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counting Standards] by the suppliers of petroleum products to DOD.
I expect that as a result of the FEA's interpretation the sup-
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 govern
ment 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. Cosgrore, 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 oílicial 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 20, to discuss the problem. The results of this meeting are unknown.
Is 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 DÓD sought to obtain FEA data net 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 DÓD 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 FFA 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
not accept the CAS clause regardless of whether it could or
company. In the same letter the DOD requested a waiver of the Cost Accounting Standards, Rules and Regulations applicable to a $1,562.200 contract with the Caribbean Gulf Oil Company, a subsidiary of Gulf Oil Trading Company, to supply aviation and diesel fuel to the Navy's McMurdo Station, McMurdo Sound, Antarctica known as "Operation Deep Freeze.”
In Secretary Mendolia's letter to the CASB, he attached a December 27, 1974, letter that Gulf Oil Trading Corporation had sent to DFSC which advised the Center that the Caribbean Gulf Oil Company could not possibly comply with the requirements of the Cost Accounting Standards, Rules and Regulations.
WAIVERS AGAIN DENIED
(* * *
On January 2, 1975, Arthur Schoenhaut, Executive Secretary of the Cost Accounting Standards Board, advised Assistant Secretary of Defense Mendolia that the Board affirmed its earlier decision denying the waiver to Mobil. The Board said, we are not convinced that a useful Disclosure Statement cannot be supplied by Mobil or that Mobil cannot follow other requirements of the Cost Accounting Standards Board."
The Board also denied the request for a waiver on a proposed contract with Caribbean Gulf Oil Company to supply petroleum products in Antarctica. The Board said: "As to the request concerning Caribbean Gulf, the file discloses a declaration by Gulf that it cannot possibly comply with and will not agree to attempt to meet the requirements of Public Law 91–379. In the absence of specific information, the Board is unable to accept either a declaration of impossibility or an unwillingness to make an effort to comply as a basis for granting a waiver.”
X. THE SUBCOMMITTEE ACTS
LETTERS TO GULF AND MOBIL
On January 2, 1974, the same date the Cost Accounting Standards Board denied waivers to both Gulf and Mobil, Senator Henry M. Jackson, Chairman of the Subcommittee, wrote letters to both companies. In his letters to William P. Tavoulareas, President of the Mobil Oil Company, and to H. I. Goodman, President of Gulf Trading Company, Senator Jackson cited requirements for supplying cost or pricing data and conforming to cost accounting standards in the absence of exemptions or waivers.
Since the CASB had denied the requested waivers, Senator Jackson said that both Gulf and Mobil should now “proceed to supply these vital defense needs without delay in accordance with all legal requirements." He added:
Failure to do so will result in my urging the Congress to pursue legislative initiatives designed to insure that American corporations which operate under the protection of our flag are responsive to the national interest.
In a statement released on January 2, Senator Jackson said that the * Gulf Trading Company, a subsidiary of Gulf Oil Corporation, had
implicitly threatened to cut off oil supplies to the Navy's "Operation Deepfreeze" in Antarctica unless it was exempted from supplying backup data for its prices as required by law. He added that Mobil Oil Corporation had taken a similar position with regard to supplying our military installations in Turkey. Senator Jackson, terming such action as “nothing short of blackmail”, announced that the Permanent Subcommittee on Investigations was investigating the possibility of Gulf
, Mobil and other companies cutting off fuel supplies to U.S. military overseas. Senator Jackson further stated:
I have learned that DOD informed Gulf that its proposed prices were excessive. Accordingly, the requested data becomes even more important in ascertaining whether prices paid by DOD for fuel are fair and reasonable. But Gulf responded with a refusal to supply such data-a take it or leave it proposition. * * * The Department of Defense, apparently with its back to the wall, has agreed to waive the Truth in Negotiation Act, which it may unilaterally do under law, and has petitioned the Cost Accounting Standards Board on behalf of Gulf and Mobil to waive its requirements. I had hoped that after our hearing last April on the oil companies' role in the cutoff of oil to our military, when our Sixth Fleet was still on alert after the October Arab-Israeli