate of fee was about 7.7 percent.            (See
app. I.>

       Our comparison of 1965-68 CPFF rates paid to each of
the three nonsponsored not-for-profit    research institutes
with rates paid to commercial organizations      for similar work
follows.

                                   8
                                                         Composite
                                                         weighted
                                      CPFF contracts      average
                                               AInount       fee
           Organization             Number (millions)    (percent)

      Institute      A                 68        $7.2      7.3
      Institute      B                 21         1.2      6.6
      Institute      C                 19         1.5      6.7

      Three institutes                108         9.9       7.1
                                                            .___
      Commercial                       50        Su         7.7

        In our opinion, a difference   of 0.6 of a percentage
point does not adequately provide for the distinction        in tax
status between the two different     forms of corporate   organi-
zation.

       We believe that the failure       of the procurement guide-
lines used by most civil      agencies to provide for an appro-
priate   adjustment to fee objectives       in recognition   of the
tax-exempt    status of nonprofit     organizations    is the principal
reason that individual     procurement centers have paid fees to
these organizations    that are almost as high as fees paid to
commercial organizations      for research considered to be com-
parable by contracting     officials.

Procurement regulations    of most civil
agencies do not distinguish     between the
exempt nonprofits   and taxpaying    commercial
organizations

       The civil      agencies that follow the Federal Procurement
Regulations      (this excludes.NASA and AEC) are to take the
following   nine profit       factors   into consideration in arriving
at a fee objective        for negotiation    purposes.

      1.   Effect    of   competition
      2.   Degree of      risk
      3.   Nature of      work to be performed
      4.   Extent of      Government assistance
      5.   Extent.of      contractor's    investment
      6.   Character      of contractor's     business

                                        9
      7. Contractor's    performance
      8. Subcontracting
      9. Unrealistic    estimates

The NASA Procurement Regulations   contain the same nine pro-
fit factors,  and incorporate  a 10th factor--cost reduction
program accomplishments,

       These procurement regulations         merely provide narrative
guidelines   for the contract       negotiator    through the use of
supplemental    instructions     for each profit      factor, and they
make no distinction       between nonprofit     organizations   which
are tax exempt and commercial organizations.

        The guidelines     in the AEC procurement instructions          em-
phasize the amount of risk involved as a profit             consider-
ation and then list       10 other factors     to be taken into ac-
cmt.        These are substantially     the same as those in the
Federal Procurement Regulations.           The AEC procurement in-
structions,      however, provide additional      fee guidelines      to
the negotiator      for nonprofit   organizations     by requiring      at
least a 25-percent       reduction  in the maximum allowable        fee as
calculated     for commercial organizations.         This is to compen-
sate for the tax posture of the nonprofit            organizations.

       While making our analyses at the various civil              agency
procurement offices,         we discussed our findings      with their
contracting     officials.      In general,   officials    of the agen-
cies, other than AEC, have stated that their             regulations     do
not require them to negotiate          fee rates to nonprofit       organi-
zations differently        from fee rates to commercial organiza-
tions.     These officials      have said that they believe that not-
for-profit     organizations     have a competitive     advantage over
commercial organizations         because they receive tax-exempt         fees
comparable in amount to the taxable fees being paid to com-
mercial    organizations,      and thus provide a higher aftertax
rate of return.         Examples of their    comments follow.
      Federal   Highway Administration

     Contracting     officials     of the Federal Highway Administra-
tion have stated that the Federal Procurement Regulations              do
not contain specific       guidelines    for development of fee pay-
ments to nonprofits.         Because there is no specific   limitation
on fee payments to nonprofits,  the chief contracting     officer
has informed us that the independent nonprofits     press for,
and often get, fees from other Government agencies that are
as high as fees paid by the Federal Highway Administration
to commercial organizations.   Our schedule in appendix I
shows that some agencies have awarded fees to nonprofits
that exceed the rate of fees that the Federal Highway Admin-
istration  has awarded to commercial organizations.

      National   Institutes    of Health

       We estimate that on the basis of a sample of the Na-
tional   Institutes  of Health (NIH) contracts   and discussions
with contracting    officials, NIH has paid commercial organi-
zations about 7.5 percent on CPFF research contracts       for
calendar years 1965 through 1968. For the same period,         NIH
paid fees averaging about 7.6 percent on CPFF contracts
awarded to the three nonsponsored not-for-profit      organiza-
tions on tax-exempt Government work.

        Officials     of NIH Research Contracts       Section have told
us that one of these not-for-profits            has been receiving      a
fee of almost 8 percent for CPFF work since August 1958.
NIH established        the 8-percent    rate on the basis of evidence
submitted by the organization           that certain     DOD and AEC con-
tracts    had fee rates of 8 percent or higher.             After the rate
was established        at 8 percent,    NIH was unable to negotiate
significant       reductions    in this rate because the Federal Pro-
curement Regulations         did not distinguish      between nonprofit
and commercial organizations.             Consequently,    NIH paid the
rate of almost 8 percent through 1968--a period of over 10
years.

      NASA Ames Research      Center

       The Ames Research Center paid the three nonsponsored
not-for-profits   an average CPFF fee rate of about 6.3 per-
cent for the period 1965 through 1968.      On the basis of dis-
cussions with NASA officials    and a sample of Ames contracts,
we estimated that Ames had paid about this same average fee
rate to commercial organizations    for research and develop-
ment on a CPFF basis.



                                       11
       On February 20, 1968, Ames officials     advised NASA head-
quarters    by letter    that fees awarded to nonprofit organiza-
tions were high in comparison to fees awarded to commercial
organizations.        They wrote:

             "One comment received from our contract           ad-
     ministration    staff has to do with our concern of
     long standing,     regarding       fees demanded by the so-
     called Nonprofit      Institutions.       This particular
     comment extrapolated        a 6 to 8% range for fees
     paid to a nonprofit        institution,    as roughly com-
     parable to 14 to 15% fees for a tax-paying              com-
     mercial firm.      Commercial fees of such magni-
     tude would require NASA Headquarters            approval.
     This comment is perhaps outside the reference
     letter,    but deserves to be kept in mind for
     high-level    consideration        as a separate study."

      We were informed that procurement headquarters          subse-
quently conducted a review of NASA procurement regulations
and concluded that further        study was not required.     NASA
procurement regulations     still     do not recognize that the pro-
ceeds of a contract    with a nonprofit      organization  are not
subject to Federal income taxes.




                                  12
AEC  fee policies     give  recognition   to
contractors'      tax posture

        The guidelines   in the ARC procurement instructions
emphasize several factors         as profit   considerations,  such as
amount of risk involved,        investment    in facilities,  and work-
ing capital     supplied by the contractor.         Regarding contracts
with not-for-profit      organizations,     the AEC procurement in-
structions    also provide:

      In order to assure consideration           of the tax pos-
      ture of not-for-profit        organizations     during fee
      negotiation,     the fee shall be calculated         as for
      a contract    with a commercial concern and then
      reduced at least 25%. However, depending on the
      circumstances,       field office     managers are permitted
      to pay a fee somewhere between this amount and the
      fee allowable      if it were a commercial concern pro-
      vided that the contract         files   are documented to
      specifically     state the reason or reasons in each
      case.

Generally ARC expects that the fee negotiated   for a not-for-
profit   contractor would be at least 25 percent lower than
the maximum fee allowable  for a commercial contractor.

        AEC officials    have informed us that the fee schedules
which set the ceilings        on ARC fees are not made known to
contractors.        A general provision   of the ARC fee policy is
that there is no obligation         to negotiate a fee below the
amount determined to be fair and reasonable.           If the con-
tractor    proposes a fee lower than the amount so determined
to be fair and reasonable,        however, such fees as proposed
by the contractor       are accepted.

       ARC officials    advised us that, prior      to the development
of the ARC fee guidelines       for nonprofit    organizations   in
November 1963, ARC had paid institute         A fee rates averaging
9 percent and that,      subsequent to the development of the
guidelines,     the average rate had been reduced to about 7.4
percent.    Cur    sample of AEC contracts    with institute    A for
the periods involved verified         that ARC's recognition    of the
tax posture of nonprofit       organizations   in determining    fees
had achieved the substantial        reduction  discussed above.

                                     13
      Our review showed that the spread between the maximum
allowable    rate and the rate actually     being paid institute
A was less than the spread between the maximum allowable
rate and the rate actually       paid on the commercial contracts
sampled.     For 24 new CPFF research contracts      awarded by AEC
to institute     A for the period 1965 through 1968, the maxi-
mum allowable     fee rate averaged 7.47 percent and the aver-
age negotiated      rate was 7.39 percent.     Our sample of CPFF
research contracts       awarded to commercial organizations     by
AEC for dollar      amounts comparable to the 24 contracts
awarded to institute       A showed an average maximum allowable
fee rate of 9.8 percent and an average negotiated          rate of
8.7 percent.

      Thus, although the maximum allowable    fee rate autho-
rized under the AEC fee guidelines     for payment to institute
A was about 25 percent less than the maximum allowable         for
commercial research contracts    (7.47 percent compared with
9.8 percent),   there was about a 15-percent    difference   in
the rates actually    negotiated (7.39 percent compared with
8.7 percent).

       We concluded from our examination          of AEC contracts
with nonsponsored not-for-profit        institute     A that,for     this
contractor,     implementation   of AEC's policy of giving con-
sideration    to the tax posture of not-for-profit           contractors
resulted    in the negotiation    of reduced fees.

DOD FEE POLICY RECOGNIZES
TAX POSTUREBUT OBJECTIVE
OF POLICY IS NOT FULLY ACHIEVED

        In December 1964 an Armed Services Procurement Regula-
tion (ASPR) Subcommittee began an extensive            review of DOD's
fee payment practices        under contracts    with nonprofit    or-
ganizations.       The Subcommittee's     study, completed in 1966,
showed that     the range of fee rates negotiated         under weighted
guidelines     of ASPR with commercial research and development
contractors     averaged from 6 to 10 percent,        having a median
of 8 percent.       Fee rates for contracts      with nonsponsored
not-for-profit      organizations,    with a few exceptions,      were
not negotiated      using the weighted guidelines;        these fee
rates ranged from 5 to 7 percent,          having a median of 6 per-
cent.

                                    14
      The study report stated that there was strong evidence
that a reduction     fixed at approximately       3 percentage fee
points would appropriately       adjust for the difference        in re-
tained income that nonsponsored not-for-profit            contractors
obtain because of their       tax exemption.      The ASPR Subcommit-
tee concluded that the range of 5 to 7 percent for nonspon-
sored not-for-profit      organizations    was too narrow and should
begin at 3 percent to result         in a wider range of 3 to 7 per-
cent, having a median of 5 percent.           This would provide for
a 3 percentage point average spread between the nonprofit
and commercial medians rather than the 2 percentage point
spread then existing.

       In amemorandumdated June 15, 1966, to the Chairman,
ASPR Committee, the Subcommittee recommended that, for con-
tracts with nonsponsored not-for-profit             organizations     where
fees are involved,      the weighted guidelines          of ASPR be ap-
plied,   adjusted by a factor of minus 3 percentage points
where the proceeds of the contract            are not subject to Fed-
eral income taxation.          For   sponsored   nonprofit   organizations,
an additional    reduction      of 1 to 2 percentage points was rec-
ommended to reflect       their    lesser degree of risk.

       In December 1966 the ASPR Committee issued Defense Pro-
curement Circular    50. This circular     established   as DOD pol-
icy the use of the weighted guidelines       method, as modified,
for arriving   at fee objectives  in contracts      with nonprofit
organizations.    One of the modifications      required by Circu-
lar 50 is the assignment of a special factor of minus 3 per-
centage points in all cases where fees of nonprofits         are in-
volved.

        In determining     the prenegotiation          fee objective     under
the ASPR weighted guidelines,            profit    weightings     are as-
signed for (1) contractor's           input to total        performance (in-
cluding factors      for materials,       engineering       and manufactur-
ing labor, and overhead),          (2) contractor's         assumption of
contract    cost risk (type of contract),              (3) contractor's     rec-
ord of performance,         (4) selected factors,          such as the source
of resources used and any special achievement required,                     and
 (5) special profit       considerations        for the development of
military    items without Government assistance               or for out-
standing sales efforts         in developing        foreign markets for
military    items.     After the weightings          are assigned,      a

                                        15
composite rate is obtained and the 3 percentage point reduc-
tion required by Circular  50 is made from this composite
rate.

      During 1967 and 1968 DOD organizations    awarded 356 new
CPFF contracts    to the three nonsponsored not-for-profit
organizations,      The weighted average rate of fee on these
contracts    was 6.2 percent.

      We made a tabulation     of 352(l)of  these contracts with
a valuation    of $52.8 million.    We found that the weighted
average rate of fees ranged from nearly 4 percent to 8.5
percent,    in contrast to the recommended range of 3 to 7 per-
cent.    More than 90 percent of new contract     awards for 1967
and 1968 were in excess of the recommended average of 5 per-
cent, as shown below.

                                            Negotiated                 Weighted
                  Number Percent of         amount in-    Percent   average rate
Fee rate range      of      total          cluding fee   9f total   within range
   (percent)      awards   awards          (thousands)    amount
                                                          --           (percent)
 3.5   to   4.4       3       0.9            $ 1,917         3.6         3.9
 4.5   to   5.4      25       7.1              5,219         9.9         5.0
 5.5   to   6.4    168       47.7             25,508        48.3         5.9
 6.5   to   7.4    118       33.5             16,597        31.4         6.9
 7.5   to   8.4      37      10.5              3,556         6.7         7.8
 8.5   to   9.4    1        L 03                  50         0.1         8.5
       Total       252
                   --                        $52,847
                                              --           100 0
                                                           A



1 Four contracts awarded during this period                were not in-
  cluded because they were nonrepresentative.




                                      16
Comparison    of DOD not-for-profit
rates with    commercial rates

       We obtained data at four DOD procurement centers con-
tracting    with the three nonsponsored not-for-profits      for
use in comparing fee rates paid to these organizations          with
rates paid to cormnercial organizations.      On 125 contracts
in the amount of $24.5 million     awarded to the three not-for-
profit   institutes  in 1967 and 1968, the composite weighted
average rate of fee allowed was 6.3 percent.          (The overall
DOD rate is 6.2 percent.)      On 77 CPFF contracts     with a
value of $11 million     awarded to commercial organizations
during 1967 and 1968 by the four selected DOD activities,
the composite weighted average rate of fee negotiated         was
7.5 percent (see app* II>.

        Although the spread of 1.2 percentage points between
not-for-profit      and commercial fee rates was greater on DOD
contracts      than the 0.6 percentage point spread on contracts
awarded by civil       agencies (see p, 91, it was less than
half of the 3 percentage point spread called for by the
ASPR Subcommittee.

        The composite weighted average rates of fee paid to
each of the three institutes     by these four DOD procurement
activities    in calendar years 1967 and 1968, compared with
the average rate paid to commercial organizations      by the
four procurement offices     on contracts requiring work of a
comparable nature follow.
                                                     Composite
                                                     weighted
                                  CPFF contracts      average
                                           Amount        fee
        Organization            Number (millions)    (percent)
      Institute    A                  73     $18.6      6.4
      Institute    B                  34       4.0      5.9
      Institute    C                  22       1.9      6.2
     Three institutes             g!J         24.5      6.3

     Commercial                   77         $11.0      7.5



                                        17
       We found that,    for many contracts,        the weighted guide--
lines were not used by contract          negotiators     in developing
fee objectives.      For example, the Army Research Office,            Ar-
lington,    and the Office of Naval Research usually            did not
use the ASPR weighted guidelines           for contract    awards in
amounts of less than $100,000 and $50,000, respectively.
Officials    of these procurement offices         explained that the
guidelines    were not used for smaller procurements           because,
with staffing     shortages,     it was easier to continue to use
an established     or historical     rate.

      Because research contracts      awarded to nonprofit      re-
search institutes     generally  are for scientific     studies
which do not require     the delivery    of hardware, they are
frequently   for amounts less than $50,000.         For example,
these two procurement offices       had used the weighted guide-
lines for only six of 20 procurements         made during 1967 and
1968 from one of the three nonsponsored not-for-profit             or-
ganizations    covered in our review.      The Army used the guide-
lines for three of eight procurements         and the Navy for
three of 12 procurements.       Where the guidelines     were not
used, Army Research Office procurement officials           stated
that they had relied on a historical        fee average of around
7 percent,   whereas Office of Naval Research officials           stated
that they had used a historical       fee average of about 6 per-
cent.

        In commenting on our      draft report,    DOD submitted to us
a listing     of 25 contracts     exceeding $200,000 awarded to re-
 search institute    A during     1967 and 1968. This listing     was
for the purpose of showing         that,  in computing the fee ob-
jective    for these contracts,       the guidelines   published in
Circular     50 were followed     and that the weighted guidelines
method was used, including         the special factor of minus
3 percentage points.
       Although it is likely     that contract  negotiators     use
the weighted guidelines      for the larger procurements,       which
probably represent     a major share of the dollar volume of
the procurement offices'       contracts with the three insti-
tutes,    it is apparent that such use had little       effect    in
achieving    a 3 percentage point spread.      The overall     rate of
fee (see p. 17) negotiated       by the four procurement offices



                                    18
for the three institutes was only      1.2 percentage points
less than the average fee allowed      commercial organizations.

Comparison of DOD fee rates before
and after Defense Procurement Circular       50

      The issuance of Circular  50 in December 1966, imple-
menting the recommendations of the ASPR Subcommittee,       did
not result   in any significant change in the average rate of
fee paid by DOD to nonsponsored nonprofit    organizations.

       Our analysis of fees paid by DOD to the three nonspon-
sored not-for-profit    organizations     during1965   and 1966 on
241 CPFF contracts   with a value of $38.5 million        showed a
composite weighted average rate of fee of 6.2 percent and
a fee range of 5 to 7 percent.        After issuance of Circular
50, the composite weighted average of fee rates for 352 con-
tracts   awarded in 1967 and 1968 was also 6,2 percent,        having
a fee range of 4 to 8.5 percent.         (See app. III.>

        In 1967 and 1968 the average rate of 6.2 percent paid
institute    A by DOD procurement activities  was only slightly
less than the 6.5 percent paid institute     A by these offices
in 1965 and 1966.

        We found that institute    B, subsequent to the issuance
of Circular     50, continued a policy of proposing and nego-
tiatingfeerates      of about 6 percent on substantially         all
CPFF procurement with Government agencies.           The only notable
exception to the 6-percent       policy appeared to be for an
annually renewable contract       which was in effect      many years
before Circular     50 and included a descending fee rate sched-
ule.
        Our test of 103 CPFF contracts      with a value of about
$10 million     awarded by DOD to institute      C during 1965 and
1966 showed that the rate of fees paid ranged from 5 to 7
percent and that the composite weighted average rate was
6 percent.      Fee rates for 105 CPFF contracts       with a value
of about $8.5 million       awarded by DOD to institute      C during
1967 and 1968 showed that fees ranged from about 5.5 to
8.5 percent,     compared with the ASPR Subcommittee's        recom-
mended range of 3 to 7 percent.         Also the weighted average
rate for the 105 contracts       was 6.4 percent,    compared with


                                 19
 (1) the ASPR Su b committee's    recommended 5 percent and (2)
the institute's   pre-Circular      50 average of 6 percent.

        DOD disagreed with our test findings      because we had
included 1967 statistics.       According to DOD, the first       ap-
plications     of the new policy stated in Defense Procurement
Circular    50 were not made until May 1967. Therefore         DOD
believes    that statistics   which included the entire year
could not be representative       of the effect   of the policy
change.     We found, however, that deletion      of 1967 statis-
tics from our test had practically       no effect   on the overall
results.

Ineffectiveness  of Defense
Procurement Circular  50

       As shown in the previous sections of this chapter,
Circular    50 neither    has produced the ASPR Subcommittee's
desired effect     of reducing the average fee rate paid to
nonsponsored not-for-profits        from 6 to 5 percent,   nor has
it achieved the 3 percentage point spread between the fee
rates negotiated      with nonsponsored not-for-profit      and com-
mercial organizations.        Our analysis   showed that,   subsequent
to the issuance of the circular,         the average fee rate ne-
gotiated    on CPFF contracts     awarded by DOD to not-for-profit
organizations     stayed about the same.

       During our review we discussed this matter with the
Chairman of the special ASPR Subcommittee which conducted
the study leading to the circular.            He stated that the
minus 3 percentage point factor was related              to the tax dif-
ferential    that nonprofit    organizations      enjoy.    The Chairman
stated also that the provisions         of Circular      50 were intended
to apply to all nonprofit       contractors      even though much of
the impetus for the Subcommittee's           study came from a dis-
satisfaction     expressed by a congressional         committee with
the amount of fees that were being paid to Government-
sponsored nonprofit      organizations.
      DOD, in commenting on a draft of this report,          stated
that we had not accurately    portrayed     the policy published
in Circular    50--that there was nothing in its policy to
the effect   that fees to nonprofit     organizations    were to be
less than fees to commercial organizations          or that the


                                   20
median fee for     nonprofit    organizations     should be 5 per-
cent.

        DOD further    informed us that we had attached too much
weight to the position         of the special ASPR Subcommittee
which studied the application             of weighted guidelines   to
not-for-profit      organizations        and that its study was just
one consideration        in the formulation       of the policy adopted.
The three not-for-profit          institutions,      in commenting on
our draft report,        were also critical       of our findings  con-
cerning Circular       50, principally        for the same reasons ex-        ~
pressed by DOD.

       Although the written        policy does not specifically
state that fees to nonprofit           organizations      are to be less
than fees to commercial organizations,               application    of a
minus 3 percentage point adjustment             in arriving      at the fee
objective    for nonprofits       would have such a result,         all
other factors     being equal.       The ASPR Subcommittee stated in
its study report that, without            such an adjustment,       it be-
lieved contracting       officers    would be constrained         to pay
nonprofit    contractors      the same fees they had paid in the
past.

       The study by the ASPR Subcommittee was in great depth
and was conducted over an extended period of time.       The
results   of this study and the underlying   reasoning for ar-
riving   at the minus 3 percentage point adjustment were
spelled out in the Subcommittee's    report to the Chairman
of the ASPR Committee,     The minus 3 percentage point adjust-
ment proposed by the Subcommittee was specifically      pre-
scribed in Circular    50. It thus seems likely    that the rea-
soning in the Subcommittee study was the basis for the
policy change.

       It appears to us that the intent was to achieve a
spread between fees paid to nonprofit           organizations  and
commercial organizations.          Because there is no indication
that commercial fees would be raised,           the intent must have
been to adjust nonprofit        fees downward, as suggested by the
language in the ASPR Subcommittee report.             Although we rec-
ognize that the weighted guidelines          are to be used in com-
puting prenegotiation       objectives,    we believe that it was
intended that    the actual     negotiated   rates were meant to

                                    21
similarly    reflect  a spread of about 3 percentage points be-
tween not-for-profit     and commercial organizations.     To in-
terpret   the provisions    of ASPR otherwise would defeat the
purpose of issuing Defense Procurement Circular        50.




                                22
                                CHAPTER3

      AGENCYAND CONTRACTORCOMMENTSAND OUR EVALUATION

       We submitted a draft of this report for comment to the
agencies and contractors       included in our review.    In the
draft we stated that, in our opinion,         regulations followed
by Government agencies had not made an adequate distinction
between not-for-profit       and commercial organizations     in the
payment of fees and this resulted         in fee payments to not-
for-profits    in excess of rates that would give proper rec-
ognition    to their   tax-exempt status.

        We proposed in the draft report that the Director,               Of-
fice of Management and Budget, take the lead in interagency
development of uniform Government-wide            guidelines     governing
the negotiation       of fees to not-for-profit       organizations.
We stated that these guidelines          should establish      firm, eq-
uitable    criteria    for use by all departments and agencies
of the Government in establishing          fee payments which would
be fair to both not-for-profit         and commercial organizations,
giving consideration         to the tax posture of each.         Pending
the development of uniform Government-wide             guidelines,      we
suggested that each agency reevaluate           its current      policy
and take steps necessary to ensure that fee payments are
adjusted to adequately recognize          the tax-free     status of not-
for-profit      organizations.

        We received comments on the draft report from the heads
of Government agencies and from each of the three research
institutes.       The earlier   chapters of this report have been
revised to incorporate        appropriate   portions    of their replies,
and comments of a broader nature are summarized and evalu-
ated in this chapter.         The agency replies     are included in
this report as appendixes IV through XII.            We have not in-
cluded the replies      of the institutions       so as to not dis-
close the identities        of the organizations.




                                      23
CIVIL AGENCIES USING
FEDERAL PROCUREMENTREGULATIONS
GENERALLY CONCURIN NEED FOR GUIDELINES

       The Department of Health, Education,         and Welfare (HEW)
concurred that OME3should take the lead in interagency                de-
velopment of guidelines        governing the negotiation        of fees
with not-for-profit     organizations.       (See app. IV.>       Regard-
ing such fees, HEW would welcome the establishment               of uni-
form Government-wide      criteria    which would go beyond consid-
eration   of the different       tax postures of not-for-profit        and
commercial organizations         and take into account organic dif-
ferences between such organizations          and the fundamental
purposes to be served by fees.

       HEW informed us also that it has recently                completed
a comprehensive study of fees which confirmed our findings
that there is little        difference     between the rates of fixed
fee paid to commercial concerns and those awarded to not-
for-profit     organizations       and that adequate recognition          is
not being given to the tax-free             status of not-for-profit
organizations.       HEW, pending the development of Government-
wide guidelines,       is reevaluating       its current policies       gov-
erning the negotiation         of fees and is in the process of de-
veloping     separate fee guidelines         applicable    to not-for-
profit     and commercial organizations,          respectively,     which
will give consideration          to differences      between the nature
of such organizations.

        The Department of Transportation        also concurred that
OMB should initiate     the development of uniform Government-
wide guidelines.      (See app. V.)    In the meantime, the Depart-
ment expects to issue a procurement regulation            on the nego-
tiation    of fees with tax-exempt    institutions.1


1The Department subsequently          published   a proposed revision
 to its procurement regulation          which would require      that
 consideration    must be given to the tax posture of an orga-
 nization    in determining      the fee or profit.       Any proposed
 fee to a not-for-profit         organization   in excess of 5 percent
 of the estimated cost of the contract,            exclusive   of fee,
 would require    approval by the Director,         Office of Installa-
 tions and Logistics,       Office of the Secretary        of Transporta-
 tion (Federal Register,        March 17, 1971).

                                    24
          T'ne Agricultural    Research Service of the Department
    of Agriculture     saw no objet tion to the conclusions     expressed
    in our report     and stated that fee-setting    guidelines   which
    were more extensive      and specific  than those presently     in
    the Federal Procurement Regulations        would be of assistance
    in standardizing      the fees paid under CPFF contracts.       (See
    app. VI.>
           The Agency for International          Development in the Depart-
    ment of State informed us that its fee guidelines                for the
    use of contracting     officers      contained no guidance regarding
    fees to be paid to not-for-profit            organizations.      (See
    app. VII.)     The agency made a review of fees paid, which
    confirmed our broader findings,           and believes      that it should
    reevaluate   its current     policy.      The agency, however, does
    not believe that it should, on its own, try to define a
i   standard regarding what constitutes             adequate recognition     of
    the tax-free    status of not-for-profit          organizations     and
    plans to await the results         of the study by OMB.

           Several of these agencies, although concurring            in the
    need for establishing       some uniformity     in fee guidelines,
    pointed out that there were factors           of cost which must be
    considered     in conjunction    with the tax status.       So that due
    weight can be given to these other factors            in special sit-
    uations,    they  believe   that  the  guidelines   shouldnot    require
    that fees fall within       a fixed range.

    GENERAL SERVICES ADMINISTRATION TO
    CONVENEINTERAGENCYTASK GROUP

            The General Services Administration          (GSA) fully    agreed
    that,    in view of their exemption from Federal income taxes,
    not-for-profit        organizations     should not receive as propor-
     tionately      large fees under cost-reimbursement-type          contracts
    as commercial organizations.              (See app. VIII.>     GSA stated
     that the promulgation          of Government-wide guidelines      by OMB
     or, in the alternative,          by GSA and DOD through the Federal
    Procurement Regulations           and ASPR certainly     would be desir-
    able.      In  view  of   its  responsibility    for issuing    Government-
    wide contract     policies   and procedures,      GSA favors    the latter
    arrangement.




                                         25
        In any event, GSA said that it planned to convene an '
interagency    task group to develop an appropriate      temporary
Federal Procurement Regulation      which would provide uniform
civilian    agency adherence to our proposal that agencies
should take the steps necessary to adjust fee payments in
recognition    of the tax- free status of not-for-profit     organi-
zations.     The task group was still    in the process of forma-
tion in August 1971.

NASA WOULDPARTICIPATE IN
~ZTEMINATION OF NEED FOR GUIDELINES

       NASA informed us that it would be glad to meet with
other agencies to determine if Government-wide fee guide-
lines were needed and, if they were, would expect them to
be structured      in such a fashion as to allow individual con-
tracting   officers    to consider each case in its proper per-
spective.      (See app. IX.>

      As an interim     step, NASA reported that it was caution-
ing its contracting      officers    to consider the tax-exempt pos-
ture of contractors      when negotiating     fees with not-for-profit
organizations.       NASA pointed out it did not necessarily          be-
lieve that tax-exempt status was an overriding            factor when
determining     fees, or that there should be a preestablished
fee limitation.       Rather, itbelievedthat       the tax-exempt
status should be considered with other factors            to arrive at
a reasonable fee commensurate with the services received.




                                    26
      We have been advised by AEC that it believes that there
should be a Government-wide policy that requires           all agencies
to give appropriate    consideration     in their fee policies       to
the tax posture of each organization,          It  does not   believe,
however, that the policy should spell out specific            guidelines
for making a distinction     between not-for-profit      and profit-
making organizations     to be uniformly    applied by all agencies,
(See app. X,>

       AEC has pointed out that the present overall      fee poli-
cies of the various agencies generally      recognize that there
are profit   factors other than tax status which are important
and must be considered.     In AECps opinion,    it would be dif-
ficult   to develop a viable uniform Government-wide policy
for just one of the profit    factors.

       AEC takes the position      that the problers   noted in our
report could be corrected        by better execution and enforce-
ment where an agency has a policy requiring          consideration    of
the tax position      of the non-profit    and by giving recognition
to the not-for-profit       status in the regulations     of other
agencies.     As long as the executive agencies make an adequate
distinction    between commercial and not-for-profit        organiza-
tions in their fee policies        and practices,   AEC feels that
the objectives     we are seeking will be accomplished.

DOD BELIEVES OMB STUDY WOULDNOT
PROVE TO BE PRODUCTIVE

       In the opinion of DOD, its guidelines          on fees to not-
for-profits      are adequate and have generally       been followed by
procurement activities.        DOD states that its policy in es-
tablishing     the guidelines   was not to reduce fees.         Therefore,
although it has no objection        to OMB pursuing a study in this
area, in DOD's opinion,       a study would not be productive          in
appreciably      changing fee rates to not-for-profit        organiza-
tions.      (See app. XI.>

     We expressed in the preceding         chapter of this report
that we believe that the intent   of       DOD's comprehensive study
and subsequent regulation  could not        be logically    interpreted
in any way other than an effort   to       effect  a reduction     of

                                     27
fees to not-for-profit    organizations      in recognition     of their
tax-exempt status.     We therefore    believe that an interagency
study under OMB's guidance, such as we had suggested, would
provide a reasonable means for resolving          the difference     of
opinion.
OMB TO AWAIT ACTION
                ---- BY COMMISSION
ON GOV.ER~NHENT
              PROCUREME3fT
                       .-
       OPZBhas pointed out that a broad legislative        charter
for the comprehensive review of Federal procurement has been
granted to the Commission on Government Procurement,           along
with the obligation      to report findings   and recommendations
to the Congress.      It believes that cost contract      and nonpro-
fit contractor    fees are among the subjects scheduled for re-
view by a Comn?ission study group.        OMB states that, whereas
it could work with the Commission and affected          agencies to
explore the feasibility      of developing the suggested guide-
lines,   it would be premature for OMB to take the leadership
in developing uniform guidelines       prior to the completion of
any pertinent    Commission review.      (See app. XII.>

CONTRACTORCOMHEZJTS

      Only one of the three research institutes     commented on
our proposal that OMB take the lead in interagency        develop-
ment of uniform Government-wide guidelines,     and none of them
acknowledged any need for agencies to adjust their fee pay-
ments to recognize the tax-free   status of not-for-profit       or-
ganizations.

        The institute    that commented on our proposal for devel-
oping guidelines      stated that uniformity,      when dealing with
Government agencies on procurement matters,             was highly deb
sirable.      It went on to say that uniformity         should not be
limited    to negotiation     of fees--that   divergent    cost princi-
ples between agencies was a major factor           in the lack of con-
sistency among agencies and a continuing           source of problems.

       Two of the institutes        pointed out that an adjustment of
fees, taking into consideration           the tax-free status of not-
for-profit      organizations,     would defeat the intent   of Congress
in granting      them exemption from Federal income taxes.        They
contend that the Congress would not have granted not-for-
profit     organizations     tax-exempt status if the intention    had

                                    28
been to give them and commercial organizations      identical   fi-
nancial treatment.   The institutes   did not identify     the ba-
sis for their conclusion   concerning congressional     intent.

        Our review was not directed            to ascertaining    the reasons
for, or the advisability            of, granting    tax-exempt status to
not-for-profit        organizations,       but we did review legislative
background material           we thought to be applicable.          We could
not locate any clear intent              on the part of the Congress
other than the stipulation             that none of the net earnings of
the tax-exempt organizations              should inure to the benefit       of
any private       individual.       We found no indication       of congres-
sional consideration           of the level of fees that Government
agencies should pay the not-for-profits                 or any indication    of
an intention        to allow these organizations          to earn a higher
effective      rate on Government contracts           than would be earned
by commercial organizations              doing the same work,

       In our opinion,        this is what occurs when not-for-profit
organizations,      which can retain the fees received on Govern-
ment contracts,      are allowed about the same fees as commercial
tax-paying     organizations,      which can be required     to return to
the Government in taxes up to about one half of the fees
earned.     We also found no indication          that the Congress in-
tended to give the not-for-profit            organizations   a competitive
advantage when dealing with Government agencies,               such as
that which results         from their ability      to retain and use a
higher percentage of earnings to improve physical               plant and
technical    capabilities.

       The institutes       commented in various ways that our study
was incomplete.        One institute,      for example, stated that our
findings    appeared to be based on a limited          review of nego-
tiated   fees which did not give sufficient           consideration     to
important    related     factors,    such as cost elements affecting
fee objectives,       net realized     fee and its utilization,       and
return on investment.           This institute   suggested that a valid
comparison of fees negotiated           with nonsponsored not-for-
profit    organizations      and commercial organizations        could not
be made unless a review was made of the scope and cost ele-
ments of each contract.

     Another institute     complained that we did not evaluate
the reasonableness     of profits  earned but that,at the same

                                      29
time,   we implied    that fees should be adjusted downward.
This institute     stated that, before recommending that fees be
reduced, we should evaluate the level of fees reasonably re-
quired to sustain a viable and healthy not-for-profit       orga-
nization.

      Our review did not involve evaluation        of the reasonable-
ness of fees negotiated    on individual    contracts    or of each
cost element included in contract      negotiations.      Instead,
the review was essentially     one of comparison between fees
paid to not-for-profit    and commercial organizations        that
were reported to us by the procurement agencies as doing the
same type of work.     Cur primary objective      was to determine
whether adequate recognition     was being given in negotiating
fee rates to offset    the competitive   advantage of tax-exempt
organizations.

       We are not trying    in any way to minimize the importance
of other elements of costs or other factors           involved.in  the
negotiation   of fees to both not-for-profit         or commercial
contractors.     Our recent report to the Congress on our de-
fense profit   study (B-159896, March 17, 1971) points out the
importance of considering       capital  requirements     as well as
such other factors     as risk,   complexity    of the work, and
other management and performance factors.

       We did not attempt to compare the fees or profits            earned
by the not-for-profit      organizations     with those earned by
taxpaying commercial organizations.           For both types of orga-
nizations,   the difference     between the rate of fee or profit
awarded and the rate actually         earned represents     costs in-
curred that are not authorized         for reimbursement under Gov-
ernment procurement regulations.           If the not-for-profit      or-
ganizations    incur a higher rate of these "unallowable          costs"
than the commercial taxpaying organizations,            their earnings
would be reduced accordingly.

       In view of the fact that the types of unallowable           costs
are the same for both types of organizations,          we believe
that,    if there is actually    any difference    in the degree of
incurrence,     it is due principally      to management prerogative.
For example, the extent of travel          costs above those autho-
rized by procurement regulations         is a matter of management
decision.


                                   30
                                    CHAPTER4

                       CONCLUSIONSAND RECOMMENDATION

           At least two Government agencies, DOD and AEC, have
     recognized the competitive      advantage of not-for-profit       or-
-9
     ganizations    and have required    in their   procurement regula-
     tions that consideration      be given to the tax-exempt status
     of these organizations     when negotiating     fees to be paid on
     research contracts.      Other agencies,     in commenting on our
     draft report,    have indicated   that there is a need for guide-
     lines to govern the negotiation       of fees with not-for-profit
     organizations.

           We believe that GSA's interim     plan to convene an in-
     teragency task group to develop a temporary Federal Procure-
     ment Regulation,     in accordance with its responsibility        for
     promulgating    Government-wide contract     policies    and proce-
     dures, is desirable.      The guidance which is established         in
     the temporary Federal Procurement Regulation          and which is
     provided for in ASPR and in the AEC and NASA procurement
     regulations    should, of courses be compatible,        even though
     there may be differences      in implementation     which must be
     recognized.

            We think that it is important    that contractors   dealing
     with various agencies having different       procurement regula-
     tions can expect, and should receive,       uniform treatment   in
     establishing    their fees.    It is our opinion that this uni-
     formity    can best be achieved by having one agency respon-
     sible for ensuring that all Government procurement regula-
     tions reflect     a single overall  Government policy.

           In our    opinion,     OMB would be the appropriate   agency to
     assume this     responsibility.       It is a permanent organization
     with overall     management and coordination      functions  within
     the executive      branch of the Government and has experience       in
     procurement     matters.

            In our report to the Congress on our defense industry
     profit   study (B-159896, March 17, 19711, we recommended that
     OMB take the lead in interagency    development of uniform
     Government-wide guidelines   for determining   profit objectives


                                        31
for negotiating      Government contracts      that will emphasize
consideration      of the total   amount of contractor      capital    re-
quired when appropriate,        where effective      price competition
is lacking.      In our opinion,    the development of a policy of
contract    management to govern all Government agencies in
determining    fees to be paid to tax-exempt organizations             that
compete with commercial organizations            for Government con-
tracts   is a logical    extension of the task included in the
profit   study recommendation.

       It seems reasonable,    of course, that OMBwould closely
coordinate    its work on these matters with that of the Com-
mission on Federal Procurement and that OMB should have
the prerogative    of accepting the Commission's findings
where appropriate.

REXOMMENDATION

       We therefore   recommend that the Director,     Office of
Management and Budget, head an interagency        study leading to
the development of a Government-wide policy governing the
negotiation    of fees to not-for-profit    and commercial orga-
nizations    and giving consideration    to the tax posture of
each type of organization.




                                    32
                              CHAPTER5

                           SCOPEOF REVIEW

        Our review was conducted at three nonsponsored not-for-
profit    research institutes     and at 14 Government procurement
offices     engaged in the acquisition       of research from commer-
cial and not-for-profit       organizations.       These offices rep-
resented eight civilian       agencies and six DOD activities,        as
follows:

Civil    agencies

        Department of State
            Agency for International        Development
            Washington, D.C.

        Department of Agriculture
            Agricultural  Research      Service
            Hyattsville,  Maryland

        Department of Health, Education,    and Welfare
            Public Health Service
            National  Institutes  of Health
            Bethesda, Maryland

            Office of Education
            Washington, D.C.

        Department of Transportation
            Federal Aviation  Administration
            Washington, D.C.

            Federal Highway Administration
            Washington, D.C.

        Atomic Energy Commission
             San Francisco Operations       Office
            Berkeley,   California

        National Aeronautics   and Space Administration
             Ames Research Center
             Moffett Field,  California


                                       33
     De_%ar%ment
    -_- ---ll-_- of-.-.-. Defense
                             -. . - I

            Air    Force Aeronautical              Systems Division
                   Dayton,      Ohio

            Army Research Office
                Arlington, Virginia

            Defense Nuclear              Agency
                   Arlington,           Virginia

            Naval Supply Cc:nter
                Oakland, California

            Office of Civil              Defense
                  Washington,            D.C.

            Office of Naval Research
                  Washington, D.C.

            We reviewed contractual   data for 1,032 prime CPFF re-
    search contracts,    totaling   about $134.3 million,     that were       .
    awarded over a period of 4 years (1965 through 1968) to the
    three selected not-for-profit      research institutes.       Nego-
    tiation    files were reviewed at the 14 Government procurement
    offices    for 225 of these contracts,    totaling   about $46.5 mil-
    lion.                                                                         ,f
           At 10 procurement offices      we extended our review beyond
    the narrative    support in the contract      files    and discussed
I   with Government contracting      officials    their rationale      for
    the fees that were negotiated       with not-for-profit       organiza-
    tions.    In addition,  we developed data on fees paid to com-
    mercial organizations    by these same 10 procurement offices
    and compared these rates with nonsponsored not-for-profit
    rates.

            Our review did not include an evaluation         of the reason-
    ableness of profit       ranges prescribed     in Government regula-
    tions for payment to either          commercial or nonprofit    organi-
    zations,      or of the profits     or fees actually  paid.    We did,
    however, include a comparison of fees paid to nonsponsored
    not-for-profits       in relation    to profit  rates allowed commer-
    cial organizations.         We relied on the advice of agency

                                                   34
contracting   officials    that contracts used in both samples
were for research which was of a comparable nature and that
no fee differential     between the two types of organkzations
could have been caused by a higher level of technical       input
on the part of either party.




                                 35
APPENDIXES
                                                                       APPENDIXI

                 COMPARISON OF WEIGHTED AVERAGE FEE RATES

                NEGOTLATED BY SELECTED CIVIL     AGENCIES WITH

             THREE NONSPONSORED NOT-FOR-PROFIT     INSTITUTES    AND

                           COMMERCIAL ORGANIZATIONS



                              Composite     weighted average fee rates 1965-68
     Civil   agency/         Not-for-profit            Commercial
     not-for-profit            institutes             organizations    Variance
       institutes                (percent>               (percent)     (percent)
FEDERALAVIATION
  ADMINISTRATION:
    Institute A                    6.2                                     1.6
    Institute B                    6.0                   7.8               1.8
    Institute C                    6.0                                     1.8
FEDERALHIGHWAY
  ADMINISTRATION:
    Institute A                    6.5                                     1.3
    institute B                    6.0                   7.8               1.8
    Institute C                    6.0                                     1.8
NATIONAL INSTITUTES
  OF HEALTH:
    Institute A                    7.9                                     (0.4)
    Institute B                    7.4                   7.5                0.1
    Institute C                    7.0                                      0.5
AGRICULTURALRESEARCH
  SERVICE:
    Institute A                    8.0                   8.1                0.1
    Institute B                    6.0                                      2.1
ATOMIC ENERGYCOMMISSION
  SAN FRANCISCOOFFICE:
    Institute A                    7.4                   8.7                1.3
NATIONALAERONAUTICSAND
  SPACEADMINISTRATION--
 AMES RESEARCHCENTER:
    Institute A                    6.4                                      0.0
    Institute B                    6.1                   6.4                0.3
    Institute C                    5.9                                      0.5
COMPOSITERATES:
   Institute A                     7.3                                     0.4
   Institute B                     6.6                   7.7               1.1
   Institute C                     6.7                                     10
                                                                           A
   Three not-for-profits           7.1                   77
                                                         &                 0.0

                                         39
APPENDIX II


           COMPARISONOF WEIGHTED AVERAGEFEE RATES

        NEGOTIATED BY SELECTEDDOD ORGANIZATIONS WITH

        THREE NONSPONSORED
                         NOT-FOR-PROFIT INSTITUTES

                    AND COMMERCIALORGANIZATIONS

                         Composite       weighted average     fee rates
                                          1967 and 1968
Defense activity/      Not-for-profit          Commercial
 not-for-profit          institutes           organizations     Variance
    institutes             (percent)             (percent)     (percent)
DEFENSENUCLEAR
  AGENCY:
    Institute A               6.0                                  2.2
    Institute B               5.9                 8.2              2.3
    Institute C               7.1                                  1.1
OFFICE OF NAVAL
  RESEARCH:
    Institute A               6.0                                  2.0
    Institute B               5.9                 8.0              2.1
    Institute C               6.0                                  2.0
ARMY RESEARCH
  OFFICE:
    Institute  A              7.0                                  1.4
    Institute  B              6.0                 8.4              2.4
    Institute  C              6.9                                  1.5
AIR FORCE AERO-
  NAUTICAL SYS-
  TEMS DIVISION:
    Institute  A              5.9                                  1.3
    Institute  B              5.9                 7.2              1.3
    Institute  C              5.9                                  1.3
c0Mp0s1TE RATES:
    Institute      A         6.4                                   1.1
    Institute      B         5.9                                   1.6
    Institute      C         6,2                                   103
    Three not-
       for-profits           6.3

                                        40
                                                   APPENDIX III


            COMPARISONOF WEIGHTEDAVERAGEFEE RATES

                       NEGOTIATED BY DOD

        WITH THREE NONSPONSORED
                              NOT-FOR-PROFIT INSTITUTES

                 BEFOREAND AFTER ISSUANCE OF

                DEFENSEPROCUREMENT
                                 CIRCULAR 50

                     ON DECEMBER30, 1966


                               1965 and 1966 Contracts
                                                      Composite
                                                      weighted
                                                        average
                                        Value            rate
                      Number        (millions)         (percent)

Institute   A            44            $16.5               6.5
Institute   B            94             12.0               6.0
Institute   C           103             10.0               6.0

                        241            $38.5               6.2

                                                           5-7


                               1967 and 1968 Contracts
                                                      Composite
                                                      weighted
                                                        average
                                        Value            rate
                      Number        (millions)         (percent)

Institute   A           174            $33.2               6.2
Institute   B            73             11.2
Institute   C           105              8.5               i::

                        352            $52.9               6.2

Range                                                    4-8.5



                               41
            APPENDIX        IV




                             DEPARTMENT         OF     HEALTH,         EDUCATION,          AND   WELFARE
                                                     WASHINGTON,         D.C.   20201



OFFICE   OF THE SECRETARY
                                                           NW 27 1970




                     Mr.    Philip   Charam
                     Associate     Director,       Civil            Division
                     U.S.    General     Accounting                Office
                     Washington,       D.C.      20548

                     Dear    Mr.    Charam:

                     The Secretary       has asked             that I reply         to the draft     report
                     of the General      Accounting               Office     on its review       of fees paid
                     nonsponsored       not-for-profit                organizations        by various
                     agencies     of the government.                   Enclosed        are the Department’s
                     comments       on the findings              and recommendations               in your
                     report.

                     We appreciate        the    opportunity              to review          and comment        on
                     your draft    report.

                                                                   Sincerely        yours,




                                                                    Assistant           Secretary,     Comptroller

                     Enclosure




                                                                         42
                                                                                            APPENDIX IV


                            COMMENTSON DRAFT REPORT OF
                    THE GEXERAL ACCOUNTING OFFICE, EXTITLED
         REVIEW OF FEES PAID NONSPONSOREDNOT-FOR-PROFIT ORGANTZATIONS
                    BY VARIOUS AGEKCIES OF TRE COVER3?4EKT


GAO Recommendation:         That the Director,        Office   of Management and Budget,
   tahe the lead in interagency            development      of uniform Government-wide
  guidelines      governing     the negotiation       of fees to not-for-profit        organi-
   zations.      These guidelines        should establish      firm,  equitable   criteria
   for use by all departments            and agencies of the Government in establishing
   fee payments which will be fair to both not-for-profit                    and commercial
   organizations,      giving     consideration     to the tax posture       of each type of
   organization.

HEW Comment: We concur in the recommendation             that the Office       of Management
and Budget t&c the lead in interagency           development     of guidelinrs      governing
the negotiation    of fees with not-for-profit        organizations.        We particularly
welcome the establishment        of uniform Government-wide        criteria    regarding     such
fees which clearly    distinguish      between the commercial        or nonprofit     nature
of the contracting    organization.

Existing       guidelines      governing     fees, as prescribed           in Section 1-3.do8 of the
Federal Procurement            Regulations       and Section      3.808 of the Armed Services
Procurement        Regulation,       do not adequately         address the distinction             between
types of organization.               We feel, however, that the recommended guidelines
should go beyond consideration                 of the different        tax postures         of not-for-
profit     and commercial         organizations       and should take into account organic
differences        between such organizations             and t':e fundamental           purposes to be
served by fees.           We further      believe     that a single         set of guidelin--s        may
be appropriate          to cover both sponsored and nonsponsored                     nonprofit     organiza-
tions.       In this regard,         we question      the contention         made by nonsponsored
not-for-profits,          as reported       on page 8 of the draft             report,    that "they
should not be compared with the sponsored not-for-profit."                                The reasons
given for the nonsponsored               organizations'        requirement        for fees; i.e.,       )Ifor
working capital,          financial      stability      reserves,     acquisition        of facilities,
and expansion of facilities,"                are substantially         identical       to the purposes
 for which fees were expected to be applied                      as recommended in the Bell
Report and as discussed              in the Comptroller          General's       Report on "Need for
 Improved Guidelines           in Contracting        for Research with Government-Sponsored
Nonprofit        Contractorsn       (B-146810,      February 10, 1969).

GAO Recommendation:       Pending the development        of uniform Government-wide
   guidelines   governing    fees to not-for-profit        organizations,       each individual
   agency should reevaluate       its current     policy   and take steps necessary          to
   assure that fee payments are adjusted            to adequately     recognize     the tax-free
   status of not-for-profit       organizations.




                                                       43
APPENDIXIV


UEW Comment: We concur in this recommendation                       and are in the process
of taking steps to implement it.                 As a first      step, the Department            of
Health,      Education,      and Welfare     has recently       completed a comprehensive
study of fees awarded under CPFF contracts                     by operating       agencies through-
out the Department.             The results     of this study confirms            the Comptroller
General's      finding     that there is little         difference      between the rates of
fixed fee paid to commercial               concerns and those awarded to nonprofit
organizations,         and that adequate recognition             is not being given to the
tax-free      status of not-for-profit           organizations.         Based on statistics            for
Fiscal     Year 1969, the Department-wide             weighted      average of fee rates for
commercial       contractors      was 6.4$, which compares favorably                 to the average
rate of 7.5$ with respect to fees paid commercial                       organizations         Government-
wiue    as estimated.      in the Comptroller        General's      report.       For the same year,
however, the weighted average rate of fees paid to nonprofit                              organizations
tnroughout       the Department was 5.6.             These statistics         reveal that while
the average f'ee rate negotiated              with nonprofit        organization        is less than
that negotiated         with commercial       contractors,       the difference         is not
significant.         To effectuate       the Comptroller        General's      recommendation,         this
Department       is reevaluating       its current      policies      governing      the negotiation
of fees anti is in the process of developing                    separate fee guidelines
applicable       to nonprofit      and commercial       organizations,         respectively,        which
will    give consideration         to differences       between nature of such organizations.

0th   r Considerations        in the Development          of Government-wide          Guidelines.

It should be noted that approximately                   two-thirds     of the CPFF contracts
awarded by the Department            of Health,       Education,      and Welfare involve         amounts
under $100,000,       a level below which many components of the Department                          of
Defense do not even bother to employ the ASPR weighted                        guideline      system
of fee determination.          Consequently,          the comparatively       low average dollar
value of HEW's CPFF transactions               may preclude        the attainment      of the suggested
3% spread between average fees paid to commercial                       and nonprofit      organizations.
Tne use of ASPR type weighted              guidelines       would appear to be uneconomical
for individual      low dollar       procurements,         since the cost of detailed            evalua-
tions and prolonged         negotiations       may outweigh possible          savings in fees.
In addition,    negotiating        fees at the low end of the j$ to 7% range becomes
particularly    difficult      when low dollar           procurements     are involved,        regardless
of the commercial         or nonprofit      nature of the contracting            organization.

An additional     consideration,     which may be peculiar        to this Department,         is
that the preponderance         of REM's support to nonprofit         concerns is made by
means other than CPFF contracts;          i.e.,    principally    by grants.        Since one
of the purported      purposes fees fulfill        for nonprofit    organizations,        whether
sponsored or nonsponsored,         is the support of independent,          self-initiated
research    conducted by the recipient,         it may be appropriate        to examine the
broader question      of whether t?e award of grants to nonprofit               organizations
adequately    recompenses them for independent            research and should preclude
                                                                        APPENDIXIV


or limit  the payment of fees on contract       work performed      by such organiza-
tions . A further  area to be considered      may be the propriety       of fees
paid to nonprofit   organizations     under CPFF contracts      being employed by
such organizations   to cover the requirement        for sharing in the cost of
research projects   supported     by Federal grants.




                                            45
   APPENDIX V



                      OFFICE OF THE SECRETARY OF TRANSPORTATION
                                 WASHINGTON,        D.C.   20590



ASSISTANT SECRETARY
 FOR ADMINISTRATION



                                                    November       4,   1970



 Mr. Richard W. Kelley
 Assistant     Director
 Civil   Division
 U.S. General Accounting           Office
 Washington,      D.C. 20548
 Dear Mr. Kelley:
 This  is in reply to Mr. Sacks' letter      of August 26, 1970,
 which forwarded    for comment the General Accounting Office
 (GAO) draft   report   to Congress entitled   "Review of Fees
 Paid Nonsponsored Not-for-Profit     Organizations   by Various
 Agencies of the Government."
 GAO recommends that the Director,           Office    of Management and
 Budget, take the lead in interagency             development of uniform
 Government-wide      guidelines     governing the negotiation         of fees
 to not-for-profit       organizations.       GAO further   recommends that
 pending the development of uniform Government-wide                guidelines,
 each individual      agency reevaluate       its current   policy     and take
 steps necessary to assure that fee payments are adjusted to
 adequately     recognize    the tax-free     status of not-for-profit
 organizations.
 The Department concurs in the recommendation that the
 Director,     Office    of Management and Budget, initiate        the
 development of uniform Government-wide           guidelines.      We
 expect to issue a Department of Transportation              Procurement
 Regulation     on the negotiation      of fees with tax-exempt
 institutions,       providing  guidelines   which will    implement
 your second recommendation.
 The draft  report  on page 24 contains    comments attributed       to
 Federal Highway Administration    contracting    officials.       The
 language used in the report    should be clarified       to more
 accurately  express the views of these officials.            We suggest
 the paragraph in question be reworded as follows            (added or
 revised wording underscored):

                                               46
                                                                           APPENDIX        V



          “Federal         Highway    Administration

          Contracting       officials        of the Federal           Highway
          Administration          stated     that    the Federal         Procurement
          Regulations       contain      guidelines          for fee payments         to
          profit-making         organizations          but do not contain
          specific      guidelines       for development             of fee pay-
          ments to nonprofits.               Because the Federal
          Procurement       Regulations          contain       no directions
          specifically        limiting       fee payments          to nonprofits,
          the chief      contracting         officer       informed      us that
          the independent           nonprofits       press      for and sometimes
          get fees from other            Government          agencies     that    are
          as high as fees paid by the Federal                        Highway
          Administration          to commercial          organizations       .”

We appreciate        the    opportunity      to     comment     on the   draft     report.

                                                       Sincerely,




                                               47
          APPENDIX VI

                               UNITED   STATES         DEPARTMENT              OF AGRICULTURE
                                        AGRICULTURAL             RESEARCH            SERVICE
                                                   WASHINGTON.        D.C.   20250




OFFICE   OF    ADMINISTRATOR                                                                   NOV 27 1970


          Mr. Bernard Sacks
          Associate Director, Civil Division
          United States General Accounting Office
          Washington, D. C. 20548

              Dear Mr. Sacks:

              This is in reply to your letter   of August 26, 1970, on fees paid non-
              sponsored not-for-profit  organizations  by various agencies of the
              Government and the proposed draft to be submitted to the Congress. Cur
              comments are based on actual on-site negotiation    experience with our
              contractors,

              Agricultural  Research Service research contracts are authorized under
              the Research and Marketing Act of 1946, as amended, and the work to be
              performed must be carried out more effectively,     more rapidly, or at less
              cost, than if performed by the Department.      The proposed work must be
              coordinated with, and supplemental to, current ARS research work. ARS
              does not sponsor any contractors   to provide sufficient   work and revenues
              to insure retention  of acquired capabilities    to meet Government needs.

              Contracts negotiated by ARS involving       a fee are for basic and/or applied
              agricultural    research and not the delivery of hardware, and are usually
              for amounts less than $50,000. Most of these contracts are with univer-
              sities    or nonsponsored not-for-profit    organizations and not tax-paying
              commercial organizations.      While the Research and Marketing Act of 1946,
              as amended, exempts USDA from obtaining formal competition,        it is Agency
              policy to obtain comparative costs.        Selection of contractor   is based
              upon evaluation of qualifications,       understanding of problem area and
              the approach to solving the problem, and total cost for the complete
              project.

              A positive     effort   is made to negotiate the lowest possible fee; however,
              of equal importance is that proper consideration              be given to the total
              cost of the work. The best interest             of the Government cannot be served
              if procedure requires contract negotiation             with an organization       whose
              fixed fee fell within the range recommended in your report but whose
              total cost for the work exceeded another highly qualified                organization
              which requires a higher fee.            In practice,   educational   institutions,
              profit-making,       and not-for-profit     organizations   are in competition.
              ARS strives for the best possible contract in the interest                 of the
              Government regardless of the type of organization              of the prospective
              contractor.

                                                            48
                                                                        APPENDIXVI



    It is the policy of ARS to negotiate each budget item and obtain the
    lowest fee acceptable to the contractor       for the particular       proposed work
    regardless of whether the contractor     is a not-for-profit       or commercial
    organization.     We do not rely solely on past historical        facts for the
    lowest possible fee acceptable to the contractor,         Our experience with
    prospective contractors , particularly     the three mentioned       in the report,
    indicates    that they are very adamant to negotiating       a fee lower than
    their stated rate.     In many instances they would rather forfeit           the
    proposed contract than accept a lower fees

    These contractors   have willingly    indicated to us at times that they
    negotiate lower fees with other Government agencies due to the number
    and large dollar amounts of such contracts,        In many of our contracts
    with these organizations,     there is a cost-sharing   factor which is taken
    into  consideration  in the total negotiation     of the contract.

    Another factor affecting  the fee is the indirect   cost factor.     Here again
    we strive to negotiate the lowest fixed dollar value indirect      cost, lower
    than the current DGAA percentage rate if possible,      Our contracts are for
    extended periods up to four years and do not provide for a provisional
    increase in the event the contractor's  indirect   costs are increased.     The
    contractors usually insist that this factor be considered in negotiating
    the fee.

    We have no objections to the conclusions expressed in the report.          Fee
    setting guidelines which are more extensive and specific        than those
    presently in the Federal Procurement Regulations would be of assistance
    in standardizing   the fees paid under the cost=-plus-fixed-fee     contracts.

    The report concludes that it would be equitable to reduce the fee paid
    to not-for-profit     organization    by'3 to 7 percent to offset the taxes
    commercial organizations      pay. We do not disagree with this judgment,
    assuming that it is based on conclusion that fees paid to both types of
    organizations     are subject to the same criteria.      We strongly recommend
    that this area be carefully        examined in developing fee-setting   guidelines.
    It may be found that the same criteria        are not applicable and that two
    sets of guidelines will be required to achieve equitable treatment.

    Sincerely,




2
    T.  T. E&fnster
    Acting Administrator




                                          49
APPENDIX VII


                                DEPARTMENT            OF STATE
                  AGENCY        FOR   INTERNATIONAL          DEVELOPMENT
                                  WASHINGTON.      D.C.   20523




                                                                       NOV 09 1970



 :;r * QT.? ii‘     Sto-.~?li
 Directof,                   Xvision
                  S_r:tornsti@nd.
 lJl?:itTd States General .".ccounting Office
 442 G Street, N.!?,
 Xashlngton, 3.C. 2Qj?c7


 Dear Hr. Stovall:

 Xe have carefully      reviewed your report of August 26,
 1970, concerning fees paid non-sponsored, not-for-
 profit   organizztions     by various agencies of the
 Government, Ve xre pleased to transmit a memorandum
 dated October 21, 1970 from Patrick 14. O'Leary which
 constitutes    the Agency's consolidated response to the
 draft report.

                                                Sincerely         yours,




                                                Edward F. Tennant
                                                Auditor General



 Enclosure:          a,!s
                                                                                      APPENDIX       VII



               UNITED    STATES   GOVERNMENT


               Memorandum
TO         :      AG/AUD, Mr. Edward F. Tennant                              DATE:     Wr    22   1970
                                                  -,
FROM       :       A/PRoC, Patrick    M. O'Lear        i


SUBJECT:           General Accounting Office (GAO) Draft Report        to the Department of Defense
                   Entitled:  rtReview of Fees Pdid Nonsponsored       Not-for-Profit  Organizations
                   by Various Agencies of the Government'


                   This memorandum consolidates    Agency comments on subject GAO draft report
                   in accordance with the instructions    in Mr. Joseph F. McFarland's memo-
                   randum to me dated September 3, 1970.

                   The GAOanalysis of fees paid to nonsponsored not-for-profit        organizations
                   by various agencies of the government focused on three institutes        which
                   are engaged primarily    in research and development ( R & D} work. A.I.D.,
                   although a minimal purchaser of research and development efforts        among
                   government agencies, has numerous non-R & D type contracts      with two of
                   the institutes    and has a single contract with the third institute.       Our
                   actual count shows 31 contracts with Institute     A, 17 with Institute     B
                   and 1 with Institute    C.

                   Fee guidelines   for the use of A.I.D.       contracting officers   are set forth
                   in A.I.D. Manual Order 1412.4, FEE GUIDELINES FOR NEGOTIATEDAND DIRECT
                   coNTFiAcm. The manual order, which is classified          LIMITED OFFICIAL USE,
                   provides guideline      fee curves to be used in contracts      for various kinds
                   of services and also for commodities.          There is, however, no guidance in
                   the manua.l order regarding      fees to be @Ad to either      sponsored or non-
                   sponsored not-for-profit      organizations.

                   The results  of our review of fees paid by A.I.D.          to the three Institutes
                   correspond with the broader findings        of the GAO. A.I.D.      has paid these
                   three nonsponsored not-for-profit       organizations    at approximately     the same
                   rate of fee it pays commercial profit        making institutions.      During the
                   period from JLI-I.~ 1, 1969 through June 30, 1970, A.I.D.         paid an agency-
                   wide average fee of 509$ in its cost plus fixed fee contracts.              The fees
                   paid to the three institutes      by A.I.D.   average out as follows:       Institute
                   A - 6.89$; Institute    B - 6.0%; Institute        C - 5.25s.

                   On the basis of our review 02 the fees A.I.D.      has paid to these Institutes,
                   we believe the Agency should re-evaluate      its current policy on fees in
                   accordance witli the GAO recommendation on page 28 of subject report.         We
                   do not, however, concur in that part of the GAO recommendation on page 28
                   which would require A.I.D.,   as an individual    Agency, to take steps to
APPENDIX VII



        assure that ii-,ency fee payments adequately                recognize the tax-free
        status of not-for-prcfit            organizations.        :s a reading of subject
        report will make amply clear, there is no hard and fast xuie as
        to what constitutes         "adequate recognition"           of the tax-free statlls
        of not-for-profit        organizations.         Gle believe the Agency would be
        ill-advised      to commit     itself    to measuring up to a standard which
        is yet to be defined,            We note that the recommendation on page 3L!
        cf   the draft report,       concerning setting         uniform Government-wide
        guldeltnes     has been made to the Director,              Office of Eanagement
        and Eudget (OIB);          we will await OKB's comment with interest.




                                              52
                                                                                       APPENDIX VIII

                                   UNITED      STATES   OF AMERICA
                          GENERAL        SERVICES       ADMINISTRATION
                                         WASHINGTON,    D.C.   20405


OCT 16 1970

  Honorable      Elmer     B. Staats
  Comptroller        General    of the
.
     United    States
  General     Accounting     Office
  Washington,        D. C.    20548

Dear    Mr.    Staats:

This    is in reply   to your   letter    of August     26, 197G, which      requested     our
views     and comments       on the accompanying           copy of a draft     of a proposed
report     to the Congress     on your      review    of fees paid by Government
agencies       under research     contracts       to nonsponsored    not-for-profit
organizations.

We agree       fully with  the proposition         that not-for-profit         organizations
should     not receive    as proportionately           large    fees under      cost reimburse-
ment    type contracts      as commercial           organizations,         in view of the
exemption       of the former    from      Federal       income     taxes.

The promulgation            of uniform       Government-wide            guidelines       by the Office
of Management            and Budget,       as you recommend,              or, in the alternative,
by the General          Services     Administration          and the Department             of Defense
through     the Federal         Procurement         Regulations        and the Armed          Services
Procurement         Regulation,         certainly     would     be desirable.          In view of
GSA’s    responsibility          for issuing      Government-wide             contract     policies
and procedures,            we would      favor    the latter     arrangement.

In any event,      we propose        to convene          an interagency          task group     to develop
an appropriate       temporary         Federal         Procurement          Regulation     which   would
provide    uniform      civilian    agency         adherence       to your     recommendation          that
such agencies       take steps necessary                to adjust      fee payments       in recognition
of the tax-free       status     of not-for-profit           organizations.




                         Keep Freedom in Tour Future With U.S. Savings Bonds




                                                        53
       APPENDIX IX


                                 NATIONAL AERONAUTICSAND SPACE ADMINISTRATION
                                               WASHINGTON.   D C.   20546




REPLY TO
           alp-2
                                                                            NOV 20 1970
ATTN OF.




           W. Lloyd G. Smith
           Associate Director, Civil Division
           United States General Accounting Office
           Washington, D. C. 20543
           Dear Mr. Smith:

           !&is is in response to the GAOdraft report on Review of Fees Paid Non-
           sponsored Not-For-Profit  Organizations by Various Agencies of the
           Government.

           Although we do not       necessarily agree with the conclusions reached in
           your draft report,       for reasons stated in the attached comments, we would
           be pleased to meet       with other agencies to determine if Government-wide
           fee guidelines are       needed.

           As an interim step, we will caution NASA contracting    officers to consider
           the tax exempt posture of contractors in the overall fee guidelines     of
           NASA Procurement Regulation 3.808 when negotiating   fees with not-for-profit
           organizations.

           Sincerely    yours,




              for Organization     and Management

           Attachment
            a/s




                                                  54
                                                              APPENDIX IX


                    NASACOI&'ZNTS
                                ON GAODRAFTREPORT
                        ON REYIEWOF FEESPAID
               NONSPONSORED NOT-FOR-PROFIT ORGANIZATIONS
                 BY VARIOUS AGENCIES OF TEE GOVERNKf!XT


GAOhas concluded that:       (1) DODand other agencies have not given
sufficient   attention  to the tax posture of not-for-profit    organizations
in negotiating    rates of fee for research and development contracts,
which resulted in excessive fee payments, (2) existing regulations          of
such agencies are not consistent     for payment of fees to not-for-profit
research organizations,    (3) where guidelines are in existence, they are
not uniformly applied, and (4) agency regulations        do not make adequate
distinction between not-for-profit      and commercial organizations in the
payment of fees.
GAOhas made the following     recommendations:
    1.   That the Director,   Office   of Management and Budget,   take the lead
in interagency development of uniform Government-wide guidelines govern-
ing the negotiation of fees to not-for-profit     organizations.  These
guidelines should establish firm, equitable criteria     for use by all
departments and agencies of the Governmentin establishing fee payments
which will be fair to both not-for-profit     and commercial organizations,
giving consideration to the tax posture of each type of organization.
     2. That, pending the development of uniform Government-wide guide-
lines, each individual agency reevaluate its current policy and take
steps necessary to assure that fee payments are adjusted to adequately
recognize the tax-free status of not-for-profit  organizations.
Before commenting on the GAOrecom&endations, it is necessary to clarify
one portion of the draft report that is misleading and not completely
factual .I"On Page 26, GAOquotes a portion of an AmesResearch Center
letter, dated February 20, 1968, to NASAHeadquarters and implies that
action should have been taken at NASAHeadquarters but was not.
The letter in question was the result of an inquiry from the Director
of Procurement on February 1, 1968 to all HASACenters, on a different
subject, asking for commentsand suggestions regarding problem areas
encountered in drafting contracts with nonprofit scientific and educa-
tional. institutions.  The Ames comment was of a general nature and not
to a specific Amescontract.    Rather, it was based on a U. S. Army Audit
Agency Report SF-65-526, issued 3-l/2 years earlier on September 11, 1964,
entitled "Comprehensive Report on Government  Contract Operations for the
18 Months Period Ending December3l, 1963". The audit report was the
result of an overall review of financial operations and related mnagement
procedures and practices of                                c21

GAOnotes:
   1. The report has been modified (see p. 12) to clarify this matter*
   2. The nameof the contractor has been deleted.

                                       55
  APPENDIX IX

As presented in the draft report, GAOhas taken the Ames comment out of
its proper perspective because they failed to complete the Ames suggestion,
which read: "This comment is perhaps outside the intent of reference let-
ter, but deserves to be kept in mind for high-level  consideration as a
separate study" (underscore added).

A reply to the Ames letter    was not expected, but Headquarters Procurement
Office did promptly review the NASA Procurement Regulations and determined
that a revision to the regulations    was not required.   !The policy and pro-
cedures for determining a reasonable fee are necessarily     broad to encompass
the great number of factors to be considered and the multitude       of contrac-
tual situations  which arise.    Because of this, we considered and still
consider, the NASA Procurement Regulation 3.808 proper.      Accordingly,    that
part of Page 26 of the draft report that pertains to NASA should not be
included in the final report.

With regard to GAO's recommendations, we would be glad to meet to determine
if Government-wide fee guidelines   are needed. If these guidelines   are
needed, we would expect them to be structured    in such a fashion as to allow
individual   contracting officers to consider their instant case in its proper
perspective.

GAO has concluded in connection with the second recommendation that, because
nonsponsored not-for-profit         organizations     are tax exempt, fees paid for con-
tracts with these organizations           should be limited.      Although we appreciate
the GAO concern, we do not necessarily            believe that the subject of tax
exemption is the overriding         factor when determining fees nor do we believe
that there should be a preestablished            fee limitation     on these contracts.
NASA's basic position is to pay a reasonable fee commensurate with the
services received.        We agree that the tax exempt status of not-for-profit
organizations     is one factor that should be considered by contracting
officers    when negotiating      fees.    The need for payment in excess of cost and
the uses to which such payments would be put are other factors to be con-
sidered.     Further, the weighting placed on the tax exemption element will
likely   differ from contract to contract when placed in perspective with
other~fee factors such as those contained in the NASA Procurement Regula-
tion 3.808. Because of this, it is difficult               for us to understand how
GAO concludes th&t the average fee paid to not-for-profit                 organizations
 (6.1s of cost on NASA contracts reviewed) should have averaged 5% to be                       .
considered reasonable.         In no way could we support the position that fees
paid to not-'fo%-profit       organizations     should be at an average of 5$, or any
other set,&reentage,
          . _. .,,          in  order   to  be  considered    reasonable.
As a current action, we will caution NASA buying personnel to consider the
tax exempt p&-Lure of contractors           in the overall fee guidelines        of PR 3.808
               ting;;fees< with not-for-profit        organizations.
                            >
                   * -*;A ..J
                           j's

Assistant   Administrator   for
 Industry   Affairs   and Technology Utilization

                                          56
                                                                     APPENDIXX



                                      UNITED      STATES
                         ATOMIC        ENERGY         COMMISSION
                                  WASHINGTON.         D C.   20545




                                                JAN 15 1971



Mr. Lloyd G. Smith
Associate Director
Civil Division
General Accounting Office
Washington, D, C. 20548

Dear Mr. Smith:

This is in response to your letter   of August 26, 1970, requesting our
comments on the draft of a report of GAO's review of fees paid to non-
sponsored not-for-profit organizations.

It is our understanding that as a result of discussions held between
members of our respective staffs,      GAO intends to revise those sections
of the report dealing with the AEC to indicate that AK is implementing
its policy of giving consideration      to the tax posture of not-for-profit
contractors   by making reductions when negotiating    fees with such organi-
ZatiOllS.   We also understand that there will be a number of revisions      in
the findings concerning the average fees paid to Institute        A and commercial
organizations   by the AX, which support the report's      overall finding concern-
ing the UC's implementation      of its policy in this area.

The report recommends that uniform Government-wide guidelines be developed
for the negotiation     of fees with nonsponsored not-for-profit        organizations.
This recommendation is apparently based on two points:           (1) GAO's opinion
that in order to provide that not-for-profit         and commercial profit     making
organizations    are treated equitably,   Government agencies, when determining
fee payments on Government contracts,      should make an appropriate addust-
merit in the fees paid to not-for-profit     organizations    because they pay no
Federal inccme taxes; and (2) the report's findings that the Department of
Defense policies    concerning fee for not-for-profit      contractors    are not
achieving their intent,     and on the fact that civilian     agencies (other than
the ABC) do not make a distinction.between        tax-exempt organizations       and
comzmercial organizations     in their fee policies.     We understand that GAO
envisions that the proposed guidelines would be -essentially           concerned
with providing a uniform not-for-profit      adJustment factor (similar        to




                                                 57
 APPENDIX x


Mr. Lloyd G. Smith
the 23p factor and the 37~weighted guidelines factor used by AEC and DOD,
respectively)    or some other uniform adjustment technique, and with pro-
viding guidelines for the application    of this factor or technique to not-
for-profit    contractors.

We believe that there should be a Government-wide policy that requires all
agencies to give appropriate consideration        in their fee policies    to the tax
posture of each organization.       However, we do not believe there is a need
for a uniform Government-wide fee policy which spells out specific            guide-
lines for making a distinction      between not-for-profit   and profit    making
organizations.     It appears to us that the problems noted in the last para-
graph of page 4. of the draft report could be corrected by better execution and
enforcement in the case of the agency which has a policy and by modification
of the regulations    of the other agencies to give recognition       to not-for-
profit  status.    It would seem that as long as the executive agencies make
an adequate distinction     between commercial and not-for-profit       organizations
in their fee policies    and practices,   the objectives being sought by GAO
would be accomplished.

We also believe the development of detailed guidelines for not-for-profit
organizations     could have a serious disruptive       effect on the existing      overall
fee policies     of the various     executive agencies.      It appears that GAO is
recommending, in effect,        that the OMEN  examine only one of the factors that
must be considered when calculating          and negotiating    a fee, i.e.,   the not-
for-profit    factor.    The present overall fee policies        of the various agencies
recognize that there are other factors which are important and which must be                  '
considered in the negotiation         of fees with both not-for-profit       and commercial
organizations,      such as complexity of the work, risk, and the contractor's
capital investment.       However, there are some major differences          in the overall
fee policies     of the various agencies.       The DOD utilizes     the weighted guide-
lines approach to determining fees.           The AEC uses factors such as complexity
of the work and capital investment, but the target fee arrived at using
these factors cannot be in excess of established declining              fee curves
based upon estimated costs.          The other civilian    agencies such as NASA use
naFrative factors.       Since these three appraches are so different,           it would
be extremely'difficult       to develop a viable uniform Government-wide fee
policy for just one of the factors that must be considered, that would not
seriously disrupt the various agencies fee policies,             unless all the agencies
were required to adopt the same basic overall approach to fee determination,
The only practical      manner in which an examination could or should be made of                 .
fee policy is an examination of all the major elements involved in the deter-
mination of fees.

                                                 Sincerely,



                                                 John P. Abbadessa



                                         58
                                                                                                            APPENDIXXI


                                             ASSISTANT      SECRETARY        OF DEFENSE
                                                      WASHINGTON,     D.C.   20301




INSTALLAT1ONS   AND   LOGISTiCS




           Mr.     C. M. Bailey
           Director,    Defense    Division
           U. S. General      Accounting                Office
           Washington,      D. C. 20548

            Dear      Mr.         Bailey:

            This is in response       to your              letter   of 26 August    1970 transmitting     for
            comment        GAO draft   report             titled,    “Review   of Fees Paid Nonsponsored
            Not-For-Profit       Organizations                  by Various   Agencies    of the Government”
            (OSD Case #3170).

            GAO has examined          into the policies         and practices          followed        by Government
            agencies    in the payment          of fees to nonsponsored              not-for-profit            organi-
            zations  at six defense          and eight    civil agency         procurement           activities.
            The examination        was focused          on cost-plus-fixed-fee               contracts        awarded
            to three  large   not-for-profit          research      institutes.

            The report           concludes          that these not-for-profit                  organizations          receive
            approximately               the same rate of fees that commercial                             profit     making
            organizations             receive        for doing        similar       work.       It is estimated          that the
            total fee at these three                   institutes       could have been reduced                    by $594,000
            if the Department                 of Defense           (DOD) had achieved              a fee rate of five
            percent.           In GAO’s         opinion,         the failure        of DOD guidelines             to achieve
            their     intended         reduction         in fees to not-for-profit                 organizations          are the
            principal         reasons         that these fees are comparable                        to those being paid
            to commercial                organizations.              Your report          recommends             that the
            Director,           Office      of Management              and Budget          take the lead in interagency
            development             of uniform           Government-wide                guidelines       governing         the
            negotiation          of fees to not-for-profit                   organizations.            Further,         pending
            the development                of these guidelines,                the report        recommends            that each
            agency        take steps necessary                    to adjust      fee payments          in recognition          of
            the tax-free            status      of not-for-profit             organizations.




                                                                      59
    APPENDIX         XI




We have reviewed               this matter,        and in our opinion           the DOD guidelines           on
this matter         are adequate         and procurement            activities       generally        have
followed       these     guidelines       in determining         the profit       objective.         The report
conclusion        that the DOD guidelines               were    established         to reduce        fees to
not-for-profit          organizations         misinterprets         our policy.           Therefore,
though       we have no objection            to the Office        of Management             and Budget
pursuing        a study     in this area,       we are of the opinion              that it would         not
prove      to be productive           in appreciably         changing       fee rates       to not-for-
profit     organizations.

We believe          that your       discussion        of the background            leading      to the publication
of our policy          in Defense         Procurement          Circular       (DPC)       #50 providing           for
the application            of the weighted          guidelines      to nonprofit         organizations           does not
accurately         portray       the policy       and its development.                Your    report       attaches
heavy      weight      to a special        Armed       Services       Procurement           Regulation          (ASPR)
Subcommittee             that   considered         this subject       and recommended                the appli-
 cation    of the weighted            guidelines       to nonprofit        organizations,           subject       to
minus      three      percentage         points     (weighting      factor)     in recognition           of the
different       status      that a nonprofit         has as related          to a commercial             tax bearing
organization.             The    Subcommittee           report     to   the   ASPR      Committee          had
 suggested        that a three         percentage        point   reduction        of the weighted           guide-
lines     would      seemingly         adjust    fees to a range          of three      - seven percent
with    a median         of five percent.

Based      on the files          of the Subcommittee            action,      the GAO report             states,
page 3,       “The      Department          of   Defense    (DOD)      revised      its   procurement
regulations          in December           1966 to effect       a three      percentage         point      spread
between        not-for-profit           and commercial          fees.     ” The report          further        states,
“Fees      objectives         . . .were    to be adjusted        by..    . -3 percent        where       the proceeds
of the contract           were      not subject       to Federal       income      taxation.      ” GAO found
that “. . . the recommended                    spread    of three     percentage         points     was not
being     achieved.         ” This misinterpretation                of DOD policy          in your draft          report    .
should      be corrected.

Prior      to the issuance      of DPC #50 dated         30 December             1966,   the use of
the weighted        guidelines     for determining       the Government’s              profit   objective
was not required           for negotiating     with   nonprofit       organizations.          DPC #50
had several        purposes,      one of which      was to provide          for the use of weighted
guidelines       in determining        the Government’s         profit     objective      when




                                                           60
                                                                                                APPENDIX XI


negotiating       with nonprofit      organizations.          Another     was to provide    necessary
adjustment        factors    to recognize       the nonprofit      status   of such organizations.
These      purposes       are clearly     set forth   in the published        regulation   quoted
below:

      ASPR 3-808.4                “(f) Th e weighted              guidelines       method      was designed
      for arriving           at profit      or fee objectives              for other      than nonprofit
      organizations. -             However,          if appropriate           adjustments          are made       to
      reflect       differences          between        profit     and nonprofit        organizations,
      the weighted            guidelines         method        can be used as a basis                for arriving
      at fee objectives              for nonprofit           organizations.           Therefore,         the
      policy      of the Department                of Defense          is to use the weightedade-
      lines     method,         as modified           in (2) below,          to establish       fee objectives
      which       will    stimulate        efficient       contract       performance          and attract
      the best capabilities                of nonprofit          organizations         to defense        oriented
      activities.           The modifications                should      not be applied        as deductions
      against       historical         fee levels,         but rather,         to the fee objective           for
      such a contract              as calculated           under      the weighted         guidelines
      method.          ” (Underlining            added)

There      is nothing       in the DOD published             policy   to the effect        that fees to
nonprofit       organizations          are to be less than fees paid to commercial                           organi-
zations.        Nor is there        anything        in the published      policy      that states        that the
median       fee for nonprofit           organizations         shall be five percent            as indicated
on pages        3, 4, 16, and 31 of the draft                report.     Hence,        your conclusion            on
page 19 that DPC #50 had not reduced                         the fee rates       to nonprofit         is not an
accurate        analysis       -- that was not the DOD objective.                    To the contrary,             the
DOD policy         specifically        provides       (ASPR part quoted           above)      that the
modifications          to adjust      the weighted        guidelines     for use in contract               awards
with nonprofits           should    not be applied         as deductions        against       historical       fee
levels.

Perhaps       you may have been somewhat                    misled      during    your review        by the
operation       of the ASPR Committee.                It is the practice         of the ASPR Committee
to designate         special    Subcommittees         to study and assist           in the development
of policy.        However,        the ASPR Committee              considers      and appraises          many
views     (both inside        and outside     the Government)           in formulating        a specific
policy.      Differing       views    and conflicting       opinions      are frequently       found      in
the files     of the ASPR Committee*              s deliberations.            The ASPR Committee,
in considering          this policy,     examined       the Subcommittee’s             study,    solicited




                                                          61
   APPENDIX           XI




other     comments,            deliberated         at length    on the issues     involved,                  and
formulated      the        policy     which      was eventually      promulgated.

The GAO report                 is predicated         on a review          of contracts        awarded        during
CYs 1967 and 1968.                    Though      the DOD policy             was issued        on 30 December
1966,      printing,         reproduction,          distribution,           implementation           and
application          were       some     months      in the accomplishment.                    From      our
examination            of significant        contract         actions      awarded        to these    three
research         institutes,         it appears        that the first         applications        of the new
policy      occurred          in May 1967.            Therefore,          the use of CY 1967 statistics
as a representation                of the after         effect      of the policy        change     would     not be
truly     reflective         since     the first     four      to five months           of CY 1967 were
taken      up with       the general        distribution           and implementation             of the new
policy.

The draft        report       concludes         on page 4 that DOD guidelines                         failed     to
achieve      their      intended        purpose,         to wit:        a reduction         in fees to nonprofit
organizations.              As we previously                 stated,       that was not the intended
purpose       of our policy.              In actual        fact,      a review       of major        contract        awards
indicates       that the specific             intent      of our policy           is being       achieved.           The
 specific     intent      was to require             the application             of the weighted             guidelines
with     an adjustment            factor     of minus           three     percentage          points      for
determining          the profit         objective       under         contracts        to be awarded            to
nonsponsored             nonprofits.           Since      the implementation                 and the application
of our policy          occurred          toward       mid-CY           1967,    a review         of contract
awards      for the period             1 July 1967 through                   30 June 1969 (FY 1968 and
1969) would          be a pertinent            period       to examine          for determining               whether
our policy        was implemented                 by procurement                activities.

We have reviewed               contract     actions        exceeding        $200,000        awarded         to the
three    research       institutes       noted     in the GAO report                during     that two-year
period     and have found , with             no significant           exception,         that our guidelines
published      in DPC #SO have been followed.                           As an example,             listed     below’
are CPFF         contracts        exceeding        $200,000         awarded        during     FY 1968 and
1969 to Institute          A (estimated          cost $13.4         million      - fee $816 thousand).
You will note that procurement                     activities        applied      the weighted           guidelines
method,      including        the special       minus        factor      of three      percentage         points,
in arriving       at the Government’s                profit     objective.




                                                              62
                                                                                                 M’PEHDIX        XI



                     Institute     A - Fiscal               Years      1968   and   1969     G


                 Contracting                                                         Contractor
                    Officer              Special                   Net Fee                Fee               Negotiated
Contract       Fee Objective             Factor                   Objective          Requested                  Fee
Number        --..      %                   %                     -    %            -      %                       %

  A0099             10.4                     (-3.0)                   7.4                  7.0                  7.0
  A 0373             8.5                     (-3.0)                   5.5                  7.5                  6.0
  A 0497             9.3                     (-3.0)                   6.3                  6.3                  6.3
  A 0684            10.5                     (-3.0)                   7.5                  8.0                  7.5
  A 1224             8.9                     (-3.0)                   5.9                  8.0                  6.3
  A 0006             9.0                     (-3.0)                   6.0                  8.0                  6.0
  A 1261             9.8                     (-3.0)                   6.8                  7.0                  6.7
  A 0040             7.8                     (-3.0)                   4.8                  7.2                  5.0
  AF 0156           10.0                     (-3.0)                   7.0                  8.3                  7.4
  AF 0286            5.9                     (-3.0)                   2.9                  4.0                  3.0
  AF 1359            7.2                     (-3.0)                   4.2                  7.0                  5.0
  N 0299             8.7                          0                   8.7                  8.0                  8.0

  A 0917             9.0                     (-3.0)                   6.0                  6.0                  5.1
  A 0918             9.0                     (-3.0)                   6.0                  6.5                  6.0
  A 0919             9.1                     (-3.0)                   6.1                  6.5                  6.0
  A 0200             9.9                     (-3.0)                   6.9                  7.0                  6.5
  A 0194             8.0                     (-3.0)                   5.0                  5.0                  5.0
  A 1703             9.6                     (-3.0)                   6.6                  7.0                  6.5
  A 2097             9.7                     (-3.0)                   4.7                  7.5                  6.7
  A 0004             9.4                     (-3.0)                   6.4                  7.5                  6.5
  A 0004 Mod         9.8                     (-3.0)                   6.8                  8.0                  6*8
  A 0009             9.6                     (-3.0)                   6.6                  7.3                  6.7
  A 1261            10.0                     (-3.0)                   7.0                  8.0                  7*3
  Al? 0127           9.0                     (-3.0)                   6.0                  7.0                  6.4
  AF 0286            8.3                     (-3.0)                   5.3                  7.6                  6.0

 It is our conclusion       that from     an examination      of major    contract      actions,
 DOD contracting      officials     did apply the policy      as promulgated        in DPC #50
 to nonsponsored      nonprofit      organizations      in the manner     intended.        Thus,
 we do not concur      with your conclusion          that there was a failure         in the use




 :k Source:    DOD Profit        Reporting            System



                                                       63     5
  APPENDIX      XI




of the DOD guidelines.         Though   we do not object        to your recommendation
concerning     a study by the Office      of Management         and Budget,    it would   be
in our opinion     unnecessary      and of no appreciable         benefit to the DOD.

We appreciate        this   opportunity   to comment      on your   report.

                                                   Sincerely,




                                              64
                                                                         APPENDIX XII


             EXECUTIVE OFFICE OF THE PRESIDENT
                OFFICE   OF   MANAGENIENT          AND     BUDGET
                          WASHINGTON,       D.C.   20503                          - .

                                                                        NOV 25 1970

Mr. A. T. Samuelson
Director,   Civil Division
United States General
   Accounting Office
Washington, D. C. 20548

Dear Mr. Samuelson:

‘We appreciate the opportunity afforded by your letter of August 26,
 1970, to review and comment on the draft GAO report, dated August
 1970, “Review of Fees Paid Nonsponsored Not-for-Profit Organizations
 by Various Agencies of the Government .‘I

As the draft report recognizes, the development of guidelines
appropriate to govern. agency negotiation      of fees payable to non-
sponsored not-for-profit      Government contractors would require
detailed consideration      of the affected agencies ’ policies,  proce-
dures and practices,     including the fee criteria    applicable to
other types of contracts and contractors,        As you know, a broad
legislative  charter for the comprehensive review of Federal
procurement has been granted to the Commission on Government
Procurement, along with the obligation      to report findings and
recommendations to the Congress. In this connection, we under-
stand that cost contract and nonprofit      contractor fees are among
the subjects scheduled for review by a Commission study group.
While it would be appropriate for the Office of Management and Budget
to work with the Commission and affected agencies to explore the
feasibility  of developing the suggested guidelines,   we believe it
would be premature for us to take the leadership in developing
uniform guidelines prior to the completion of any pertinent
Commission review.    We will, of course, be fully cooperating with
the Commission on this and related projects,    and should affirmative
OMB action appear desirable during or as a result of Commission
study we will consider such action in the light of circumstances
then presented.

                                                   Sincerely        ,




                                                   Director



                                             65
APPENDIX XIII


                   PRINCIPAL OFFICIALS OF

                     GOVERNMENT
                              AGENCIES
       RESPONSIBLE FOR ADMINISTRATION OF ACTIVITIES

                  DISCUSSED IN THIS REPORT


                                            Tenure of office
                                                            -To
                    DEPARTMENTOF DEFENSE

SECRETARYOF DEFENSE:
   Melvin R. Laid                    Jan.      1969    Present
   Clark M. Clifford                 Mar.      1968    Jan.    1969
   Robert S. McNamara                Jan.      1961    Feb. 1968

SECRETARYOFTHEARMY:
   Robert F. Froehlke                July      1971    Present
   Stanley R. Resor                  July      1965    June 1971
   Stephen Ailes                     Jan.      1964    July    1965   '

SECRETARYOF NAVY:
   John H. Chafee                    Jan.~     1969    Present
   Paul R. Ignatius                  Sept.     1967    Jan.    1969
   Charles F. Baird (acting)         Aug.      1967    Sept. 1967
   Robert H. B. Baldwin (acting)     July      1967    Aug.    1967
   Paul H. Nitze                     Nov.      1963    June 1967
SECRETARYOF THE AIR FORCE:
   Dr. Robert C. Seamans, Jr.        Jan,      1969    Present
   Dr. Harold Brown                  Qct *     1965    Jan.    1969
   Eugene M. Zuckert                 Jan.      1961    Sept. 1965


                OFFICE OF MANAGEMENT
                                   AND BUDGET

DIRECTOR:
    George P. Shultz                 July      1970    Present
    Robert P. Wyo                    Jan.      1969    July    1970
    Charles J. Zwick                 Jan.      1968    Jan.    1969
    Charles L. Schultze              June      1965    Jan.    1968
    Kermit Gordon                    Feb.      1963    June 1965
                                66
                                                    APPENDIX XIII

                                          Tenure of office
                                          From             To
                                                           -
              GENERAL SERVICES ADMINISTRATION

ADMINISTRATOR:
    Robert L. Kunzig               Feb.      1969     Present
    Lawson B. Knott                Nov.      1964     Feb. 1969


       DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

SECRETARYOF HEALTH, EDUCATION,
  AND WEWARE:
    Elliot L. Richardson           June      1970     Present
    Robert H. Finch                Jan.      1969     June 1970
    Wilbur J. Cohen                Mar.      1968     Jan.    1969
    John W. Gardner                Aug.      1965     Mar.    1968


                 DEPARTMENTOF AGRICULTURE

SECRETARYOF AGRICULTURE:
   Clifford  M. Hardin             Jan.      1969     Present
   Orville  L. Freeman             Jan.      1961     Jan.    1969


               DEPARTMENTOF. TRANSPORTATION(note       a>

SECRETARYOF TRANSPORTATION:
   John A. Volpe                   Jan.      1969     Present
   Alan S. Boyd                    Jan.      1967     Jan.    1969


                 ATOMIC ENERGYCOMMISSION

CHAIRMAN:
    Dr. Glenn T. Seaborg           Mar.      1961     Present




                            67
APPENDIX XIII


                                              Tenure of office
                                              From            -To
               NATIONAL AERONAUTICSAND SPACE ADMINISTRATION

ADMINISTRATOR:
    Dr. James C. Fletcher                  Apr.    1971   Present
    Dr. George M. Low (acting)             July    1970   Apr.    1971
    Dr. Thomas 0. Paine                    Oct.    1968   July    1970
    James E. Webb                          Feb.    1961   Oct.    1968

aCreated by Department of Transportation          Act
 (Pub. L. 89-6701, October 15, 1966.




 U.S.   GAO.   Va.sh.,   D-C.
                                     68
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