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waivers would not be granted as a routine matter upon an indication from the Department of Defense that waivers were desired.

MOBIL WAIVER REQUESTED

On December 5, 1974, the same day DOD officials met with the Cost Accounting Standards Board staff, Paul Riley, Acting Assistant Secretary of Defense (Installations and Logistics), wrote a letter to the Cost Accounting Standards Board requesting a waiver of the Cost Accounting Standards Clause on a $6,787,928 contract with the Mobil Oil Corporation to supply petroleum products to 33 military locations. in Turkey. The contract was for the period January 1, 1975 through December 31, 1975.

Riley said the waiver was requested because Mobil had refused to accept the Cost Accounting Standards Clause and had also refused to furnish cost and pricing data for the products portion of the contract. Moreover, Mobil had refused to provide market (or published/ catalog) prices necessary to establish an exemption from the inclusion of the Cost Accounting Standards Clause as well as the exemption. from the requirements of cost and pricing data.

Riley pointed out the Cost Accounting Standards Clause had not been used in prior contracts due to DFSC's practice of relying upon market information from petroleum trade journals on which to base a market exemption. He added, however, this had recently been changed due to the uncertainties and fluctuations in the current market. Thus, the prices contained in the petroleum trade journals did not represent market prices within the context of the procurement regulations and prospective suppliers were now required to furnish catalog or market prices to enable DFSC to establish exemptions.

Riley said Mobil's position in refusing to include the Cost Accounting Standards Clause was not unique among the major oil firms. He said the majority of the international oil companies had recently indicated formally or informally to DFSC that they would not agree to the inclusion of the Cost Accounting Standards Clause in any negotiated contract. To date, none had agreed to the inclusion of the clause, Riley said. Some of the firms, Asiatic Petroleum Corporation, Gulf Oil and Exxon International, responded to DFSC's requests for inclusion of the clause by referring to letters submitted to the Cost Accounting Standards Board in 1972 which outlined the impracticalities of complying with the Standards.

In requesting the Cost Accounting Standards Board to grant the waiver, Riley said:

On the basis of the foregoing, it is in the best interests of the Government to issue a contract for the supply of these petroleum products to Mobil Oil Corporation without the Cost Accounting Standards Clause as pertains to the product portion.

MOBIL WAIVER DENIED

On December 13, 1974, Arthur Schoenhaut, Executive Secretary of the Cost Accounting Standards Board, notified Arthur Mendolia, Assistant Secretary of Defense (Installations and Logistics), by letter

that the Cost Accounting Standards Board had denied the requested Mobil waiver.

Schoenhaut said in his letter "the Board is convinced, on the basis of the present record, that full compliance by Mobil with the CAS Clause is entirely feasible and is required."

LEGAL INTERPRETATION REQUESTED FROM FEA

It was not until December 6, 1974 that the Department of Defense requested a legal interpretation from FEA as to whether, under the statutory provisions applicable to the Mandatory Allocation Program, suppliers of petroleum products to the DOD could be required to accept not only the requirements laid down by the Cost Accounting Standards Board but the requirements of the Truth in Negotiation Act as well.

In this same letter of December 6, DOD requested, for the first time, a legal opinion as to whether or not FEA could make available to DOD certain documentation in their files. DFSC was also aware, as -early as June 1974, that such information was available in FEA files. Mr. Hoffman, DOD General Counsel, explained why the data was needed:

We have also been seeking to acquire additional pricing information from the Federal Energy Administration to evaluate the availability of the so-called "market prices" exemption. One of the questions raised during our discussions was whether FEA could release to the Department of Defense pricing information presently in its possession or developed as a result of FEA audit. We would appreciate having your legal opinion whether information developed by FEA could be so released.

FEA ISSUES LEGAL INTERPRETATION

On December 17, 1974, Robert E. Montgomery, Jr., General Counsel of FEA, responded to DOD General Counsel's letter of December 6. Montgomery said that both the Truth in Negotiation Act and the Cost Accounting Standards Board, Rules and Regulations were consistent with FEA allocation and price regulations. Therefore, the FEA would not regard the refusal of a supplier to comply with these two statutes as a justification for failure to comply with the allocation regulations. The FEA General Counsel did not respond to the DOD request for a ruling whether FEA could release to the DOD pricing information in their files.

JUSTICE DEPARTMENT ACTION THREATENED

On December 19, 1974, Arthur I. Mendolia, Assistant Secretary of Defense (Installations and Logistics), wrote a memorandum to General Robinson, the Director of the Defense Supply Agency, and said that in light of the December 17 ruling of FEA "it is now appropriate for you to reinstitute your efforts seeking compliance with Public Law 87-653 [Truth in Negotiations] and Public Law 91-379 [Cost Ac

counting Standards] by the suppliers of petroleum products to DOD. As a first step, the supplier should be served with a copy of the FEA ruling of December 17, 1974."

Mr. Mendolia then added:

I expect that as a result of the FEA's interpretation the sup-
pliers will agree to comply with these two statutes. However,
should any supplier refuse to do so, arrangements should be
made promptly with the Department of Justice to enforce
the allocation program.

ISSUE OF EXEMPTIONS DISCUSSED

On December 23, 1974, General Robinson responded to Assistant Secretary of Defense Mendolia's memorandum of December 19. He said the purpose of his memorandum was "to request the continuing assistance of your office to secure from the Federal Energy Administration (FEA) relevant cost and sales data."

He also forwarded a request for a waiver from the Cost Accounting Standards Clause relative to a contract with the Caribbean Gulf Oil Company, a subsidiary of Gulf Oil Trading Company, to supply petroleum products to the Navy's McMurdo Station, McMurdo Sound, Antarctica known as "Operation Deep Freeze."

With respect to the FEA ruling of December 17, General Robinson said a copy had been provided each of the contractors under the Mandatory Allocation Program. He said discussions had taken place with the Department of Justice "with a view to possible enforcement of the Allocation Program through the courts should voluntary compliance not be achieved."

General Robinson added:

The FEA interpretation may not serve to answer arguments raised by the great majority of the oil companies. The position of many of these contractors is, assuming the two laws apply, that they are entitled to an exemption on the basis of either a catalog or a market price *** To date, despite receipt of your letter of 22 November 1974 by each of the contractors, none of the major companies has been willing to provide us sales data which would substantiate a catalog or market price exemption. Therefore, we must anticipate that the issue will probably be whether or not the contractor is eligible for an exemption rather than whether or not Public Law 87653 and Public Law 91-379 apply under the Mandatory Allocation Program. With this in mind I have directed the Defense Fuel Supply Center to identify as a matter of the highest priority those contractors who claim an exemption but refuse to substantiate it by furnishing necessary sales data. If this refusal to substantiate the claim results in the company's declining to agree to a contract we plan to take specific cases up with the FEA and the Justice Department. General Robinson requested that DOD renew its efforts to secure from FEA relevant cost and sales data which still had not been supplied.

AVAILABILITY OF FEA DATA

The Department of Defense failed to act in a timely manner to obtain cost data from the Federal Energy Administration.

As stated earlier, the availability of this data in FEA files was known by DFSC at least as early as June 1974.

Col. R. K. Estes, the Acting Commander of DFSC, in his June 14, letter to DSA, said that attempts to obtain cost or pricing data from the oil companies had been unsuccessful. He had this to say about data in the files of FEA:

The domestie companies feel that they are already furnishing ample data to the Government, including FEA and IRS Audits, and that any additional data and audit would be unconscionable. FEA has informed this Center they are prohibited from sharing this type of data with other government agencies.

No attempt was made to resolve this problem of obtaining the FEA data for the purchases that were made in July by DFSC to meet military petroleum requirements for the last six months of 1974. This information would have been of assistance to DFSC in determining that the prices they paid were fair and reasonable.

The first attempt to obtain data from FEA was made in August 1974. On August 19, 1974, Rear Adm. P. F. Cosgrove, Jr., Deputy Director of DSA wrote a memorandum to the Assistant Secretary of Defense for Installations and Logistics, seeking cost or pricing data from FEA. Admiral Cosgrove pointed out in his memorandum that DFSC was concerned about the nonavailability of cost data from suppliers which was furnished to FEA in support of increased product prices. Such data was needed by DFSC to determine the reasonableness of the prices offered by the suppliers, he said.

In his August 19 memorandum, Admiral Cosgrove said:

A second area of concern in contracting under FEA regulations is the nonavailability to the DFSC of cost data from suppliers, which is furnished to FEA in support of increased product prices. FEA officials have advised that they lack authority to make this data available; however, it is often needed by the DFSC to determine the reasonableness of prices of petroleum products offered under allocation directives. Accordingly, it is requested that consideration be given to appropriate action, such as a memorandum of understanding between DOD and FEA, which would make such data available to the DFSC as long as FEA allocation rules and procedures prohibit the solicitation of competitive bids. [Emphasis supplied.]

The Department of Defense did not respond to the August 19 memorandum from DSA. Finally, on November 1, 1974, Mr. J. F. Allison, an official of DSA, placed a telephone call to Col. James G. Ling of the Office of Assistant Secretary of Defense for Installations and Logistics and asked about the matter. Colonel Ling said he had discussed the August 19 memorandum of FEA but had not been able to obtain FEA's official position. Colonel Ling said he had not

requested the FEA position in writing. According to Ling, the FEA legal staff was split on the question of supplying the data to DFSC. Part of the legal staff of FEA felt that the data should be considered proprietary and should not be released even to another Government agency. The other members of the legal staff felt the data should not be considered proprietary and should be released to DFSC.

On November 27, 1974, Mr. Allison again contacted Colonel Ling and reminded him that DSA had still not received a reply from their August 19 memorandum. Colonel Ling said he would act on the matter. He then scheduled a meeting with FEA officials for Friday, November 29, to discuss the problem. The results of this meeting are unknown.

As indicated earlier in this report, DOD officials did contact FEA personnel late in the afternoon of December 5, 1974, after meeting with the staff of the Cost Accounting Standards Board. The CASB staff was told DOD wanted to obtain cost or pricing data from FEA in order to meet a statutory exemption from the requirement to accept the CASB Clause.

The following day, on December 6, the DOD sought to obtain FEA data not as an aid in the establishment of negotiated contract prices but for the purpose of seeking a "market price" exemption for the suppliers who had failed to furnish data to the Government. When DSA belatedly requested the FEA cost data on August 19, it was to be used by the contracting personnel to determine the reasonableness of the prices offered by the suppliers. Not so in December. By this time DOD was in desperate straits to execute its petroleum contracts to meet DOD requirements for the first six months of 1975.

As late as December 23, 1974, DSA was still seeking FEA data as a basis for an exemption because the major oil companies had still refused to provide sales data which would substantiate for them a catalog or market price exemption.

However, the FEA data was never obtained by DOD because the oil companies, in January 1975, finally submitted sales data to the DOD to attempt to qualify for a market price exemption after they were threatened with Justice Department action.

In summary, if FEA cost data had been obtained by DFSC it would have been of assistance to the contracting officers in determining the reasonableness of the prices offered by suppliers for both the petroleum purchases that were made for the last six months of 1974 and for the first six months of 1975.

NEW WAIVERS REQUESTED

On December 31, 1974. Arthur Mendolia, the Assistant Secretary of Defense, in a letter to the Cost Accounting Standards Board requested the Board to reconsider its previous denial of the Mobil waiver. The DOD letter said:

Since receiving the CAS Board denial this Department held a meeting with officials of the Mobil Oil Corporation. The attached telex dated December 23, 1974, documents the contractor's position as still unwilling to accept the CAS clause. We have, therefore, concluded that the company will

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