Air Force's Contract To Produce C-5A Aircraft by the Lockheed Aircraft Corporation

Published by the Government Accountability Office on 1971-04-23.

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

                        COMPTROLLER     GENERAL     OF     THE      UNITED     STATES
                                      WASHINGTON.    DC.         20542

I,   Dear Senator Brooke:

              This is in response to your referral          dated March 4, 1971, with
     enclosure, requesting our findings and views concerning a comment
     from Mr. Ronald Cohen of Cambridge, Massachusetts.               On the basis of
     an article         publishedin       The New Republic, Mro Cohen urged you to do
     everything in your power to                                          LQgAC~L~ce
     fulfills       its   responsibilitie                                 rcraft     Cor-   ^ .I '
     ai~~-~~~~~-~-~~~~~~~~~~~~~~~=~-,~~=~                                  reduce_ci C-5A
                                                                                      ,        ;'
      m--z_       :l .
           The article stated that the General Accounting Office had ac-
     quiesced to a plan proposed by the Department of Defense to absolve
     Lockheed of much of its contractual     liability    for cost overruns on
     the C-5A aircraft  and other procurements.        The article    also indicated
     that the Department of Defense contemplated the use of Public Law
     85-804 which provides authority    to enter into contracts or to make
     amendments without regard to other provisions        of law relating      to the
     making, performance, amendment, or modification         of contracts whenever
     such action would facilitate    the national defense,         The article    ques-
     tioned the use of this law for Lockheed and stated that the legisla-
     tive history of Public Law 85-804 indicated that it had been written
     to aid small defense contractors.

              The article  also implied that the investigative    efforts   of the
     General Accounting Office were being directed and controlled           either
     by the Department of Defense or by the Chairmen of the Committees on
     Armed Services and Appropriations.       Consequently, the Office was not
     fulfilling      its responsibility of remaining independent of the execu-
     tive departments and investigating      all matters relating     to the receipt,
     disbursement, and application      of public funds.

            Concerning the question of whether Public Law 85-804 is the proper
     vehicle for resolving Lockheed's problems on the C-5A aircraft     contract
     with the Air Force, we have reviewed the legislative   history of Public
     Law 85-804 and have concluded that the proposed action is not precluded
     by the law and is within the intent of the legislative    history,

           The floor debates of the law seem to answer in the negative the
     question of whether the act should be limited to small claims.    During

                               50 TH ANNIVERSARY                  192?-      1971
.   these debates it was brought out that the law would be applicable
    to contracts for aircraft,      missile construction,     rockets, and ship-
    building.   Procurements of this nature generally are not within the
    production capabilities    of small business concerns.         For additional
    information  on the applicability      of Public Law 85-804, see page 10
    of the enclosed report on the financial        capability   of Lockheed to-
    produce C-5A aircraft.

            With respect to the efforts     of the General Accounting Office,
    the breadth and depth of our Government-wide audit interest               and re-
    sponsibility     in relation   to our resources requires the most efficient
    utilization    of available    staff both in assignments undertaken and in
    the conduct of those assignments.          Our basic audit policy,      except as
    otherwise required by statute,        external request, or other factors
    beyond our control,       is to direct available    resources and talents to
    the areas in which they can be most effectively           used to fulfill     the
    greatest apparent need and to achieve the greatest benefit to the

          In all cases, our work must be sufficiently   intensive  to ensure
    the validity  and usefulness of our findings and must be sufficiently
    extensive to fully  support our opinions, conclusions,    and recommendations.

           Specific factors considered in reaching decisions on the nature,
    direction,     and intensity    of audit effort Lnclude:      specific statutory
    requirements for audits; congressional           requests; expressions or indica-
    tions of congressional       interest;   potential   adverse findings of signif-
    icance; and importance of programs or activities,            judged by such measures
    as size of expenditures,        investment in assets, amount of revenues, and
    other special factors.

          The weight to be given these kinds of factors varies from agency
    to agency and from program to program. Decisions in each case repre-
    sent a composite judgment of all pertinent   factors, the overriding
    factor being constructive   contribution to improved management of
    Government operations.

           Concerning the limitations       on our review of the financial    infor-
    mation which Lockheed furnished to the Department of Defense, we believe
    that considering all factors,       the acceptance of the Limitations       in this
    particular    case did not adversely affect the performance of our work.
    We previously    had been requested to determine the financial         capability
    of Lockheed to manufacture and deliver C-5A aircraft.            To perform such
    a study, we needed access to financial          information  concerning Lockheed's
    Government and commercial (non-Government) programs and to other data
    related to the financial      structure    of the corporation.

             Generally, pursuant to 10 U.S. C. 2313(b), the General Accounting
    Office     is entitled to examine any books, documents, papers, or records

    that directly   pertain to, and involve transactions relating to, con-
    tracts negotiated with the Government. We, however, do not have the
    right to require a contractor to furnish us with data on its commercial
    programs or its overall financial    condition.

          We requested officials      of the Department of Defense to make .
    available   for our review information        the Department had relating      to
    Lockheed's financial    condition,     including     information   on Lockheed's
    commercial programs.     We were informed that, although the Department
    did have certain financial      information      pertaining    to Lockheed, the
    information    could not be made available        to us since it had been fur-
    nished to the Department in confidence and on the basis that it would
    not be made public.     While under 31 U.S.C. 54 the General Accounting
    Office has a right of access to any records of any Government depart-
    ment, as a practical    matter, there is no sanction available           to compel
    enforcement of our right.

          To avoid a time-consuming exchange of correspondence regarding
    our right of access to information    in the hands of the Department of
    Defense, we inquired of Department officials      whether we could review
    the information   at the Department if we refrained from copying or
    reporting  it.   We agreed that we would furnish to those requesting
    our review only our opinion as to whether Lockheed had the financial
    capability   to complete and deliver C-'jA aircraft.

          Initially Defense officials  declined our suggested approach;
    however, during subsequent discussions they agreed to permit us to
    review, under the above-stipulated   conditions, the financial  infor-
    mation which Lockheed had furnished to the Department.

         The enclosed copy of the report is the result of the above review.
    See page 19 for more information on the scope of our review.

          We are returning    the enclosure    to your referral      as you requested.
                                                    Sincerely     yours,

                                                h% *44ti.
                                                    Comptroller General
                                                    of the United States


    The Honorable Edward W. Brooke
    United States Senate

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