oversight

Practices of Government Prime Contractors in Subcontracting for Technical Writing Services (Enclosure)

Published by the Government Accountability Office on 1971-01-25.

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

Information Obtained
On Practices lln Subcontracting
For Technical Writing ervices
                           6-16929s




BY THE COMPTROLLER GENERAL
OF THE UNITED STATES
       Statements made by Mr. S. R. Weinstock in letters            to certain
members of the Congress and in discussions           with representatives      of
the General Accounting Office indicated           many circumstances     which he
considered to be evidence of unfair         or illegal    practices    in the hir-
ing of technical      writers   by Government prime contractors.         We con-
centrated    our review work on two principal        areas covered by
Mr. Weinstock's     statements.

      --Government    prime contractors       hired technical   writers from his
         competitors   at prices higher       than those offered by his firm for
         the same writers.

      --A subcontractor,     engaged in the business of supplying technical
         writers,  misappropriated   overtime pay based on per diem to em-
         ployees who both lived and worked in the Baltimore      area.

We also considered a representation  that Government               prime   contractors
charged excessive rates for employees' services.

Ti%HNICAL WRITING COHTRACT SZRVICES

      Several hundred firms in the United States, including              S. R.
Weinstock and Associates,     Inc., subcontract       tc supply technical      writers
to other firms.     These technical    writers    are not per-manent employees
of any firm, and it is co.rmon practice        for them to be listed with a
number of subcontractors     who sell technical       writing  services.     Conse-
quently,   more than on;: subcontractor      may offer the services of a
given technical    writer-- sometimes to the same prime contractor.

        The technical  writers   provided   by subccntractors      like S. R.
Weinstock and Associates,       Inc., are used by prime contractors             prin-
cipally    to produce technical     inanuals explaining    the cperation         or the
maintenance and repair of sophisticated          technical    equipment.        Writ-
ing assignments of this kind require         highly qualified,       proficient,
technical    writers  who are capable of quickly adapting themselves to
the task of producing accurate and complete data.

       The prime contractors        ordinarily      maintain their own staffs    of
technical    writers    and subcontract        for such services    only when the
workload exceeds the capacity of their staffs.                 Technical writers
acquired under subcontract          usually work on the premises and under
the direction      of the prime contractors.           Prime contractors   consider
subcontractors'      rate proposals and then usually           make a choice of the
technical    writers    that they want to employ on the basis of resumes.
The subcontractors        serve largely      as middlemen in getting the writers
and the prime contractors         together       for the purpose of specific
assignments.
      In the early part of 1969, Weinstock submitted unsolicited      pro-
posals to supply technical   writers  to a number of prime contractors.
Prime contractors  generally  send requests for proposals  for technical
writers    to those subcontractcrs  with whom they have dealt in the past
or whose capabilities    are known. Other subcontractors,      such as Wein-
stock, make known their capabilities     by submitting  unsolicited
proposals.



Statement that writers    were employed
through competitors    at higher prices

       We examined into price proposals          submitted by Weinstock to six
prime contractors.      In one case Weinstock's          rates for two writers
were lower than those offered by competitors;                however, Weinstock
could not supply the writers.          In the case of a second prime contrac-
tor, Weinstock did not direct its propcsal fcr one writer                   to the ccn-
tractor's   division   which reqiilirzd a writer.          In the third     case, its
proposal was not timely for one writer            and included another writer
who had already been engaged through another subcontractor.                    Wein-
stock's price proposals to two other prime contractors                 were higher
than its competitors'      price proposals.        In addition,      a sixth prime
contractor    rejected Weinstock's       proposal because Weinstock had not
completed required     security   clearance arrangements.            Details follow.

      RCA, Defense Electronic    Products, Missile
      and Surface Radar Division,      Moorestown,
      New Jersey (writers    not available)

        Mr. Weinstock stated that Mr. K. Schroyer, senior tec'hnical
writer,    was hired by RCA from a competitor             at a price higher than
the price offered      in his firm's     unsolicited       proposal dated Janu-
ary 31, 1969.      He  stated    also that  his    firm    should have received a
subcontract    to provide all of the writers            in connection with RCA's
Quotation Request P-417-2 for 10 technical                writers   dated Febru-
ary 27, 1970, but that his firm did not receive the award because
RCA restricted      competition.

       RCA officials    informed us that Weinstock's       unsolicited     proposal,
received   on February 4, 1969, was reviewed for then-current              require-
ments covered by a quotation         request issued on January 22, 1969, with
a deadline     of January 27, 1969. The officials         stated that, although
the procurement was officially          closed, they decided it would be in
the best interests      of both the program and RC% to review the proposal
because two positions        for technical    writers were still     open.

        On February 12, 1969, RCA notified   Weinstock that the technical
qualifications     of writers offered  did not meet RCA's requirements
and that the procurement was being closed.       RCA officials    confirmed
that Mr. Schroyer, whose services had been offered        in Weinstock's    pro-
posal, had been hired from a competitor.       They said further    that
Mr. Schroyer's     resume had been submitted by the competitor     during the

                                                                               -2-
quotation  request time period and that Mr. Schroyer            had been se-
lected for the sob before the receipt   of Weinstock's           unsolicited
proposal.
        RCA's Quotation Request P-417-2 was sent to Weinstock and to
21 other companies.        The request indicated      that RCA would require
the services     of 10 technical    writers  for approximately        6 weeks. In
 responding to that request, Weinstock offered            firm billing     rates for
all 10 writers       as a group award and separate firm billing          rates if
partial    awards were made for individual       writers.       RCA placed an order
by telegram with Weinstock to supply two writers              at specified     hourly
billing    rates for about 7 weeks. Weinstock subsequently              advised RCA
that the two writers        ordered by RCA refused to work for his company
and requested that RCA consider other writers             available    at low rates-
RCA canceled the order because Weinstock was unable to supply the
two writers     offered.

        Since Mr. Schroyer had already been hired through another con-
tractor,     he was not available     for employment at the time his services
were offered by Weinstock.        RCA did not indicate          in its quotation
request that it would hire all 10 writers            from the same subcontrac-
tor; therefore,     RCA was not obligated      to do so. In view of the im-
portance placed upon the qualifications            of the individual      writers,
RCA's actions do not seem unfair          or in restraint       of competition.
The inability     to obtain a subcontract       for the two writers       ordered by
RCA seems to be attributable        to Weinstock's      failure    to provide the
promised individuals       rather than to any unfair practices           on RCA's
P-t*
      Westinghouse Electric    Corporation
      Defense and Space Center
      Baltimore,   Maryland (proposal     not
      directed   to division requiring     writers)

        Mr. Weinstock stated that G. L. Messersmith,      a senior technical
editor,    was employed by Westinghouse Electric     Corporation   in Ralti-
more, Maryland, from a competing subcontractor        at a price from 7 per-
cent to 10 percent higher than the billing       rate offered    by his firm.
He said that on January 9, 1969, he submitted an unsolicited           proposal
to the buyer of the Aerospace Division,     Westinghouse Defense and
Space Center.

      Weinstock's   proposal,   through a supplement dated January 14,
1969, was directed     to the Aerospace Division's     AN/AWG-10 radar pro-
gram. Weinstock was advised by telegram on January 15, 1969, that
technical   writing  services   for this program were already under con-
tract.    A Westinghouse official      advised us that G. L. Messersmith had
later been employed through another subcontractor          by the Underseas
Division,   Westinghouse Electric      Corporation,  during the period
March 3 to April 3, 1969, presumably on the ~~-48 torpedo program.
We were also advised that the two Westinghouse divisions          had separate
purchasing    departments and that       a proposal     made to one would not be
considered    by the other.

      We believe   that it is not reasonable to hold the Westinghouse
Underseas Division     responsible for considering    a. proposal that Wein-
stock had made about 2 months previously       to another division    on
another program.

        Radiation,    Inc., Melbourne, Florida
         writer    not available  and submission
        of untimely proposal)

      Mr. Weinstock contended that senior technical      writers,  Messrs.
Lasch and Lubow, were hired by Radiation,      Inc., from his competitors
at prices higher than the billing     rates offered  for their services
by his firm in an unsolicited    proposal to Radiation,     Inc., dated
January 29, 1969, and a supplement to the proposal dated February 11,
1969.
       We found that Mr. Lubow's services had been contracted      through
another subcontractor     starting February 5, 1969, the same date that
Radiation,    Inc., had received Weinstock*s initial   unsolicited
proposal.

       Weinstock's    offer of Mr, Lasch's services was directed               toward
Radiation's    then-current    requirements.       Radiation   officials       informed
us that Mr. Lasch had not been employed under the requests for quo-
tations then outstanding       but had been hired from another subcontrac-
tor approximately      2 months later under another request,              dated
March 24, 1969. Radiation,         Inc., officials      have told us that, when
they issue a request for quotations          and subcontractors         respond through
submission of proposals       (which include resumes, cost factors,               billing
rates, travel,     per diem, and availability),         those proposals         are con-
sidered only for that request and are not retained.

       Radiation,  Inc., was not obligated      to hire Mr. Lubow through
Weinstock since he was already employed by another firm.          We believe
that Radiation,    Inc., was not obligated      to hire Mr. Lasch through
Weinstock because Weinstock's      proposal for Mr. Lasch's services was
 subject to the same contracting      procedures as were the proposals of
the other firms--that    is, applicable     only to the current requirement.

        Other prime contractors    (higher      rates
        proposed, writers   not available,        or
        security  clearance problem

      According to information    developed by the Defense Supply Agency,
the following   were the circumstances     with respect to the other prime
contractors.    A Weinstock proposal to Rendix Corporation        was not ac-
cepted, according to Bendix representatives,        because either his bid


                                                                                 -4=
was higher than the successful            subcontractor    or the writers   offered
had already been hired from a competitor               and therefore   could not be
supplied by Weinstock.          A Weinstock proposal to Raytheon Company was
rejected    because the rates proposed were higher than the companywide
l-year rates which had been negotiated              with a group of 12 firms to
which subcontracts       were awarded.        A Weinstock proposal to American
Electronics     Laboratories,      Inc., was rejected      because Weinstock had
not completed security        clearance arrangements required          of subcon-
tractors    providing    technical     writers.

Statement regarding   payments of per
diem to nlocal hires"

      Mr. Weinstock stated that Technical      Communications,    Inc. (a sub-
contractor),   had paid per diem to some of its writers        who were resi-
dents of the Baltimore   area while they were working at the Westinghouse
plant in Baltimore.    He stated that the subcontractor        had included the
per diem rate as part of the employees' regular       hourly rates and sug-
gested that the subcontractor    had misappropriated
                                             .           overtime pay due the
employees.

       We found that the subcontractor       in April 1967 had proposed a
fixed hourly rate for each hour of regular time worked by its em-
ployees and another rate for overtime hours.           In conformance with
industry    practice,     the proposal for regular   hourly rates included
per diem at the rate of $1.40 for each hour worked, with a maximum
allowance of 40 hours per diem in each week and 8 hours in any one
day. The proposed rate for overtime was based on the regular             hourly
rate exclusive       of the $1.40 an hour per diem allowance.

       Westinghouse awarded Technical        Communications,    Inc., a contract
under which it accepted the proposed rates.             Prom the beginning   of
the contract,    the subcontractor    billed     Westinghouse at the agreed
regular   rate for each hour of regular        time worked (which included
the $1.40 an hour per diem) and at the agreed overtime rate for each
hour of overtime worked.       In turn, the s&contractor's          policy was to
pay its employees an agreed hourly rate plus $1.40 an hour per diem
for regular hours worked and time and a half at their agreed hourly
rate, exclusive     of the per diem, for overtime hours worked.

      The subcontractor became aware that certain Government agencies
would not consider per diem payments to local employees who were
paid on an hourly basis to be per diem but would consider those pay-
ments as part of the hourly rate paid to these‘employees.        Accordingly,
in September 1968 Technical  Communications,  Inc., revised    its per diem
policy in two ways. Per diem was to be paid on a daily basis and it
was to be paid only to employees who were eligible    to reeeive
subsistence.




                                                                               -5-
       The subcontractor,   in order to retain the services of local
employees who lost this per diem, made an adjustment of 93 cents
an hour to their base labor rate.      This resulted  in a proportionate
increase to their overtime rate.      We were informed that this offer
had been made so that the policy change would not have the effect
of a reduction    in pay for those employees.

       In September 1969 a nwnber of subcontractor          employees who had
worked at Westinghouse petitioned        the Department of Labor to the
effect that, since they were local employees not eligible             for per
diem after September 1968 and since their regular rates were increased
by 93 cents with a proportionate       increase to their overtime rate, they
should have received   a proportionate       increase to their overtime rate
prior to September 1968 because they had been local employees from
the beginning   of the contract.      The Department of Labor ruled in favor
of 18 employees and required      the subcontractor      to pay the additional
overtime wage for the period of January 1968 through September 1968,
Back wages were not required      for any period prior to January 196E
under t'ne prevailing  statute of limitations.          The subcontractor   com-
plied with the Department of Labor ruling           and paid each of the 18
employees.

      The subcontractor    informed us that he had not billed Westinghouse
for the additional     amount of overtime payments that the Department of
Labor required    his firm to make to these employees.

       The subcontractor   paid per diem to its technical. writers       who
worked at the prime contractor's        plant in Baltimore without distinc-
tion as to residency until it discontinued          this previous industry
practice   in September 1968. We found that the subcontractor          was
not in a position     to misappropriate     overtime pay based on the per
diem since it did not bill Westinghouse for such pay.

Statement that substantial,   overcharges
were made by prime contractors

       Mr. Weinstock stated that prime contractors     were substantiall?J
overcharging     the Government for employees' services.    In reaching
this conclusion,     Mr. Weinstock stated that prime contractors     often
marked up labor costs charged to the Government by 50 percent, which
was substantially     in excess of the additional  closely related     indi-
rect costs that were incurred      because of the employment of technical
writers.




                                                                               -6-
     In our opinion,   Mr. Weinstock's position      on this matter is not
well founded.   In his comments, he is considering        only the overhead
costs his firm incurs for the technical      writers   it employs and he is
not considering   the additional    overhead costs which prime contrac-
tors incur on the writers     hired from firms such as Weinstock.

         For Government contractors,       generally,    it is a common account-
 ing practice     to distribute    overhead costs among various        contracts    or
products on the basis of the labor costs incurred               on these projects.
Thus, when charging the Government for work done, the prime contrac-
tors add a percentage for overhead to the wage rate paid to their
workers.      This percentage provides        not only for those overhead costs
that are closely associated to the employee, such as payroll                 taxes,
but also provides        for such costs as repairs       and maintenance,    taxes,
utilities,     supervision,     and supplies.      These are legitimate     costs.
 If they were not allocated        among contracts      or -products as a percent-
age of labor costs, they would be allocated              in some other manner;
there is no reason to believe          that the overall      costs to the Govern-
ment would be reduced.

      The reasonableness of prime contractors*    methods of allocating
overhead costs is one of the matters considered by the Defense Con-
tract Audit Agency in its reviews of contractors'     records.

SCOPE OF REVIEW

      We spoke to Mr. Weinstock concerning his statements.       We re-
viewed documents and discussed the matter with responsible       officials
at the Office of the Assistant   Secretary of Defense (Installations
and Logistics).   We examined other documents and interviewed        cognl-
zant contractor  personnel at

   --the   Westinghouse    Defense   and Space Center,       Baltimore,    Maryland;

   --Radiation,    Inc.,   Melbourne,     Florida;

   --RCA Defense Electronic       Products, Missile        and Surface    Radar
      Division, Moorestown,      New Jersey; and

   --Technical    Communications,       TJsc., New York,    W.Y.

      In addition, we met with cognizant representatives       of the
Department of the Navy and the Defense Contract Audit Agency at the
Westinghouse Defense and Space Center in Baltimore       and representa-
tives of the Defense Supply Agency at Cameron Station,       Virginia,   and
at the RCA Missile and Surface Radar DivLsion    in Moorestown, New
Jersey.

        Our statements regarding    other prime contractors--American      Elec-
tronics    Laboratories,   Inc., the Bendix Corporation,      and the Raytheon
 Company--are based on information       obtained by the Defense Supply
Agency    during its review of the Weinstock statements.

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