[Congressional Record Volume 143, Number 37 (Thursday, March 20, 1997)]
[House]
[Pages H1242-H1253]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 CONTRACTUAL ACTIONS, CALENDAR YEAR 1996 TO FACILITATE NATIONAL DEFENSE

  The Clerk of the House of Representatives submits the following 
report for printing in the Congressional Record pursuant to section 
4(b) of Public Law 85-804:

                           Office of the Secretary of Defense,

                                   Washington, DC, March 11, 1997.
     Hon. Newt Gingrich,
     Speaker of the House of Representatives,
     Washington, DC.
       Dear Mr. Speaker: In compliance with Section 4(a) of Public 
     Law 85-804, enclosed is the calendar year 1996 report 
     entitled Extraordinary Contractual Actions to Facilitate the 
     National Defense.
       Section A, Department of Defense Summary, indicates that 45 
     contractual actions were approved and that three were 
     disapproved. Those approved include actions for which the 
     Government's liability is contingent and cannot be estimated.
       Section B, Department Summary, presents those actions which 
     were submitted by affected Military Departments/Agencies with 
     an estimated or potential cost of $50,000 or more. A list of 
     contingent liability claims is also included where 
     applicable. The Ballistic Missile Defense Organization, 
     National Imagery and Mapping Agency, and the Defense Special 
     Weapons Agency reported no actions, while the Departments of 
     the Army, Navy, and Air Force, the Defense Logistics Agency, 
     and the Defense Information Systems Agency, provided data 
     regarding actions that were either approved or denied.
           Sincerely,
                                                       D.O. Cooke,
                                                         Director.
       Enclosure: As stated.


                         department of defense

 EXTRAORDINARY CONTRACTUAL ACTIONS TO FACILITATE THE NATIONAL DEFENSE 
                 (Public Law 85-804) Calendar Year 1996


                                foreword

       On October 7, 1992, the Deputy Secretary of Defense (/
     DepSecDef) determined that the national defense will be 
     facilitated by the elimination of the requirement in existing 
     Department of Defense (DoD) contracts for the reporting and 
     recoupment of nonrecurring costs in connection with the sales 
     of military equipment. In accordance with that decision and 
     pursuant to the authority of Public Law 85-804, the DepSecDef 
     directed that DoD contracts heretofore entered into be 
     amended or modified to remove these requirements with respect 
     to sales on or after October 7, 1992, except as expressly 
     required by statute.
       In accordance with the DepSecDef's decision, on October 9, 
     1992, the Under Secretary of Defense for Acquisition and 
     Technology directed the Assistant Secretaries of the Army, 
     Navy, and Air Force, and the Directors of the Defense 
     Agencies, to modify or amend contracts that contain a clause 
     that requires the reporting or recoupment of nonrecurring 
     costs in connection with sales of defense articles or 
     technology, through the addition of the following clause:
       The requirement of a clause in this contract for the 
     contractor to report and to pay a nonrecurring cost 
     recoupment charge in connection with a sale of defense 
     articles or technology is deleted with respect to sales or 
     binding agreements to sell that are executed on or after 
     October 7, 1992, except for those sales for which an Act of 
     Congress (see section 21(e) of the Arms Export Control Act) 
     requires the recoupment of nonrecurring costs.
       This report reflects no costs with respect to the reporting 
     or recoupment of nonrecurring costs in connection with sales 
     of defense articles or technology, as none have been 
     identified for calendar year 1996.

      EXTRAORDINARY CONTRACTUAL ACTIONS TAKEN PURSUANT TO PUBLIC 
     LAW 85-804 TO FACILITATE THE NATIONAL DEFENSE, CALENDAR YEAR 
                                  1996

                Section A--Department of Defense Summary

 SUMMARY REPORT OF CONTRACTUAL ACTIONS TAKEN PURSUANT TO PUBLIC LAW 85-804 TO FACILITATE THE NATIONAL DEFENSE-- 
                                              JANUARY-DECEMBER 1996                                             
----------------------------------------------------------------------------------------------------------------
                                                    Actions approved                        Actions denied      
   Department and type of action    ----------------------------------------------------------------------------
                                      Number    Amount requested   Amount approved    Number         Amount     
----------------------------------------------------------------------------------------------------------------
      1. Department of Defense,                                                                                 
       total.......................        45      37,149,785.00      37,149,785.00         3      15,928,654.00
                                    ----------------------------------------------------------------------------
a. Amendments without consideration         2      37,149,785.00      37,149,785.00         2      15,918,654.00
b. Formalization of informal                                                                                    
 commitment........................         0               0.00               0.00         1          10,000.00
c. Contingent liabilities..........        43               0.00               0.00         0               0.00
                                    ============================================================================
      2. Army, total...............         4      37,149,785.00      37,149,785.00         2      15,918,654.00
                                    ----------------------------------------------------------------------------
a. Amendments without consideration         2      37,149,785.00      37,149,785.00         2      15,918,654.00
b. Contingent liabilities..........     \1\ 2               0.00               0.00         0               0.00
                                    ============================================================================
      3. Navy, total...............        38               0.00               0.00         0               0.00
                                    ----------------------------------------------------------------------------
Contingent liabilities.............        38               0.00               0.00         0               0.00
                                    ============================================================================
      4. Air Force, total..........         2               0.00               0.00         0               0.00
                                    ----------------------------------------------------------------------------
Contingent liabilities.............     \2\ 2               0.00               0.00         0               0.00
                                    ============================================================================
      5. Defense Logistics Agency,                                                                              
       total.......................         1               0.00               0.00         0               0.00
                                    ----------------------------------------------------------------------------
Contingent liabilities.............         1               0.00               0.00         0               0.00
      6. Ballistic Missile Defense                                                                              
       Organization, total.........         0               0.00               0.00         0               0.00
                                    ============================================================================
      7. Defense Information                                                                                    
       Systems Agency, total.......         0               0.00               0.00         1          10,000.00
                                    ----------------------------------------------------------------------------

[[Page H1243]]

                                                                                                                
Formalization of informal                                                                                       
 commitment........................         0               0.00               0.00         1          10,000.00
      8. National Imagery and                                                                                   
       Mapping Agency, total.......         0               0.00               0.00         0               0.00
      9. Defense Special Weapons                                                                                
       Agency, total...............         0               0.00               0.00         0               0.00
----------------------------------------------------------------------------------------------------------------
\1\ Indemnification Clause was added to the contracts; estimated or potential cost cannot be determined at this 
  time.                                                                                                         
\2\ One of the indemnifications is for fiscal year 1997 annual airlift contracts and is included in this report.
  The Air Force has deemed the second indemnification to be ``classified,'' not subject to this report's        
  purview.                                                                                                      

                     Section B--Department Summary


                         department of the army

       Contractor: Nuclear Metals, Inc.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $4,549,785.
       Service and activity: U.S. Army Tank-Automotive and 
     Armaments Command, Armament Research, Development, and 
     Engineering Center; and U.S. Army Materiel Command.
       Description of product or service: Low-level radioactive 
     metal processing.
       Background: Nuclear Metals, Inc., 2229 Main Street, 
     Concord, Massachusetts (NMI or company), requested 
     extraordinary relief under Public Law 85-804, as implemented 
     in Part 50 of the Federal Acquisition Regulation (FAR). NMI's 
     request was processed through the U.S. Army Tank-Automotive 
     and Armaments Command, Armament Research, Development, and 
     Engineering Center, Picatinny Arsenal, New Jersey, 
     (Picatinny), and through the U.S. Army Materiel Command, 
     Alexandria, Virginia (AMC), with both headquarters 
     recommending that the Army Contract Adjustment Board (ACAB) 
     or Board) grant the requested relief.
       After reviewing NMI's written request for extraordinary 
     relief, additional matters submitted subsequent to NMI's 
     initial application, and the recommendations of both 
     Picatinny and AMC, the Board determined that extraordinary 
     contractual relief was warranted under the unique 
     circumstances of this request.

                           Statement of facts

       In 1958 NMI moved its low-level radioactive metal 
     processing operations to Concord, Massachusetts, from the 
     campus of the Massachusetts Institute of Technology, where 
     NMI and predecessor entities had engaged for many years in a 
     variety of nuclear research programs, to include work on the 
     Manhattan Project. NMI established a licensed and permitted 
     holding basin on its Concord site as a place where it could 
     neutralize with lime the spent acid used in some of NMI's 
     metal processing operations. This neutralization process 
     precipitated uranium and copper into the holding basin in the 
     form of hydrated oxides and hydroxides. Relatively small 
     quantities of these deposits slowly accumulated in the basin 
     until 1974.
       NMI, a small business, began producing significant 
     quantities of depleted uranium (DU) penetrators to support 
     defense ammunition programs in 1974. With this increased 
     production, which supported Army, Navy, Air Force, and Marine 
     Corps requirements, the volume of uranium precipitates in the 
     holding basin also began to grow rapidly. Although NMI's 
     holding basin remained in compliance with applicable laws, 
     the large volume of precipitates accumulating in the basin, 
     the adoption of increasingly restrictive environmental laws 
     at both the federal and state levels, and advancements in 
     uranium recovery technologies prompted NMI in 1985 to adopt a 
     closed-loop DU recovery process, eliminating further need for 
     the holding basin. In 1986 NMI covered the holding basin with 
     an impervious material to prevent water infiltration and the 
     escape of airborne particles.
       By the mid-1980s, both NMI and the Army had become 
     concerned about the need to clean up the holding basin to 
     meet tightening federal and Massachusetts environmental 
     standards. The Army paid for complete and proper disposal of 
     new wastes produced under its ongoing contracts during the 
     1980s and into the 1990s, but NMI and the Army could not 
     agree on how the cleanup of old waste produced under 
     completed contracts should be handled because most of these 
     contracts were already closed out.\1\ By 1993, only one 
     contract under which waste in the basin had been produced 
     remained open. However, the work under that cost-type 
     contract, DAAK10-81-C-0323, had produced only about 2.7% of 
     all holding basin deposits.\2\ Consequently, because most of 
     the waste in the basin was not produced under that single 
     open contract, the cost of cleaning up the entire basin could 
     not be allocated to contract DAAK10-81-C-0323.
---------------------------------------------------------------------------
     \1\ The Army suggested that NMI bill basin cleanup costs 
     against an appropriate overhead pool or corporate general and 
     administrative accounts, but NMI declined to do so to avoid 
     making its prices less competitive for ongoing work.
     \2\ Of the total amount of waste in the holding basin, NMI 
     estimates that 96% is attributable to work done under defense 
     contracts. The remaining 4% is attributable to commercial 
     work and independent NMI research efforts.
---------------------------------------------------------------------------
       During the early 1990's, the uncertain liability that the 
     holding basin represented to NMI became a point of contention 
     between NMI and the Nuclear Regulatory Commission (NRC). The 
     NRC licenses NMI to handle the low-level radioactive 
     materials used in NMI's industrial operations at its Concord 
     site. One of the prerequisites for the issuance or renewal of 
     an NRC license is the furnishing of financial assurances that 
     the licensee will be able to bear the decontamination and 
     decommissioning costs associated with eventual closure of its 
     facilities. Specifically, 10 C.F.R., Sec. 40.36, requires a 
     licensee to submit a decommissioning funding plan,\3\ 
     together with a cost estimate for the decommissioning effort 
     and a description of the method the licensee will use to 
     ensure that funds are available in an amount equal to that 
     estimated cost.\4\
---------------------------------------------------------------------------
     \3\ 10 C.F.R., Sec. 40.36(a).
     \4\ 10 C.F.R., Sec. 40.36(d).
---------------------------------------------------------------------------
       Additionally, an NRC licensee must provide the required 
     financial assurances through a means acceptable to the NRC, 
     such as through prepayment, a surety, insurance, or an 
     external sinking fund coupled with a surety or insurance.\5\ 
     As environmental standards became more strict in the 1980s 
     and early 1990s, the NRC began demanding more substantial 
     financial assurances from NMI than it previously had 
     required. NMI sought to meet these demands through 
     commitments from various Army organizations that the Army 
     would pay some or all of NMI's decontamination costs, but the 
     Army refused to enter into such an open-ended commitment at a 
     privately-owned site.
---------------------------------------------------------------------------
     \5\ 10 C.F.R., Sec. 50.36(e). NRC regulations also permit a 
     federal, state, or municipal government licensee to meet the 
     NRC's financial assurances requirement through a statement of 
     intent to obtain funds for decontamination and 
     decommissioning when necessary. 10 C.F.R., Sec. 40.36(e)(4). 
     Although this provision is not strictly applicable to NMI's 
     privately-owned site, the NRC has allowed private licensees 
     in past cases to meet the financial assurance requirement 
     through government commitments to clean up private sites when 
     they are decommissioned. Because the responsibility for 
     cleanup at NMI's site lies principally with NMI, however, and 
     because the total cleanup liability at NMI's Concord site is 
     uncertain, the Army has not provided NMI such an open-ended 
     commitment.
---------------------------------------------------------------------------
       Concurrently, NMI's sales declined dramatically in the 
     early 1990s due to decreased defense ammunition requirements 
     and fewer Army contracts and subcontracts for DU penetrators. 
     This decline in sales cut NMI's revenues by more than half in 
     the early 1990s, leaving NMI with operating losses exceeding 
     $10 million per year in both 1993 and 1994. NMI's weakened 
     financial condition forced it to request a partial exemption 
     from the NRC's financial assurance requirement in 1995.
       As its DU sales declined dramatically in the early 1990s, 
     NMI sought to diversify its product line of specialty metals. 
     One of the new products that NMI introduced was Beralcast 
     TM, a patented beryllium-aluminum product that is both 
     lighter and stronger than aluminum, and capable of being cast 
     into complex shapes. One important new customer of this NMI 
     product was the Lockheed Martin Electronics and Missiles 
     Company (Lockheed Martin), which currently uses NMI Beralcast 
     TM for 52 components in the electro-optics system that 
     Lockheed Martin is developing for the Comanche helicopter 
     program. According to the Army's Comanche Program Manager (PM 
     Comanche), Beralcast TM was the only known material 
     capable of meeting critical Comanche weight requirements 
     without the Comanche program incurring additional costs in 
     the range of $300 million, and schedule delays of eighteen to 
     twenty-four months. These additional costs and schedule 
     delays would be needed for PM Comanche to accomplish the 
     redesign of key components and/or research and develop 
     alternate materials.
       After a number of meetings and exchanges of correspondence 
     between NMI, the Army, and the NRC in the early and mid-
     1990's, NMI received an official response to its request for 
     a partial exemption from the NRC's financial assurance 
     requirement on July 16, 1996. The NRC denied NMI's request, 
     and directed NMI to provide the financial assurances mandated 
     by 10 C.F.R. Sec. 40.36, not later than September 16, 1996. 
     After that date, NMI faced the potential shutdown of its 
     Concord facility.

                         Application for relief

       NMI initially submitted its request for relief on September 
     22, 1995, and later certified its request on March 15, 1996. 
     NMI requested $4,549,785 to pay the costs of removing low-
     level radioactive wastes from its holding basin and of 
     restoring the site. NMI also requested the Army to furnish 
     government-provided transportation and disposal of the 
     extracted waste (estimated to cost $2.1 million), for an 
     estimated total cost to the Army of $6.65 million.\6\ NMI 
     based its request on NMI's essentiality to the national 
     defense

[[Page H1244]]

     as a producer of DU products and beryllium-aluminum castings; 
     \7\ and, the interest of fairness \8\ because NMI did not 
     include disposal costs for the waste in the holding basin in 
     its prices under past Army contracts, which benefited the 
     Army through lower prices.
---------------------------------------------------------------------------
     \6\ Transportation and disposal of the waste by the Army was 
     anticipated to be considerably less expensive than the cost 
     to NMI of procuring these services at commercial rates and 
     passing these costs on to the Army.
     \7\ FAR 50.302-1(a).
     \8\ FAr 50.302-1(b).
---------------------------------------------------------------------------
       In conjunction with reviewing NMI's application for relief, 
     Picatinny asked the Defense Contract Audit Agency (DCAA) to 
     audit NMI's Public Law 85-804 request. Among its other 
     findings, DCAA concluded that a denial of NMI's application 
     for extraordinary relief would result in a high probability 
     of NMI's financial insolvency. Based on this conclusion and 
     the recommendation of PM Comanche, both Picatinny and AMC 
     recommended that the ACAB grant NMI the requested relief.

                               Discussion

       NMI requested Public Law 85-804 relief under the provisions 
     of FAR 50.302-1, ``Amendments Without Consideration.'' 
     Paragraph (a) provides that:
       ``When an actual or threatened loss under a defense 
     contract, however caused, will impair the productive ability 
     of a contractor whose continued performance on any defense 
     contract or whose continued operation as a source of supply 
     is found to be essential to the national defense, the 
     contract may be amended without consideration, but only to 
     the extent necessary to avoid such impairment to the 
     contractor's productive ability.''
       The circumstances of NMI's request for relief did not meet 
     precisely the situation contemplated in the provision at FAR 
     50.302-1(a), because NMI was not asking for relief based on 
     an actual or threatened loss under a particular defense 
     contract. Instead, NMI faced an environmental liability 
     related to its research, development, and production efforts 
     under many different defense contracts, nearly all of which 
     were completed and closed out. Although the rights and 
     obligations of the parties under those contracts no longer 
     existed (except under a single contract relevant to only a 
     small portion of the deposits in the holding basin), and NMI 
     was not at risk of a loss under a single contract as 
     described in FAR 50.302-1(a), NMI Nevertheless faced 
     significant financial liability that threatened its 
     ability to perform future defense contracts. It is the 
     future viability of an essential defense contractor that 
     FAR 50.302-1(a) seeks to protect, not merely the 
     prevention of a loss to an essential contractor under a 
     single contract.
       The description in FAR 50.320-1(a) of when relief to a 
     contractor deemed essential to the national defense may be 
     appropriate is more narrowly drafted than required by Public 
     Law 85-804. FAR 50.301 more broadly describes the 
     circumstances under which an agency may grant relief to a 
     contractor when it is essential to the national defense. FAR 
     50.301 states:
       ``Whether appropriate action will facilitate the national 
     defense is a judgment to be made on the basis of all of the 
     facts of the case. Although it is impossible to predict or 
     enumerate all the types of cases in which action may be 
     appropriate, examples are included in 50.302 below. Even if 
     all of the factors in any of examples are present, other 
     considerations may warrant denying a contractor's request for 
     contract adjustment. The examples are not intended to exclude 
     other cases in which the approving authority determines that 
     the circumstances warrant action.''
       Thus, the fact that NMI's holding basin liability did not 
     represent a possible loss under an existing contract did not 
     preclude the ACAB from granting relief to preserve NMI's 
     continued viability as an essential Army contractor.
       After reviewing the facts and circumstances surrounding 
     NMI's request for extraordinary relief, the Board was 
     satisfied that NMI was a contractor essential to the national 
     defense. The Comanche helicopter is critically important to 
     the Army in facing its future missions. PM Comanche 
     unequivocally stated that NMI's BeralcastTM products are 
     vitally important to the Comanche program, and PM Comanche 
     adequately described the significant and adverse cost and 
     schedule consequences that the program would suffer if NMI 
     were no longer available as a supplier. With no other 
     material or supplier reasonably available to the Army to 
     substitute for NMI's BeralcastTM in its Comanche 
     applications, NMI was clearly a contractor essential to the 
     Army in performing its national defense missions.\9\
---------------------------------------------------------------------------
     \9\ NMI also claimed in its application for extraordinary 
     contractual relief that it produces other products that also 
     makes it essential to the national defense. These products 
     include tank armor, tank ammunition, other ammunition 
     employing DU penetrators, and Beralcast TM Patriot 
     missile components. The ACAB did not reach the question of 
     whether NMI is a contractor essential to the national defense 
     in its production of these other items because NMI's status 
     as an essential supplier to PM Comanche made resolution of 
     the question of its essentiality to these other programs 
     unnecessary.
---------------------------------------------------------------------------
       The Board was also satisfied that granting the relief 
     sought in NMI's Public Law 85-804 request was essential to 
     preserving NMI as a viable defense contractor. As a small 
     business that had borne significant losses in each of the 
     last three years.\10\ NMI lacked the financial capability to 
     undertake the cleanup of its holding basin while still 
     meeting its other financial and environmental 
     obligations.\11\ Without the relief requested, a chain of 
     events may have been initiated that likely would have 
     resulted in a loss or suspension of NMI's NRC license, a loss 
     of its lines of credit from its leaders, and, ultimately, 
     insolvency and/or bankruptcy for the company. Because DCAA 
     concluded in its audit report that failure to grant NMI's 
     request for relief would result in a high probability that 
     NMI would become insolvent, there by threatening NMI's 
     continued availability as a supplier of essential defense 
     products, the Board concluded that granting relief up to the 
     amount NMI requested was appropriate under the circumstances 
     of this application.
---------------------------------------------------------------------------
     \10\ NMI reported operating losses in its corporate annual 
     report of $10.5 million in 1993, nearly $11 million in 1994, 
     and nearly $2 million in 1995.
     \11\ In addition to the holding basin, NMI must also assess 
     its responsibility for other contamination at its Concord 
     site and begin cleanup operations or reserve funds to clean 
     up these ares at some future time, as required by law. These 
     obligations, which NMI will recognize as operating expenses 
     as they are incurred, presented NMI with significant 
     financial challenges, even with the assistance NMI sought 
     under Public Law 85-804.
---------------------------------------------------------------------------
       NMI also requested extraordinary contractual relief in the 
     interest of fairness, based on its course of dealings with 
     the Army over many years. NMI contented that the prices it 
     charged the Army from 1958 to 1985 did not reflect the full 
     cost of NMI's performance, because basis cleanup costs were 
     not included in those prices, even through basin cleanup 
     costs could properly have been billed against Army contracts 
     during this period. NMI thus alleged that the Army benefited 
     by this undercharging, and that the Army should, accordingly, 
     now pay for the basin cleanup. NMI did not explain, however, 
     how the Army induced NMI not to include basin cleanup costs 
     in its prices.\12\ Instead, the Army actually encouraged NMI 
     to begin cleaning up the basin and to charge cleanup costs as 
     overhead against ongoing work. NMI also contended that 
     various contract clauses had committed the Army to pay 
     cleanup costs at its site, and that Army representatives had 
     expressed some degree of responsibility for basin cleanup 
     costs in the past. The Board was not convinced, however, that 
     any contract ever committed the Army to pay more than the 
     allocable share of site cleanup costs under any particular 
     contract, and the Board could not reconcile NMI's agreement 
     to close out past contracts with its current assertion that 
     the Army retained cleanup responsibility for work done under 
     those contracts. Nevertheless, given the Board's 
     determination that NMI was a contractor essential to the 
     national defense, the Board did not need to resolve whether 
     NMI was also entitled to relief in the interest of fairness. 
     The Board considered this issue moot given its disposition of 
     NMI's application for extraordinary relief.
---------------------------------------------------------------------------
     \12\ FAR 50.302-1(b) requires some government action to be 
     associated with a contractor's loss for that loss to be the 
     basis for extraordinary relief.
---------------------------------------------------------------------------
       The Board was cognizant during its consideration of NMI's 
     application for relief under Public Law 85-804 that NMI faced 
     a September 16, 1996, deadline with the NRC for the 
     submission of satisfactory financial assurances. But for this 
     regulatory dilemma that NMI faced with the NRC, in addition 
     to NMI's weakened financial condition after three consecutive 
     years of losses, the Board would have been inclined to allow 
     resolution of the environmental problems at NMI's site 
     through more traditional mechanisms. For instance, NMI could 
     have billed cleanup costs against overhead or general and 
     administrative accounts, or pursued contract or environmental 
     litigation to definitively resolve the relative legal 
     responsibilities of the parties under the terms of past 
     contracts and applicable environmental laws. However, the 
     Board found that these means of resolving the current dilemma 
     were inadequate \13\ to ensure that NMI remained a 
     reliable supplier of essential defense products. 
     Therefore, it was appropriate for the Board to act on 
     NMI's request without the delay associated with the normal 
     pursuit of traditional relief mechanisms.
---------------------------------------------------------------------------
     \13\ The Board's ability to grant relief is limited by FAR 
     50.203(b)(2), which states that no Public Law 85-804 relief 
     is available ``[u]nless other legal authority within the 
     agency concerned is deemed to be lacking or inadequate[.]''
---------------------------------------------------------------------------

                                Decision

       By unanimous decision of the Board, an amendment without 
     consideration was authorized under FAR 50.301 and FAR 50.302-
     1. The Board concluded that NMI's continued performance under 
     its existing defense contracts, and NMI's continued 
     availability as a source of critical supplies, was essential 
     to the national defense within the intent of FAR 50.302-1. 
     This relief was subject to the following conditions:
       a. Picatinny was authorized and directed to enter into 
     negotiations for a supplemental agreement with NMI, under an 
     appropriate existing contract, agreeing that the Army would 
     pay an amount not to exceed $4,549,785, on a fixed-price, no-
     profit basis, for NMI to clean up the holding basin at its 
     Concord facility. This amount was subject to downward 
     negotiation only, with negotiations addressing, in addition 
     to the matters below, the questioned costs identified in 
     DCAA's audit report and other relevant pricing matters. 
     Picatinny may only conclude this agreement after proper 
     funding is obtained in accordance with paragraph b. below. In 
     performing this effort, if NMI's costs for cleaning up the 
     holding basin exceed the negotiated price of this 
     supplemental agreement, NMI will treat the excess costs in 
     accordance with paragraph d. below.

[[Page H1245]]

       b. The funds committed to support this supplemental 
     agreement will be appropriate defense ammunition funds. No 
     funds will be obligated under this supplemental agreement 
     until they are properly identified and certified as 
     available. Picatinny will coordinate with higher headquarters 
     to identify appropriate funds for this effort as 
     expeditiously as possible.
       c. The supplemental agreement also would obligate the Army 
     to provide transportation and disposal of the waste removed 
     from NMI's holding basin. The volume of waste that the Army 
     was obligated to remove will be identified in the 
     supplemental agreement, and the Army will have no further 
     removal or disposal obligation after this volume is removed. 
     Picatinny will coordinate with the Radioactive Waste Disposal 
     Office at Rock Island to obtain the support needed to meet 
     this commitment. Certified funds of the same type identified 
     in paragraph b. above also would support this transportation 
     and disposal effort.
       d. As a condition of this supplemental agreement, NMI 
     agreed to complete necessary environmental assessments at its 
     site within a reasonable period, and to submit a site 
     remediation plan approved by the NRC (or other governmental 
     entity performing the NRC's current oversight role) to the 
     contracting officer by a date to be designated in the 
     supplemental agreement.
       (1) Cleanup of areas not supporting current production at 
     NMI's Concord site, in addition to the holding basin work 
     addressed in paragraphs a., b., and c. above, and pursuant to 
     the plan identified above, will proceed at a reasonable pace 
     to ensure compliance with applicable environmental standards. 
     These additional site assessment, planning, and cleanup costs 
     will be billed by NMI against appropriate overhead and/or 
     general and administrative pools as normal operating 
     expenses, and not against the contract line item(s) 
     established by this supplemental agreement for holding basin 
     cleanup. Excess holding basin cleanup costs, if any, which 
     exceed the amount negotiated pursuant to paragraph a. above, 
     also will be charged in a manner consistent with the costs 
     discussed in this paragraph against appropriate NMI overhead 
     and/or general and administrative cost pools.
       (2) In addition, normal waste processing and cleanup 
     efforts associated with future work at NMI's Concord site to 
     be performed under current and future contracts will be 
     billed as appropriate against those contracts; such efforts 
     are not affected by this supplemental agreement.
       (3) NMI will provide for the long-term decontamination and 
     decommissioning of facilities and equipment supporting 
     current production in accordance with 10 C.F.R. Sec. 40.36.
       e. As a further condition of this supplemental agreement, 
     NMI will execute a release in conjunction with this 
     supplemental agreement waiving and holding the Army harmless 
     from any contract or environmental claims related to existing 
     contamination and waste at NMI's Concord site. This release 
     may except from its coverage the Army's responsibility for 
     eventual decontamination and disposal of government-furnished 
     equipment that NMI maintains under its facilities contract 
     with the U.S. Army Industrial Operations Command, Rock 
     Island, Illinois. This release will not prohibit NMI's normal 
     billing for its ongoing incurrence of assessment, cleanup, 
     and decontamination costs in accordance with paragraph d.(2) 
     above.
       In addition to ensuring that the above conditions are met, 
     Picatinny was authorized to incorporate into the implementing 
     supplemental agreement with NMI such additional terms and 
     conditions as Picatinny believed were reasonably necessary to 
     protect the Army's interests.
       This action authorized by this decision will facilitate the 
     national defense consistent with the intent of Public Law 85-
     804.
       Contractor: Uniroyal Chemical Company, Inc.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $32,600,000.
       Service and activity: U.S. Army Armament, Munitions & 
     Chemical Command.
       Description of product or service: Post-retirement 
     benefits.
       Background: Uniroyal Chemical Company, Inc., sought an 
     adjustment to its Contract No. DAAA0990-Z-0003 to provide 
     funding for post-retirement benefits (PRBs) earned by 
     Uniroyal employees who performed work at the Government-owned 
     contractor-operated (GOCO) Joliet Army Ammunition Plant 
     (JAAP), Illinois, under that cost reimbursement contract and 
     its predecessor contracts. For the reasons set forth in this 
     opinion, the Army Contract Adjustment Board granted 
     Uniroyal's request in an amount not to exceed $32.6 million, 
     subject to certain conditions expressed below.

                           Statement of facts

       Uniroyal began serving as the operating contractor for the 
     Army Armament, Munitions and chemical Command (AMCCOM) GOCO 
     ammunition plant at Joliet, Illinois, during World War II and 
     served in that capacity until December 1993 when plant 
     operations were terminated as a part of post-Cold War Defense 
     Department ``downsizing.''During those decades, Uniroyal 
     workers at the plant manufactured explosives, chemicals, 
     bombs, shells and other munitions needed by the Army and the 
     other military services.
       As part of the compensation package provided to attract and 
     retain personnel for the potentially dangerous work at the 
     ammunition plant, Uniroyal offered its JAAP workers medical 
     and death benefit insurance coverage in addition to pension 
     plans. By 1951 this compensation package included death 
     benefits for qualified retirees, and by 1954 it included 
     post-retirement medical benefits. These benefits were, and 
     continue to be, comparable to those offered Uniroyal 
     employees in similar commercial work. Under the terms of the 
     Army's cost reimbursement contract with Uniroyal, Uniroyal 
     was required to obtain approval by the Army of such 
     benefit plans, and it did so.
       Unlike pension plans, which the Employee Retirement Income 
     and Security Act (ERISA) requires to be fully funded to cover 
     the actuarially predicted liabilities of the company, the 
     PRBs at issue were not required to be so funded, and for 
     decades were not even required for accounting purposes to be 
     recognized as a corporate liability. Rather, as was the 
     normal practice in industry, that is, in accordance with 
     generally accepted accounting principles, Uniroyal's PRB 
     program was administered on a ``Pay-As You-Go'' (PAYG) basis. 
     Rather than accruing this liability during the employees' 
     working years and obtaining reimbursement from the Army on 
     that basis, Uniroyal's use of the PAYG methodology, with the 
     Army's approval, meant that in each year only the payments of 
     retirees' medical and death benefit costs experienced that 
     year were reimbursed by the Army. No funds were set aside in 
     advance to ``pre-fund'' a reserve account to cover this 
     liability.
       By postponement of the Government's obligation to pay for 
     such PRBs until costs were actually incurred, the Government 
     benefited from Uniroyal's methodology. During the Vietnam 
     conflict years in particular, when the build-up of the 
     workforce would have required setting aside tens of millions 
     of dollars into a reserve for PRBs if pre-funding were the 
     norm, Uniroyal's use of the standard PAYG practice freed up 
     those million of dollars for other essential defense 
     purposes.
       In 1977, as JAAP operations were reduced dramatically 
     following the end of the Vietnam conflict, Uniroyal 
     contemplated the possibility that its JAAP contract would 
     terminate and not be renewed as it had been since 1951. The 
     possibility of a contract termination presented a substantial 
     financial liability issue to Uniroyal because at that time 
     the pension benefit obligation was not fully funded and, 
     because PRBs were handled on a PAYG basis, no funds had been 
     set aside in a reserve for PRBs. Uniroyal's Director of 
     Pension and Benefits asked the Uniroyal JAAP Plant Manager to 
     confirm that the Army would provide funding to reimburse all 
     accumulated pension and PRB costs attributable to its JAAP 
     service in the event the contract were to terminate. The 
     Plant Manager reported that Government personnel monitoring 
     the contract had concurred with his understanding that, upon 
     termination, determination of the amounts due and payable by 
     the Government to Uniroyal would include projected costs to 
     cover life and hospitalization insurance for Uniroyal's JAAP 
     retirees.\14\ Based upon this report, Uniroyal did not 
     disclose in its financial statements as an unfunded liability 
     of the corporation any cost attributable to the PRB 
     obligations accumulated at JAAP, and Uniroyal continued its 
     service at JAAP under the same PRB accounting and payment 
     practices.
---------------------------------------------------------------------------
     \14\ See Uniroyal's Exhibit 10. Although the Government 
     officials who reportedly concurred in Uniroyal's 
     understanding at that time were not identified, the Army, in 
     responding to the Petition for Relief under PUBLIC LAW 85-
     804, has not rebutted or denied that such assurances were 
     provided to Uniroyal.
---------------------------------------------------------------------------
       Although compliance with ERISA eventually led to accrual 
     and funding of pension benefits, the PRB obligation for 
     retiree health insurance and death benefits continued to be 
     funded on a PAYG basis. Uniroyal continued performance at 
     JAAP under several successor contracts. The current and 
     preceding contracts contained a ``carry-over'' clause 
     (Section A-2(3)) which provided that obligations and 
     liabilities not finalized under earlier contracts would be 
     treated as if incurred under the successor contract. For 
     Government cost accounting purposes, Uniroyal treated its 
     PRB obligations (that is, the PAYG expenditures) as 
     insurance expenditures under Cost Accounting Standard 
     (CAS) 416 rather than as a pension expenditure under CAS 
     412. There was no evidence that this accounting treatment 
     of PRBs was not the norm or that it was ever questioned by 
     Government contracting officials.
       Over the years, the Government continued to reimburse 
     Uniroyal for its PRB expenditures on a PAYG basis, and when 
     Uniroyal's GOCO operation for the Army at Newport Army 
     Ammunition Plant terminated in 1985, the Army agreed to 
     subsume the extant PRB obligation for Uniroyal's Newport 
     retirees under the JAAP contract and to continue to pay those 
     costs on a PAYG basis under this contract. The Defense 
     Contract Audit Agency (DCAA) subsequently expressed the 
     opinion that the Government's liability for those costs had 
     terminated when the Newport contract ceased. The Army then 
     decided to hold funding of the Newport retirees' PRB costs in 
     abeyance. Uniroyal filed a certified claim for the Newport 
     PRBs, and the contracting officer eventually (after the 
     current contract had been executed in 1992) settled that 
     claim

[[Page H1246]]

     for approximately $5.7 million, evidently without the 
     concurrence of DCAA.
       Accounting for PRBs on a PAYG basis continued to be the 
     industry norm through the late 1980's, when rising health 
     care costs caused accountants increasing concern that 
     companies' burgeoning PRB commitments to their employees were 
     not being reflected as liabilities in their financial 
     statements. In response to those concerns, in late 1990 the 
     Financial Accounting Standards Board (a private organization 
     whose rules establish generally accepted accounting 
     principles followed by businesses to account for revenues, 
     expenses, assets, and liabilities) promulgated Financial 
     Accounting Standard (FAS) 106. FAS 106 effectively required 
     businesses to start accounting for PRBs by accrual--during 
     years that an employee renders the necessary service--of the 
     expected cost of providing those benefits to the employee and 
     the employee's covered dependents.
       Transitioning from a PAYG method of accounting for PRBs to 
     an accrual method presented businesses with the problem of 
     how to account for the potentially enormous sums needed to 
     cover the expected PRB costs for current employees and 
     retirees that had not been recognized and funded over 
     previous years under the PAYG system. FAS 106 gave businesses 
     two options to address this ``transition obligation.'' Per 
     paragraph 110 and 111 of FAS 106 they could immediately 
     recognize this entire obligation. Alternatively, per 
     paragraph 112, they could ``delay recognition'' over the 
     average remaining service period of active plan participants, 
     except that (a) if the average remaining service period were 
     less than 20 years, businesses could elect to amortize this 
     obligation over 20 years, and (b) if all or almost all of the 
     plan participants were inactive (retired), the employer was 
     to use the average remaining life expectancy period of those 
     retirees as the amortization period.
       Upon issuance of FAS 106, had Uniroyal been free to 
     immediately recognize this ``transition obligation'' for its 
     work at JAAP over the decades on a cost reimbursement basis, 
     the Army arguably would have been compelled to pay that sum 
     under the predecessor to the current contract (although such 
     a change might have been deemed a voluntary change in 
     accounting practices not entitling Uniroyal to 
     reimbursement for the resulting cost increase). However, 
     this option was precluded by the issuance of a new cost 
     principle in the Federal Acquisition Regulations (FAR), 
     currently section 31.2056(o), to cover the allowability of 
     PRBs.
       Issued to deal with the change in accounting practices 
     prescribed in FAS 106, the primary purpose of the new FAR 
     cost principle was to mandate that businesses actually fund 
     the PRB obligations which they would now be accruing on their 
     books before they could bill the Government for those costs 
     under cost reimbursement contracts. Due, however, to the 
     Defense Department's concern over the potentially enormous 
     fiscal impact for cost reimbursement contracts of ``immediate 
     recognition'' of the PRB ``transition obligation,'' FAR 
     31.205-6(o) was amended shortly after its promulgation in the 
     summer of 1991 to provide that allowable PRB costs assigned 
     to any contractor fiscal year for this transition obligation 
     were limited to the amount derived from the ``delayed 
     recognition'' methodology prescribed in paragraph 112 of FAS 
     106. On its face, FAR 31.205-6(o) does not provide for any 
     acceleration of PRB transition obligation recognition, and 
     consequent increased allowability, if a business or business 
     segment totally terminates its operations.
       Prior to issuance of FAS 106 and FAR 31.205-6(o), DCAA, as 
     noted above, had questioned the propriety of the Army's 
     agreement to continue to provide payment under Uniroyal's 
     JAAP contract of the PRBs for Uniroyal's former employees at 
     Newport Army Ammunition Plant. In addition, Uniroyal was 
     aware that there was a controversy over payment of PRBs for 
     Remington Arms Company, Inc., retirees based on work at Lake 
     City Army Ammunition Plant.\15\ These controversies, coupled 
     with recognition that cessation of JAAP operations was a 
     realistic possibility as post-Cold War downsizing began, had 
     caused Uniroyal increased concern, as the September 1990 
     expiration of the predecessor to the current contract was 
     approaching and negotiation of the current contract was in 
     progress, over how its PRB obligation would be handled. 
     Execution of the current contract was delayed based on these 
     concerns.
---------------------------------------------------------------------------
     \15\ That controversy was resolved by this Board's decision 
     of May 8, 1991, ACAB No. 1238, granting extraordinary 
     contractual relief to Remington Arms Company to cover its PRB 
     obligation after cessation of its operation of the Lake City 
     plant, which occurred as the result of another company 
     winning the competition for the contract to continue work at 
     that plant.
---------------------------------------------------------------------------
       In September 1990, Uniroyal proposed funding this PRB costs 
     at JAAP on an accrual basis, although DCAA had previously 
     opined that a similar plan for Uniroyal's Newport employees 
     would be deemed a voluntary change in accounting practices, 
     the increased costs of which were not required to be 
     reimbursed by the Government. In February 1991, the 
     contracting officer emphasized that Uniroyal's proposed 
     change in accounting practices would be deemed such a 
     voluntary change, and in July 1991, the Government declined 
     to enter into an agreement with Uniroyal to provide for 
     accrual of PRB costs. After issuance of FAR 31.205-6(o), 
     however, the Army and Uniroyal agreed that Uniroyal would 
     begin accounting for PRBs on an accrual basis and would fund 
     PRB costs attributable to both past and ongoing service at 
     JAAP consistent with that FAR provision. A Memorandum of 
     Agreement (MOA) to this effect was executed in January 
     1992, concurrently with execution of the current contract 
     into which it was incorporated.
       In negotiating the MOA, Uniroyal had sought assurances from 
     AMCCOM regarding the future availability of the PRB funding 
     vehicle provided by the JAAP contract. In the MOA, AMCCOM 
     undertook that it would make its best efforts to obtain 
     adequate funding for Uniroyal's JAAP contract, subject to the 
     needs of the Government. AMCCOM also stated in the MOA that 
     it had no intention of discontinuing its contracting with 
     Uniroyal for the operation and maintenance of JAAP. The Army 
     did not concede a contractual obligation to fund Uniroyal's 
     outstanding PRB obligation in the event of cessation of 
     Uniroyal's operations at JAAP, but AMCCOM--that is, the 
     contracting officer who executed the MOA--indicated in the 
     MOA that in such eventuality, AMCCOM would support favorably 
     a Uniroyal request pursuant to Public Law 85-804 for funding 
     the PRB costs attributable to Uniroyal's operation of JAAP.
       Thus, as performance of the current contract began in early 
     1992, the Army began funding Uniroyal's accrual of its PRB 
     obligation, including the large transition obligation 
     previously not recognized on Uniroyal's books because it had 
     been handled on a PAYG basis.\16\ Within months, however, the 
     Army determined to deactivate JAAP, and by the end of 1993 
     Uniroyal's JAAP operation was terminated.\17\ At this point, 
     of course, Uniroyal's accumulated PRB obligation had not been 
     fully funded, and this claim was brought in the subsequent 
     year to seek amendment to the contract to cover that 
     obligation.
---------------------------------------------------------------------------
     \16\ Pursuant to the provisions of FAR 31.205-6(o) and the 
     MOA, the PRB funds were deposited into a trust, with the 
     Government having a reversionary right to any sums left in 
     the trust upon termination or expiration of Uniroyal's PRB 
     obligations to the retired JAAP employees and their covered 
     dependents.
     \17\ JAAP employees who were not eligible to retire at that 
     time were terminated.
---------------------------------------------------------------------------

                                Analysis

       Public Law 85-804 authorizes the amendment or modification 
     of federal contracts without regard to other provisions of 
     law governing the administration of such contracts when such 
     action would facilitate the national defense. Executive Order 
     10789 authorizes federal agencies to implement the act within 
     the limits of appropriated funds and empowers agencies to 
     amend or modify contracts ``without consideration'' (that is, 
     to confer an additional benefit upon a contractor without the 
     Government receiving some additional contractual benefit in 
     return) when circumstances warrant.
       FAR 50.302-1 delineates examples (not intended to be 
     exclusive) of when such amendment without consideration is 
     appropriate. When actual or threatened loss under a defense 
     contract will impair the productive ability of a contractor 
     whose services are deemed essential to the national defense, 
     the contract may be amended to avoid such impairment. 
     Alternatively, regardless of the essentiality of the 
     contractor services to future defense needs, if a contractor 
     would suffer a loss because of Government action in its 
     contractual dealings with the contractor, the contract may be 
     adjusted in the interest of fairness, even though the 
     Government's action did not make it liable under the contract 
     terms and the law applicable to the contract.
       Per FAR 50.102, a threshold issue must be resolved before 
     proceeding to address whether the circumstances in this case 
     warrant the extraordinary relief sought: Public Law 85-804 
     may not be relied upon for relief when other adequate legal 
     authority for the requested relief exists. In other words, if 
     Uniroyal had an adequate basis for relief under the terms and 
     conditions of its contract and the governing rules and 
     regulations, pursuit of such a legal remedy rather than the 
     equitable one sought here would be required. Although 
     litigation by other contractors of entitlement to PRB 
     coverage is presently ongoing in other forums, and 
     resolutions of such litigation might alter the status quo as 
     to legal entitlement, at present the Board was satisfied that 
     Uniroyal had no adequate remedy under the contract terms for 
     the following reasons.
       In this cost reimbursement contract, FAR clause 52.216-7 
     provided that the contractor's entitlement to reimbursement 
     was limited to those costs determined to be allowable in 
     accordance with the cost principles of FAR Subpart 31.2 in 
     effect on the date of the contract. The above discussed FAR 
     provision 31.205-6(o), limiting the allowability of PRB 
     transition obligation costs in any contractor fiscal year to 
     the portion allocable to that year, using the delayed 
     recognition methodology described in paragraphs 112 and 113 
     of FAS 106, was in effect when the current contract was 
     executed. This provision did not provide for any alternate 
     method of calculating allowable costs, such as allowing 
     assignment of the entire transition obligation to one 
     accounting period upon termination of a contract or upon a 
     contractor's total cessation of operations.\18\
---------------------------------------------------------------------------
     \18\ Even if FAR 31.205-6(o) had not been issued prior to 
     execution of the current contract, the Army's position is, as 
     it was in the Remington Arms case, that Uniroyal's accounting 
     practice (which was not alleged to be different from the 
     industry norm) of treating PRB costs as insurance costs under 
     Cost Accounting Standard 416, rather than as pension costs 
     which are covered under CAS 412 and 413, precludes an 
     adjustment allowing allocation of the unaccrued liabilities 
     to the contract upon plan termination as would be the case 
     under CAS 413.

---------------------------------------------------------------------------

[[Page H1247]]

       Although the contracting officers, over the course of 
     Uniroyal's service at JAAP, had approved Uniroyal's pension 
     and retirement plans in accordance with the provisions now 
     found in clause H-26 of the contract, that clause provided 
     that the contractor would be reimbursed for those costs only 
     if such reimbursement was not contrary to the applicable cost 
     principles set forth in the FAR. Similarly, clause H-24.1 of 
     the contract provided that reimbursement to Uniroyal for 
     fringe benefits, for disbursements it might be required by 
     law to make during or after the contract term, and for other 
     expenses, was subject to compliance with the cost principles 
     in FAR part 31.\19\ In sum, the Board was of the opinion that 
     Uniroyal had no contractual right to the sum which forms the 
     basis for this claim and that consideration of this claim 
     under Public Law 85-804 was therefore appropriate.
---------------------------------------------------------------------------
     \19\ For the purpose of resolving this threshold issue of 
     legal entitlement, we accept the view of the Army Materiel 
     Command Command Counsel's office that clause H-24.2, which 
     purports to allow the contracting officer to approve 
     reimbursement of other costs and expenses, without mentioning 
     the cost principles, cannot reasonably be construed to give 
     the contracting officer license to approve reimbursement of 
     costs contrary to the cost principles.
---------------------------------------------------------------------------
       Turning to the equities, the Board was satisfied that 
     adequate grounds for relief under Public Law 85-804 had been 
     established. The Board did not find that Uniroyal had 
     demonstrated that denial of relief would impair a productive 
     ability essential to the national defense. ACAB found, 
     however, that denial of the relief requested would have the 
     effect of Uniroyal's operating the JAAP for the Army for 
     decades without recompense for these PRB obligations 
     incurred in the performance of the GOCO work, obligations 
     which exceed the cumulative fee earned by Uniroyal over 
     those decades. The Board also found sufficient Government 
     action over the course of the JAAP operation, upon which 
     Uniroyal relied, which contributed to Uniroyal's having 
     this large unfunded PRB obligation at the time operations 
     terminated.
       Admittedly, Uniroyal was not induced by the Army to account 
     for and fund its PRB obligations on a PAYG basis; that was 
     the industry norm when such benefits first began being 
     offered to employees. Nonetheless, these liabilities were 
     incurred under a series of cost reimbursement contracts to 
     operate JAAP to manufacture essential munitions for the 
     military, and the PRB obligations constitute a cost of 
     manufacture that was simply being deferred to future time 
     periods--with the Army's approval. The Army benefited by 
     having available for other defense purposes the sums that 
     would have been tied up in reserves had such liabilities been 
     accrued and charged to the contracts during the working lives 
     of the JAAP employees. Once accrual became the norm following 
     the issuance of FAS 106, the Army would have fully funded 
     these costs over ensuing years had JAAP operations continued 
     long enough to complete amortization in accordance with FAR 
     31.205-6(o). Were Uniroyal's other business segments not 
     involved in Army contracts now obligated to undertake those 
     costs, the Army would in effect receive a windfall by not 
     having paid the full cost of Uniroyal's JAAP operations. It 
     cannot be said that either party envisioned such an outcome 
     when they entered into the agreement to have Uniroyal operate 
     JAAP on a cost reimbursement basis.
       Indeed, the Army, through its conduct, continually 
     evidenced its intent to fund the PRB obligation, and Uniroyal 
     relied upon this consistent Army position. As previously 
     noted, the Army approved Uniroyal's pension and retirement 
     plans, and there was no evidence over the decades when the 
     plant's operations were at peak employment levels that it 
     warned Uniroyal that its PAYG methodology might result in 
     unrecoverable obligations. On the contrary, when in 1977 
     Uniroyal sought assurances in the face of post-Vietnam 
     downsizing that its PRB obligations would ultimately be 
     satisfied by the Government if operations terminated, 
     Uniroyal evidently received such assurances from Government 
     officials responsible for administering the contract and, 
     consequently, continued to perform the JAAP work without 
     seeking modification of the contract terms and with no change 
     in its accounting practices. The ``carry-over'' provisions in 
     the contracts (currently section A-2(3)) reinforced the 
     impression that the Government would reimburse Uniroyal for 
     all incurred, accrued, or contingent liabilities. The Army's 
     agreement to cover Uniroyal's PRB obligations for its Newport 
     Army Ammunition Plant retirees under the JAAP contract 
     further reinforced Uniroyal's view that no additional steps 
     had to be taken to assure that its retirees' PRBs would be 
     reimbursed by the Government.\20\ If there remained another 
     similar Army operation to which the extant JAAP PRB 
     obligation could now be applied, perhaps no extraordinary 
     relief would be necessary. However, that was not the case, 
     and considerations of fundamental fairness, ensuring that a 
     defense contractor whose work was vital to the national 
     defense receives adequate compensation for that work, made it 
     in the interest of national defense to provide relief under 
     the authority of Public Law 85-804.
---------------------------------------------------------------------------
     \20\ When, in 1990, perhaps seeing the writing on the wall as 
     to the impending FAS 106 change in acceptable accounting 
     practices regarding PRBs, Uniroyal broached the subject of 
     changing its accounting practices to an accrual basis, the 
     Government led Uniroyal to believe that such voluntary change 
     in its practice might not allow reimbursement for any 
     resulting increased costs.
---------------------------------------------------------------------------
       Neither the issuance of FAS 106, changing the general 
     accounting practices related to PRBs, nor the issuance of FAR 
     31.205-6(o), precluding Government contractors from obtaining 
     immediate recognition and reimbursement for the large 
     obligation resulting from transition to an accrual basis for 
     accounting for PRBs, was anticipated by either of the parties 
     to the JAAP operation when Uniroyal began performance and 
     during most of the ensuing years when the bulk of the 
     liability was being incurred. It was not until the late 
     1980's that the possibility of such changes became apparent. 
     When those changes in acceptable practices and governing 
     regulations occurred, AMCCOM, in executing the 1992 MOA with 
     Uniroyal, expressly indicated to Uniroyal that it would 
     support Uniroyal's equitable claim to recover for such costs 
     in the event that operations terminated before full accrual 
     could occur. That Command (now Industrial Operations Command) 
     had in fact supported Uniroyal's claim, which bolstered the 
     Board's conclusion that relief was warranted under the 
     circumstances involved.
       In reaching the conclusion that relief was warranted, the 
     Board was cognizant of the possibility that Uniroyal might 
     not be obligated as a matter of law to continue to pay PRB 
     costs to its JAAP retirees, although Uniroyal had provided an 
     opinion of counsel that it would be so obligated. Counsel 
     representing Uniroyal in the hearing before the Board frankly 
     admitted that there was some unsettledness among the courts 
     in the area. However, Uniroyal had manifested that it had no 
     desire to put the benefits of its retirees in jeopardy, and 
     the relief granted would ensure that that does not occur. The 
     Army's equitable obligation, in the Board's view, was 
     indirectly to the hundreds of employees who devoted their 
     working lives to the potentially hazardous duty at JAAP in 
     service of the national defense. The PRBs at issue were made 
     part of Uniroyal's compensation package to attract and retain 
     a workforce in an environment that exposed them not only to 
     explosives but to contaminants bearing potential health 
     risks. It was in the interest of the national defense that 
     the health care and death benefits that such employees 
     anticipated receiving in compensation for their service to 
     the nation not be imperiled.
       The Board therefore determined in principle to grant 
     Uniroyal's request, and a discussion of the terms and 
     conditions of the relief that should be afforded Uniroyal 
     under the authority of this decision follows.

                                 Remedy

       Uniroyal originally requested relief in the amount of $56 
     million. Since the submission of this claim, negotiations 
     with the Government led to Uniroyal's agreement to alter the 
     methodology and some of the assumptions uesd to estimate its 
     JAAP PRB liability. Uniroyal had also agreed that the excess 
     in its pension fund, estimated when negotiations last occured 
     to be approximately $9 million, would be applied to satisfy 
     its PRB obligation. At the time those negotiations were 
     concluded, Uniroyal and the Government appeared to have 
     agreed in principle that $32.6 million would suffice to meet 
     this PRB obligation. No formal agreement was reached at that 
     time, and a substantial period has passed since negotiations 
     occurred. Subject to the additional conditions specified 
     below, the Board authorized amendment of the contract 
     to provide relief in an amount not greater than that $32.6 
     million figure, with direction that the parties enter into 
     good faith negotiations to reevaluate the premises upon 
     which that figure was reached and to adjust that figure 
     downward in the event that such downward adjustment is 
     warranted by changes in premises, indices or factors upon 
     which that $32.6 million figure was based. The contracting 
     officer, in executing this amendment, must be satisfied 
     that the sum is fair and reasonable, both to Uniroyal and 
     the Government.
       This relief was subject to the following additional 
     conditions: Pursuant to FAR 31.205-6(o), and consistent with 
     practices already established to provide for payments of 
     accrued PRB liabilities since the issuance of that FAR 
     provision and Uniroyal's 1992 MOA with the Government, the 
     sum negotiated pursuant to this decision was to be deposited 
     into a trust fund (or escrow account) established for the 
     sole purpose of providing PRBs for the covered retirees. The 
     funds deposited therein may be used for costs associated with 
     administering Uniroyal's PRB program with respect to its JAAP 
     retirees, including reimbursing Uniroyal for PRB claims of 
     its JAAP retirees, the payment of reasonable trustee or 
     escrow agent compensation, other reasonable and proper fees 
     necessary to ensure effective and productive management and 
     administration of the account, and any taxes to which the 
     account may be subject. The contracting officer may specify 
     such other terms as deemed appropriate regarding investment 
     and management of the fund to ensure that the retirees' 
     interests as well as those of the Government are adequately 
     protected, including affirmation of the Government's right to 
     examine and audit the account and records of all transactions 
     conducted in its administration. The Government was given a 
     reversionary interest in any sum (undistributed principal and 
     income) remaining in the account upon completion of payment 
     to the last beneficiary of

[[Page H1248]]

     the trust or upon termination of the trust for any reason. 
     The aforementioned surplus in Uniroyal's pension fund was to 
     be contributed to this PRB trust. The Government will have no 
     liability for any shortfalls in the account. Uniroyal will 
     release the Government from liability for any and all claims 
     arising from or related to the PRB liability for which this 
     trust was established.
       This award of relief was expressly conditioned on the 
     availability of funds, either from (a) expired funds which 
     remain available to fund this contract adjustment, (b) other 
     currently available Defense ammunition funds, (c) if 
     necessary, approval by Congress (through its authorizing and 
     appropriating committees) of a reprogramming or transfer 
     request to make available the necessary funds out of other 
     existing appropriations, or (d) if necessary, supplemental 
     appropriations. The Contracting Officer was directed to act 
     expeditiously to negotiate the contract modification 
     necessary to implement this decision and, with the assistance 
     of higher headquarters, to secure adequate appropriated funds 
     to cover the relief authorized herein.

                               Conclusion

       Subject to the above conditions, the Board has found that 
     it was in the interest of national defense to award to 
     Uniroyal a sum not to exceed $32.6 million to reimburse 
     Uniroyal for its obligation to provide post-retirement 
     benefits to the more than 800 affected retirees who worked in 
     the Army's critical munitions production mission at Joliet 
     Army Ammunition Plant over the decades since World War II. 
     Such relief was consistent with the expectations of all the 
     parties that Uniroyal would be fully compensated in 
     accordance with the bargain it entered into with the Army to 
     perform the work at JAAP on a cost reimbursement basis.
       If the ultimate negotiated amount of the proposed contract 
     modification implementing this decision exceeds $25 million, 
     the modification cannot be executed by the parties until the 
     Senate Committee on Armed Services and the House Committee on 
     National Security and the Senate and House Appropriations 
     Committees are notified of the proposed obligation and 60 
     days of continuous session of Congress have passed after 
     transmittal of such notification.
       Contractor: Precision Machining, Inc.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $9,392,870.
       Service and activity: Department of the Army, Aviation and 
     Troop Command.
       Description of product or service: Ribbon Bridges.
       Background: Precision Machining, Inc., (PMI) submitted a 
     request for amendment without consideration on contract 
     number DAAK01-93-C-0075, Ribbon Bridge, and a request for 
     relief under Public Law 85-804, dated August 11, 1995. Based 
     on the Aviation and Troop Command (ATCOM) Contract Adjustment 
     Board (ACAB) meeting on June 27, 1996, and in accordance with 
     the authority delegated to the Department of the Army, 
     Headquarters, ATCOM, Acquisition Center, Field Support 
     Branch, it was decided that PMI was not essential to the 
     Government in performance of the Ribbon Bridge contract.
       This decision was based on the availability of other 
     sources and the non-urgent need for Ribbon Bridges. It was 
     true that PMI had the only contract for the Ribbon Bridge at 
     that time, however, the item had a competitive level III 
     drawing package the Government could resolicit for the 
     remaining 20 Ramp Bays needed by the Marine Corps. As the 
     Army had downsized, extra Interior Bays were transferred from 
     the Army to the Marines, reducing the need for bays from PMI.

                           Statement of Facts

       In its request under Public Law 85-804, PMI cited several 
     instances of Government action which allegedly caused losses 
     to PMI. Each allegation is addressed below.
       PMI alleged the Government delayed inventory availability 
     prior to award and alleged a long delay in making award. 
     However, PMI agreed to the contract by its signature dated 
     July 24, 1993, which the Contracting Officer executed July 
     29, 1993. There was no basis for compensation since PMI 
     freely signed the contract.
       PMI alleged delay and impact incorporating the termination 
     inventory of the prior contractor into the production because 
     some of it was not useable. PMI had inspected that inventory 
     and it made the choice to use it. The basic contract did not 
     include the termination inventory. PMI knew they would have 
     to inspect the inventory to determine what could be used. The 
     property listed in Modification P00009 was the useable 
     property that PMI screened as acceptable and for which they 
     paid by a reduction in contract price.
       PMI had failed to set forth specific supporting information 
     of delays in processing of Engineering Change Proposals/
     Requests for Waivers/Requests for Deviations (ECPs/RFWs/
     RFDs). Therefore, ACAB could not track which ones PMI 
     believed the Government caused to be delayed and how that 
     delay impacted the claimed loss. Many of the ECPs were 
     delayed because PMI failed to furnish a legible document for 
     microfilming and necessary data was consistently omitted or 
     incorrect data was entered on the form.
       The Government did not agree that the specifications were 
     outdated, inadequate, inaccurate, or defective. There were 
     five previous producers of this item. If there were 
     inadequacies, inaccuracies, and defects, they would have been 
     discovered previously. As far as being outdated, the 
     specifications had been in use for some time, but not that 
     much had changed in welding, painting, etc. Without specifics 
     on which specifications were so outdated that they caused 
     delays, this could not be addressed in detail.
       The Government's lack of decisive action on the First 
     Article Test Report (FATR) approval was caused by PMI failing 
     to comply with contractual requirements for procedures to be 
     approved before production began. The FAs should not have 
     been built, let alone tested, before these approvals were 
     received. The Government could not continue to ignore that 
     fact when the FAs were presented for acceptance.
       The Government attempted to obtain more details on the 
     allegations in the August 11, 1995, request by letter from 
     the Contracting Officer dated October 16, 1995. Instead of 
     responding with the facts requested by the Contracting 
     Officer, PMI continued with vague comments about how many 
     people worked on the inventory, how ECPs from the previous 
     contract impacted the effort, and that the parts were 
     inspected for form, fit, and function at that time. This was 
     not in agreement with information provided earlier. PMI had 
     only one person counting at the Post Award and told the 
     Government the parts were inspected as they were pulled for 
     production. Additionally, PMI had seen the inventory before 
     it was shipped, There should not have been anything 
     unexpected.
       PMI's October 18, 1995, letter also failed to explain how 
     the waivers delayed full production. The statement was made 
     in the attachment to the letter that one open waiver would 
     delay acceptance. However, one of the waivers was shown as 
     700 days old. PMI did not have to wait until September 26, 
     1995, for acceptance of bridges. The question remained 
     unanswered.
       PMI was asked for details supporting the loss claimed. PMI 
     had not been able to do that either for themselves or for the 
     DCAA to calculate it for them. There were no records from the 
     original bid. PMI could not provide any details on the 25 
     percent efficiency factor and $1,000,000.00 loss on the 
     inventory, except to say it was an estimate. The 
     documentation provided to support transporter problems did 
     not contain hours, only copies of inspection reports. PMI 
     corrected the sequence of events on the Taber purchase 
     order to show the order was placed two years after the 
     inventory was received.
       It was hard to understand how PMI was able to produce the 
     bays they did if the drawings were ``illegible and virtually 
     unusable.'' It would have been difficult for the Government 
     representative to inspect and accept those bays. The 
     Government level III drawings were not production drawings; 
     each contractor must decide how they will produce the items 
     and develop the necessary in-house drawings.
       There were no ECPs that changed the drawing package while 
     Ketron had the contract, therefore, none could be provided. 
     PMI should have prepared an ECP for the change to Parker-
     Hannafin as soon as they knew the situation existed. That was 
     the only example PMI provided for the delay in this area.
       PMI revised their allegation to say the bays were 
     conditionally accepted, not that the bays were not accepted 
     at all. Conditional acceptance allowed the invoices to be 
     paid. The failure of the PMI-02 to be approved was due to the 
     failure on PMI's part to provide adequate information for the 
     Government to make a decision.
       Federal Acquisition Regulation (FAR) 17.202 does not 
     address the five year recommended limit; FAR 17.204 states 
     approval before use is required. This part of the FAR does 
     not apply to a reprocurement. Also, the award was a bilateral 
     agreement PMI was willing to make. The options were exercised 
     fourteen months after award.
       PMI stated they did not understand what was meant by 
     supporting the costs they incurred for each delay mentioned 
     in their request for relief. PMI give the impression to the 
     auditor they were hoping the DCAA audit would do that for 
     them. However, since the auditor could find no records for 
     the original award and few records for the current contract, 
     he was also unable to provide support for the areas of delay.

                               Conclusion

       Based on the above, it was decided that none of the 
     Government acts identified by PMI have harmed them and, 
     therefore, the request for recompense was denied. Also, PMI's 
     request to reform the contract, revise the delivery schedule, 
     or convert the contract to a cost plus fixed fee contract was 
     denied.
       Contractor: Precision Machining, Inc.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $6,525,784.
       Service and activity: U.S. Army Missile Command.
       Description of product or service: HELLFIRE storage and 
     shipping containers.
       Background: Precision Machining, Inc., (PMI) submitted a 
     request for relief under Public Law 85-804 for amendment 
     without consideration in connection with contract number 
     DAAH01-90-C-0253 with the U.S. Army Missile Command (MICOM) 
     for HELLFIRE storage and shipping containers. The Principal 
     Assistant Responsible for Contracting (PARC) at MICOM was 
     delegated the authority to deny or refer requests for 
     contract price adjustment without consideration.
       Upon receipt of PMI's request by the Contracting Officer, 
     it was forwarded to a Command Contract Adjustment Board (CAB) 
     for

[[Page H1249]]

     review and recommendation. This Board, which was comprised 
     for senior Command officials, served in an advisory capacity. 
     The Board completed a detailed investigation of PMI's request 
     and made its recommendation to the PARC for action. The 
     official response of MICOM to PMI's request follows.

                           Statement of Facts

       PMI's essentiality request under the provisions of FAR 
     50.302-1(a) was addressed in a memorandum from the Office of 
     the U.S. Army Deputy Chief of Staff for Operations and Plans 
     (ODCSOPS). This memorandum, dated February 1, 1996, which was 
     directed to the attention of the Army's Air to Ground Missile 
     Systems Project Office at Redstone Arsenal, Alabama, 
     hereinafter referred to as the Project Office, noted that 
     HELLFIRE II missile deliveries were currently being delayed 
     due to PMI's inability to produce missile containers. It 
     concluded that, given the number of HELLFIRE II missiles that 
     were currently available for deployment, a delay in delivery 
     of 500 to 700 additional missiles until July 1996, when 
     containers from a new container supplier were scheduled for 
     delivery, was non-critical/essential. The 500 to 700 number 
     was computed by the Project Office after taking into 
     consideration PMI's production capacity and the fact that 
     approximately one-third of the missiles scheduled for 
     delivery under PMI's contract were for the U.S. Navy.

                                Decision

       Based on the above and in accord with the authority 
     delegated by the PARC, it was decided that the facts 
     surrounding PMI's essentially request do not support the 
     relief requested. Accordingly, PMI's request on that basis 
     was denied.

                           Statement of Facts

       PMI's request under the provisions of FAR 50.302-1(b) cited 
     several instances of Government action which they 
     characterized as unfair which were alleged to have produced 
     losses to PMI. These were addressed as follows:
       The first was an allegation that contract specifications 
     for a container component identified as a shock mount 
     contained excessive testing requirements. The investigation 
     of the CAB disclosed that both the Project Office and PMI had 
     agreed that the testing requirements were necessary to avoid 
     the possibility of a vendor stockpiling shock mounts that 
     would fail.
       The second allegation was that components of the container, 
     identified as the latch and the stud assembly, were sole 
     source and that delays by the sole source vendors had 
     increased costs and caused delays. The investigation by the 
     CAB determined that delays involving the vendors identified 
     had occurred but that the sources were ``suggested sources'' 
     rather than ``sole sources.'' Further, that some of the 
     delays were caused by the poor financial condition of PMI. 
     Finally, that approval of additional sources was a contractor 
     responsibility.
       The third allegation was that components of the container, 
     identified as the shock mount, the latch assembly, the stud 
     assembly, and the ammunition box handle, contained 
     insufficient information for alternate source development, 
     leaving the vendors identified as ``sole source'' by default. 
     The investigation by the CAB disclosed that the drawings in 
     question were specification control drawings which made it 
     clear that suggested sources included in the drawings were 
     not guaranteed to be presently available as a source.
       The fourth allegation was that the Project Office had been 
     reluctant to issue drawing changes with a resulting delay in 
     issuance of Engineering Change Proposals, Requests for 
     Deviations, and Requests for Waivers. The investigation by 
     the CAB disclosed that while there were delays in the areas 
     noted, those delays were caused by the failure of PMI to 
     properly document the need for proposed changes, deviations, 
     or waivers.
       The next allegation was that Government design changes 
     created delays and increased costs. Two instances were cited. 
     In one of these, the change in question was settled by 
     bilateral contract modification wherein PMI agreed to a 
     specific increase in the price of the contract in settlement 
     of the change. The second situation involved a case where PMI 
     was allowed to ship containers in place until room could be 
     made for them at the contract destination (another Government 
     contractor). PMI was promptly paid for the items and 
     confirmed it had plenty of room and would hold them on site 
     at PMI as an accommodation for the other contractor.
       The next allegation was that the Government provided faulty 
     GFM. The investigation of the CAB disclosed that the material 
     involved was not GFM, but material owned by a former 
     Government producer which PMI bought from the Government ``as 
     is.''
       The final allegation was that the Army violated the 
     provisions of FAR 17.204(e) in connection with the contract. 
     The investigation of the CAB disclosed that the facts of the 
     case did not support any such conclusion in that while the 
     option exercise period of the last option was extended, no 
     quantities were added. Furthermore, if the facts were viewed 
     in the most favorable light for PMI, only slightly more than 
     four percent of the items bought under the contract could 
     possibly be involved.

                                Decision

       Based on the above, it was the decision of the PARC that 
     none of the Government acts that PMI identified were unfair. 
     Accordingly, the request on this basis was also denied.
       Contractor: Westinghouse Electric Corporation.
       Type of action: Contingent Liability.
       Actual or estimated potential cost: The amount the 
     Contractor will be indemnified cannot be determined at this 
     time, but will depend upon the occurrence of an incident 
     related to the performance of the contract.
       Service and activity: Department of the Army, Anniston 
     Chemical Demilitarization Facility (ANCDF).
       Description of product or service: Construction, 
     systemization, operations, maintenance, and decommission of 
     ANCDF.
       Background: In accordance with Federal Acquisition 
     Regulation (FAR) 50.403-1, Westinghouse Electric Corporation 
     requested that, pursuant to authority provided in Public Law 
     85-804, the Army include an indemnification clause in its 
     contract DAAA09-96-C-0018 for the construction, 
     systemization, operations, maintenance, and decommission of 
     the Anniston Chemical Demilitarization Facility (ANCDF).

                           Statement of Facts

       Under this contract, Westinghouse is responsible for all 
     facets of the process to destroy the lethal chemical agents 
     and munitions stockpiled at the Anniston Army Depot. Upon 
     review of the functions and responsibilities that 
     Westinghouse has, the Secretary of the Army found that 
     execution of such would subject the contractor to certain 
     unusually hazardous risks as defined below.
       The Secretary of the Army considered the availability, 
     cost, and terms of private insurance to cover these risks, as 
     well as the viability of self-insurance, and concluded that 
     adequate insurance to cover the unusually hazardous risks was 
     not reasonably available.
       It was not possible to determine the actual or estimated 
     cost to the Government as a result of the use of an 
     indemnification clause since the liability of the Government, 
     if any, would depend upon the occurrence of an incident 
     related to the performance of the contract.
       The Secretary of the Army found that the use of an 
     indemnification clause in this contract would facilitate the 
     national defense.

                                Decision

       In view of the foregoing and pursuant to the authority 
     vested in the Secretary of the Army by Public Law 85-804 (50 
     U.S.C. 1431-1436) and Executive Order 10789, as amended, 
     inclusion of the indemnification clause prescribed in FAR 
     52.250-1, with its Alternate 1, in the contract for ANCDF was 
     authorized, provided the clause defines the unusually 
     hazardous risks and includes the limitations on coverage 
     precisely as described in the definition below. The Secretary 
     of the Army further authorized the inclusion in subcontracts 
     (at any tier) under this contract, provided the pass-through 
     indemnification was limited to the defined unusually 
     hazardous risks and provided that the Contracting Officer 
     approves each pass-through indemnification in writing.
       The contractual document executed pursuant to the 
     authorization shall comply with the requirements of FAR 
     Subparts 50.4 and 28.3, as implemented by Department of 
     Defense and the Department of the Army.

                Definition of unusually hazardous risks

       The risks of:
       (1) sudden or slow release of, and exposure to, lethal 
     chemical agents during the disposal of stockpiles of chemical 
     munitions, mines, and other forms of weapons-related 
     containerization and during facility decommissioning and 
     closure;
       (2) explosion, detonation, or combustion of explosives, 
     propellants, or incendiary materials during the course of 
     disposal of stockpiles of chemical munitions, mines, or other 
     forms of weapons-related containerization;
       (3) contamination present at or related from the 
     installation prior to the contractor's construction or 
     operation of the chemical demilitarization facility CDF, 
     whether known or unknown by the Government or contractor at 
     such time;
       (4) contamination resulting from the activities of third 
     parties when the contractor has no control over such 
     activities or parties; and
       (5) contamination resulting from the placement of 
     components and materials from decommissioning and placement 
     of wastes and residues from demilitarization, destruction, or 
     closure in accordance with the contract and all applicable 
     laws and regulations.
       Provided that the indemnification clause shall in no way 
     indemnify the contractor against local, state, or federal 
     civil or criminal fines or penalties levied by local, state, 
     or federal tribunals, nor shall this clause indemnify the 
     contractor against the costs of defending, settling, or 
     otherwise participating in such civil or criminal actions 
     brought in local, state, or federal tribunals.
       The term ``lethal chemical agents,'' for the purposes of 
     this clause, means the chemicals as listed in the table on 
     record and their naturally occurring breakdown products, but 
     does not include residues and wastes produced from the 
     demilitarization process except to the extent that these 
     residues and wastes contain, or are deemed by a court or 
     agency of competent jurisdiction to contain, chemicals as 
     listed in the table on record.
       The term ``disposal'' for the purposes of this clause, 
     includes the reconfiguration, destruction, or 
     demilitarization and interim storage and movement of chemical 
     munitions, mines, and other forms of weapons-related 
     containerization, decontamination of

[[Page H1250]]

     equipment and facilities, and the transportation and 
     placement of wastes and residues from destruction or 
     demilitarization.
       The term ``damage to property'' in this clause shall 
     include the costs of monitoring, investigation, removal, 
     response, and remediation for property (to include 
     groundwater) due to the risks above once certification of 
     closure in accordance with the closure plan has been accepted 
     by the State or the Environmental Protection Agency, and 
     contract performance has been completed and accepted by the 
     Army.
       Contractor: Raytheon Engineers and Constructors, Inc.
       Type of action: Contingent Liability.
       Actual or estimated potential cost: The amount the 
     Contractors will be indemnified cannot be determined at this 
     time, but will depend upon the occurrence of an incident 
     related to the performance of the contract.
       Service and activity: Department of the Army.
       Description of product or service: Construction, 
     operations, maintenance, and closure of the Johnston Atoll 
     Chemical Agent Disposal System (JACADS) faiclity.
       Background: In accordance with Federal Acquisition 
     Regulation (FAR) 50.403-1, Raytheon Engineers and 
     Constructors, Inc., requested that, pursuant to authority 
     provided in Public Law 85-804, the Army include an 
     indemnification clause in its contract DAAA09-96-C-0081 for 
     the construction, operations, maintenance, and closure of the 
     Johnston Atoll Chemical Agent Disposal System (JACADS) 
     facility.
       Under this contract, Raytheon is responsible for all facets 
     of the process to destroy the lethal chemical agents and 
     munitions stockpiled at the JACADS facility. Upon review of 
     the functions and responsibilities that Raytheon has, it was 
     found that execution of such will subject the contractor to 
     certain unusually hazardous risks which are defined below.

                           Statement of facts

       The Secretary of the Army considered the availability, 
     cost, and terms of private insurance to cover these risks, as 
     well as the viability of self-insurance, and concluded that 
     adequate insurance to cover the unusually hazardous risks was 
     not reasonably available.
       It was not possible to determine the actual or estimated 
     cost to the Government as a result of the use of an 
     indemnification clause since the liability of the Government, 
     if any, would depend upon the occurrence of an incident 
     related to the performance of the contract.
       The Secretary of the Army found that the use of an 
     indemnification clause in this contract would facilitate the 
     national defense.

                                Decision

       In view of the foregoing and pursuant to the authority 
     vested in the Secretary of the Army by Public Law 85-804 (50 
     U.S.C. 1431-1436) and Executive Order 10789, as amended, 
     inclusion of the indemnification clause prescribed in FAR 
     52.250-1, with its Alternate 1, in the contract for the 
     JACADS facility was authorized, provided the clause defines 
     the unusually hazardous risks and includes the limitations on 
     coverage precisely as described in the definition below.
       The contractual document executed pursuant to this 
     authorization shall comply with the requirements of FAR 
     Subparts 50.4 and 28.3 as implemented by the Department of 
     Defense and the Department of the Army.

                Definition of unusually hazardous risks

       The risks of:
       (1) sudden or slow release of, and exposure to, lethal 
     chemical agents during the disposal of stockpiles of chemical 
     munitions, mines, and other forms of weapons-related 
     containerization and during facility decommissioning and 
     closure;
       (2) explosion, detonation, or combustion of explosives, 
     propellants, or incendiary materials during the course of 
     disposal of stockpiles of chemical munitions, mines, or other 
     forms of weapons-related containerization;
       (3) contamination present at or released from the 
     installation prior to the contractor's construction or 
     operation of the chemical demilitarization facility CDF, 
     whether known or unknown by the Government or contractor at 
     such time;
       (4) contamination resulting from the activities of third 
     parties when the contractor has no control over such 
     activities or parties; and
       (5) contamination resulting from the placement of 
     components and materials from decommissioning and placement 
     of wastes and residues from demilitarization, destruction, or 
     closure in accordance with the contract and all applicable 
     laws and regulations.
       Provided that the indemnification clause shall in no way 
     indemnify the contractor against local, state, or federal 
     civil or criminal fines or penalties levied by local, state, 
     or federal tribunals, nor shall this clause indemnify the 
     contractor against the costs of defending, settling, or 
     otherwise participating in such civil or criminal actions 
     brought in local, state, or federal tribunals.
       The term ``lethal chemical agents,'' for the purposes of 
     this clause, means the chemicals as listed in the table on 
     record and their naturally occurring breakdown products, but 
     does not include residues and wastes produced from the 
     demilitarization process except to the extent that these 
     residues and wastes contain, or are deemed by a court or 
     agency of competent jurisdiction to contain, chemicals as 
     listed in the table on record.
       The term ``disposal,'' for the purposes of this clause, 
     includes the reconfiguration, destruction, or 
     demilitarization and interim storage and movement of chemical 
     munitions, mines, and other forms of weapons-related 
     containerization, decontamination of equipment and 
     facilities, and the transportation and placement of wastes 
     and residues from destruction or demilitarization.
       The term ``damage to property'' in this clause shall 
     include the costs of monitoring, investigation, removal, 
     response, and remediation for property (to include 
     groundwater) due to the risks above once certification of 
     closure in accordance with the closure plan has been accepted 
     by the State or the Environmental Protection Agency, and 
     contract performance has been completed and accepted by the 
     Army.

                         Contingent Liabilities

       Provisions to indemnify contractor's against liabilities 
     because of claims for death, injury, or property damage 
     arising from nuclear radiation, use of high energy 
     propellants, or other risks not covered by the contractors 
     insurance program were included in these contracts. The 
     potential cost of the liabilities cannot be estimated since 
     the liability to the Government, if any, will depend upon the 
     occurrence of an incident as described in the indemnification 
     clause. Items procured are generally those associated with 
     nuclear-powered vessels, nuclear armed missiles, experimental 
     work with nuclear energy, handling of explosives, or 
     performance in hazardous areas.


        Contractors                                              Number
Raytheon Engineers & Constructors, Inc................................1
Westinghouse Electric Corporation.....................................1
                                                               ________
                                                               
      Total...........................................................2


                         department of the navy

                         Contingent liabilities

       Provisions to indemnify contractors against liabilities 
     because of claims for death, injury, or property damage 
     arising from nuclear radiation, use of high energy 
     propellants, or other risks not covered by the Contractor's 
     insurance program were included in these contracts. The 
     potential cost of the liabilities could not be estimated 
     since the liability to the United States Government, if any, 
     would depend upon the occurrence of an incident as described 
     in the indemnification clause. Items procured were generally 
     those associated with nuclear-powered vessels, nuclear armed 
     missiles, experimental work with nuclear energy, handling of 
     explosives, or performance in hazardous areas.


        Contractors                                              Number
Lockheed Martin Missiles & Space......................................3
Vitro Corporation.....................................................1
Interstate Electronics Corporation....................................1
Lockheed Martin Defense Systems.......................................7
Rockwell International Corporation....................................1
Electric Boat Corporation.............................................7
Loral Defense Systems--East...........................................1
Raytheon Company......................................................1
Rockwell Corporation, Autonetics Strategic Systems Division...........1
Northrop Grumman Marine Systems.......................................3
Alliant Techsystems, Inc./Thiokol.....................................1
Honeywell, Inc........................................................1
Lockheed Martin Tactical Systems, Inc.................................2
The Charles Stark Draper Lab, Inc.....................................1
Kearfott Guidance & Navigation Corporation............................1
Newport News Shipbuilding and Drydock Company.........................6
                                                               ________
                                                               
      Total..........................................................38

                  CONTINGENT LIABILITIES SUMMARY TABLE                  
------------------------------------------------------------------------
                                   Service and         Description of   
          Contractor                 activity         product service   
------------------------------------------------------------------------
Lockheed Martin Missiles &      Department of the  FY 1996 Training     
 Space.                          Navy, Strategic    Support.            
                                 Systems Programs.                      
                                Department of the  Trident Re-entry     
                                 Navy, Strategic    Systems Applications
                                 Systems Programs.  Program.            
                                Department of the  FY 1997 Trident II   
                                 Navy, Strategic    (D5) Missile        
                                 Systems Programs.  Production, related 
                                                    hardware and        
                                                    services.           
Vitro Corporation.............  Department of the  Engineering technical
                                 Navy, Strategic    services in support 
                                 Systems Programs.  of the U.S. Trident 
                                                    I and Trident II    
                                                    Weapon Systems      
                                                    Integration.        
Interstate Electronics          Department of the  Test Instrumentation 
 Corporation.                    Navy, Strategic    Engineering,        
                                 Systems Programs.  Logistics Services, 
                                                    and Field Services. 
Lockheed Martin Defense         Department of the  FY 1997 Trident      
 Systems.                        Navy, Strategic    Training Support    
                                 Systems Programs.  Services.           
                                Department of the  Fire Control Training
                                 Navy, Strategic    Engineering         
                                 Systems Programs.  Services.           
                                Department of the  U.S. FBM/SWS and U.K.
                                 Navy, Strategic    Polaris and U.K.    
                                 Systems Programs.  Trident II Systems. 
                                Department of the  Verification of      
                                 Navy, Strategic    Failures on MK-5    
                                 Systems Programs.  Inertial Measurement
                                                    Units.              
                                Department of the  Replenishment spares,
                                 Navy, Strategic    repair, SPALTS,     
                                 Systems Programs.  overhaul and EOC    
                                                    parts, tools, test  
                                                    equipment and       
                                                    operational support 
                                                    services for Trident
                                                    I (including C4 B/F)
                                                    & Trident II FC     
                                                    systems and support 
                                                    equipment.          
                                Department of the  Basic Ordering       
                                 Navy, Strategic    Agreement for       
                                 Systems Programs.  repair,             
                                                    modification, SPALTS
                                                    and repair parts for
                                                    Trident I/II        
                                                    guidance IMUS, MCAS,
                                                    and Guidance        
                                                    Ancillary Support   
                                                    Equipment.          
Lockheed Martin Defense         Department of the  Basic Ordering       
 Systems.                        Navy, Strategic    Agreement for       
                                 Systems Programs.  support of Trident I
                                                    and Trident II Fire 
                                                    Control Systems,    
                                                    Guidance Support    
                                                    Equipment and       
                                                    related support     
                                                    equipment.          

[[Page H1251]]

                                                                        
Rockwell International          Department of the  FY 1997 Technical    
 Corporation.                    Navy, Strategic    Assistance Program  
                                 Systems Programs.                      
Electric Boat Corporation.....  Department of the  FY 1997 COTS Hardware/
                                 Navy, Strategic    Software.           
                                 Systems                                
                                 Programs..                             
                                Department of the  COTS Implementation  
                                 Navy, Strategic    Analysis.           
                                 Systems Programs.                      
                                Department of the  Technical Support for
                                 Navy, Strategic    Ship Systems and    
                                 Systems Programs.  Subsystems Support  
                                                    U.S. SSBN Weapon    
                                                    Systems during      
                                                    Submarine DASO's.   
                                Department of the  Reactor Plant        
                                 Navy, Naval Sea    Planning Yard       
                                 Systems Command.   Services for Nuclear
                                                    Power Submarines,   
                                                    Moored Training     
                                                    Ships and Guided    
                                                    Missile Cruisers.   
                                Department of the  NSSN IPPD 1996.      
                                 Navy, Naval Sea                        
                                 Systems Command.                       
                                Department of the  SSN 23 Construction. 
                                 Navy, Naval Sea                        
                                 Systems Command.                       
                                Department of the  Basic Ordering       
                                 Navy, Naval Sea    Agreement for Design
                                 Systems Command.   Studies for SSN 688 
                                                    Program Office.     
Loral Defense Systems--East...  Department of the  Modification/Repair  
                                 Navy, Strategic    of Items on U.S.    
                                 Systems Programs.  Trident Weapons     
                                                    Subsystems.         
Raytheon Company..............  Department of the  FY 1996 Captive Line.
                                 Navy, Strategic                        
                                 Systems Programs.                      
Rockwell Corporation,           Department of the  FY 1996 Inertial     
 Autonetics Strategic Systems    Navy, Strategic    Equipment           
 Division.                       Systems Programs.  Modification and    
                                                    Repair.             
Northrop Grumman Marine         Department of the  FY 1996 Expendable   
 Systems.                        Navy, Strategic    Hardware            
                                 Systems Programs.  Procurement.        
                                Department of the  Technical Services to
                                 Navy, Strategic    support the SWS     
                                 Systems Programs.  Launcher Training   
                                                    Systems Maintenance 
                                                    and Operational     
                                                    Support, and to     
                                                    related formal and  
                                                    informal training   
                                                    materials           
                                                    acquisition and     
                                                    support, in the U.S.
                                                    and the U.K.        
                                Department of the  FY 1997 Launcher     
                                 Navy, Strategic    Backfit Program and 
                                 Systems Programs.  Technical           
                                                    Engineering         
                                                    Services.           
Alliant Techsystems, Inc./      Department of the  Disposal of C3 Second
 Thiokol.                        Navy, Strategic    Stage Rocket Motors 
                                 Systems Programs.  at the Utah Test and
                                                    Training Range.     
Honeywell, Inc................  Department of the  Repair and           
                                 Navy, Strategic    Recertification of  
                                 Systems Programs.  Size 10 PIGAS for   
                                                    the MK-6 Guidance   
                                                    System.             
Lockheed Martin Tactical        Department of the  FY 1997 Technical    
 Systems, Inc.                   Navy, Strategic    Services and        
                                 Systems Programs.  Logistics Program   
                                                    (FY 1997 base year  
                                                    and FY 1998 option  
                                                    year).              
                                Department of the  FY 1997 base year and
                                 Navy, Strategic    FY 1998 option year 
                                 Systems Programs.  Trident I (C4) and  
                                                    II (D5) Navigation  
                                                    Subsystem technical 
                                                    services and        
                                                    support.            
The Charles Stark Draper Lab.,  Department of the  Technical Engineering
 Inc.                            Navy, Strategic    Services and        
                                 Systems Programs.  support.            
Kearfott Guidance and           Department of the  Failure verification,
 Navigation Corporation.         Navy, Strategic    repair and          
                                 Systems Programs.  recertification of  
                                                    MITA-5 Gyros in     
                                                    support of the      
                                                    Trident II MK-6     
                                                    Guidance System.    
Newport News Shipbuilding and   Department of the  Reactor Plant        
 Drydock Company.                Navy, Naval Sea    Planning Yard       
                                 Systems Command.   Services for Nuclear
                                                    Power Submarines.   
                                Department of the  Reactor Plant        
                                 Navy, Naval Sea    Planning Yard       
                                 Systems Command.   Services for CVN-65.
Newport News Shipbuilding and   Department of the  Advance Planning and 
 Drydock Company.                Navy, Naval Sea    Material Procurement
                                 Systems Command.   for U.S.S.          
                                                    Enterprise (CVN 65) 
                                                    FY 1997 Extended    
                                                    Selected Restricted 
                                                    Availability (ESRA).
                                Department of the  Engineering,         
                                 Navy, Naval Sea    Technical and       
                                 Systems Command.   Logistics Services  
                                                    in Support of       
                                                    Aircraft Carrier    
                                                    Programs.           
                                Department of the  Basic Ordering       
                                 Navy, Naval Sea    Agreement to Support
                                 Systems Command.   Depot Level         
                                                    Maintenance of CVN  
                                                    65.                 
                                Department of the  Basic Ordering       
                                 Navy, Naval Sea    Agreement for Design
                                 Systems Command.   Studies for SSN 688 
                                                    Program Office.     
------------------------------------------------------------------------

                      department of the air force

       Contractor: Various.
       Type of action: Contingent Liability.
       Actual or estimated potential costs: The amount the 
     Contractors will be indemnified by the Government cannot be 
     predicted, but could entail millions of dollars.
       Service and activity: Civil Reserve Air Fleet (CRAF).
       Description of product or service: FY 1997 Annual Airlift 
     Contracts.
       Reference: Definitions of unusually hazardous risks 
     applicable to CRAF FY 1996.
       Background: Thirty-one contractors requested 
     indemnification under Public Law 85-804 for the unusually 
     hazardous risks (as defined) involved in providing airlift 
     services for CRAF missions (as defined). In addition, 
     Headquarters, Air Mobility Command (AMC), requested 
     indemnification for subsequently identified contractors and 
     the subcontractors who conducted or supported the conduct of 
     CRAF missions. The contractors for which indemnification was 
     requested were those awarded contracts on August 14, 1996, as 
     a result of solicitation F11626-96-R0002. The 31 contractors 
     who requested indemnification are listed below:


       contractors to be indemnified and proposed contract number

       Air Transport International (ATN), F11626-96-D0013.
       Alaska Airlines (ASA), F11626-96-D0015.
       American International Airways (CKS), F11626-96-D0014.
       American Trans Air (ATA), F11626-96-D0013.
       Atlas Air (GTI), F11626-96-D0017.
       Burlington Air Express (BAX), F11626-96-D0013.
       Carnival Airlines (CAA), F11626-96-D0014.
       Continental Airlines (COA), F11626-96-D0018.
       Delta Air Lines (DAL), F11626-96-D0019.
       DHL Airways (DHL), F11626-96-D0020.
       Emery Worldwide (EWW), F11626-96-D0012.
       Evergreen International (EIA), F11626-96-D0012.
       Federal Express (FDX), F11626-96-D0013.
       Fine Airlines (FBF), F11626-96-D0021.
       Miami Air (MYW), F11626-96-D0012.
       North American Airlines (NAO), F11626-96-D0022.
       Northwest Airlines (NWA), F11626-96-D0012.
       OMNI Air (OAE), F11626-96-D0023.
       Polar Air Cargo (PAC), F11626-96-D0013.
       Rich International (RIA), F11626-96-D0012.
       Southern Air Transport (SAT), F11626-96-D0012.
       Sun Country Airlines (SCX), F11626-96-D0014.
       Tower Air (TWR), F11626-96-D0014.
       Trans Continental Airlines (TCA), F11626-96-D0014.
       Trans World Airlines (TWA), F11626-96-D0024.
       United Airlines (UAL), F11626-96-D0025.
       Inted Parcel Service (UPS), F11626-96-D0026.
       US Air (USA), F11626-96-D0012.
       US Air Shuttle (USS), F11626-96-D0027.
       World Airways (WOA), F11626-96-D0012.
       Zantop International (ZIA), F11626-96-D0028.

       Note: The same contract number may appear for more than one 
     company because in some cases the companies provided services 
     under a joint venture arrangement.
       Desert Shield/Storm and Restore Hope showed that air 
     carriers providing airlift services during contingencies and 
     war require indemnification. Insurance policy war risk 
     exclusions, or exclusions due to activation of CRAF, left 
     many carriers uninsured--exposing them to unacceptable levels 
     of risk. Waiting until a contingency occurs to process an 
     indemnification request could result in delaying critical 
     airlift missions. Contractors need to understand up front 
     that risks will be covered by indemnification and how the 
     coverage will be put in place once a contingency is declared.

                           Statement of facts

       The specific risks to be indemnified are identified in the 
     applicable definitions. No actual cost to the Government was 
     anticipated as a result of the actions that were to be 
     accomplished under this approval. However, if the air 
     carriers were to suffer losses or incur damages as a result 
     of the occurrence of a defined risk, and if those losses or 
     damages, exclusive of losses or damages that were within the 
     air carriers' insurance deductible limits, were not 
     compensated by the contractors' insurance, the contractors 
     would be indemnified by the Government. The amount of 
     indemnification could not be predicted, but could entail 
     millions of dollars.
       All of the 31 contractors were approved DoD carriers and, 
     therefore, considered to have adequate, existing, and ongoing 
     safety programs. Moreover, HQ AMC has specific procedures for 
     determining that a contractor is complying with government 
     safety requirements. Also, the contracting officer had 
     determined that the contractors maintain liability insurance 
     in amounts considered to be prudent in the ordinary course of 
     business within the industry. Specifically, each contractor 
     had certified that its coverage satisfied the minimum level 
     of liability insurance required by the Government. Finally, 
     all contractors were required to obtain war hazard insurance 
     available under 49 U.S.C. Chapter 443 for hull and liability 
     war risk. Additional contractors and subcontractors that 
     conduct or support the conduct of CRAF missions may be 
     indemnified only if they request indemnification, accept the 
     same definition of unusually hazardous risks as identified, 
     and meet the same safety and insurance requirements as the 31 
     contractors who sought indemnification in this action.
       Without indemnification, airlift operations to support 
     contingencies or wars might be jeopardized to the detriment 
     of the national defense, due to the non-availability to the 
     air carriers of adequate commercial insurance covering risks 
     of an unusually hazardous nature arising out of airlift 
     services for CRAF missions. Aviation insurance is available 
     under 49 U.S.C. Chapter 443 for air carriers, but this 
     aviation insurance, together with available commercial 
     insurance, does not cover all risks which might arise during 
     CRAF missions. Accordingly, it was found that incorporating 
     the indemnification clause in current and future contracts 
     for airlift services for CRAF missions would facilitate the 
     national defense.

                                Decision

       Under authority of Public Law 85-804, the request was 
     approved on October 2, 1996, to indemnify the 31 air carriers 
     listed above and other yet to be identified air carriers 
     providing airlift services in support of CRAF missions for 
     the unusually hazardous risks as defined. Approval was also 
     granted to contracting officers to indemnify subcontractors 
     that request indemnification, with respect to those risks as 
     defined. Indemnification under this authorization shall be 
     effected by including the clause in FAR 52.250-1, entitled 
     ``Indemnification Under Public Law 85-804 (Apr 1984),'' in 
     the contracts for these services. This approval is contingent 
     upon the air carriers complying with all applicable 
     government safety requirements and

[[Page H1252]]

     maintaining insurance coverage as detailed above. The HQ AMC 
     Commander will inform the Secretary of the Air Force 
     immediately upon each implementation of the indemnification 
     clause.

  Definition of unusually hazardous risks applicable to CRAF FY 1996 
                        annual airlift contracts

       1. Definitions:
       a. ``Civil Reserve Air Fleet (CRAF) Mission'' means the 
     provision of airlift services under this contract (1) ordered 
     pursuant to authority available because of the activation of 
     CRAF, or (2) directed by Commander, Air Mobility Command 
     (AMC/CC), or his successor for missions substantially similar 
     to, or in lieu of, those ordered pursuant to formal CRAF 
     activation.
       b. ``Airlift Services'' means all services (passenger, 
     cargo, or medical evacuation), and anything the contractor is 
     required to do in order to conduct or position the aircraft, 
     personnel, supplies, and equipment for a flight and return. 
     Airlift Services include Senior Lodger and other ground 
     related services supporting CRAF missions. Airlift Services 
     do not include any services involving any persons or things 
     which, at the time of the event, act, or omission giving rise 
     to a claim, are directly supporting commercial business 
     operations unrelated to a CRAF mission objective.
       c. ``War risks'' means risks of:
       (1) War (including war between the Great Powers), invasion, 
     acts of foreign enemies, hostilities (whether declared or 
     not), civil war, rebellion, revolution, insurrection, martial 
     law, military or usurped power, or attempt at usurpation of 
     power;
       (2) Any hostile detonation of any weapon of war employing 
     atomic or nuclear fission and/or fusion, or other like 
     reaction or radioactive force or matter;
       (3) Strikes, riots, civil commotions, or labor disturbances 
     related to occurrences under subparagraph (1) above;
       (4) Any act of one or more persons, whether or not agents 
     of a sovereign power, for political or terrorist purposes, 
     and whether the loss or damage resulting therefrom is 
     accidental or intentional, except for ransom or extortion 
     demands;
       (5) Any malicious act or act of sabotage, vandalism, or 
     other act intended to cause loss or damage;
       (6) Confiscation, nationalization, seizure, restraint, 
     detention, appropriation, requisition for title or use by, or 
     under the order of, any Government (whether civil or military 
     or de facto), public, or local authority;
       (7) Hijacking or any unlawful seizure or wrongful exercise 
     of control of the aircraft or crew (including any attempt at 
     such seizure or control) made by any person or persons on 
     board the aircraft or otherwise, acting without the consent 
     of the insured; or
       (8) The discharge or detonation of a weapon or hazardous 
     material while on the aircraft as cargo or in the personal 
     baggage of any passenger.
       2. For the purpose of the contract clause entitled 
     ``Indemnification Under Public Law 85-804 (APR 1984),'' it is 
     agreed that all war risks resulting from the provision of 
     airlift services for a CRAF mission, in accordance with the 
     contract, are unusually hazardous risks, and shall be 
     indemnified to the extent that such risks are not covered by 
     insurance procured under Chapter 443 of Title 49, United 
     States Code, as amended or other insurance, because such 
     insurance has been canceled, has applicable exclusions, or 
     has been determined by the government to be prohibitive in 
     cost. The government's liability to indemnify the contractor 
     shall not exceed that amount for which the contractor 
     commercially insures under its established policies of 
     insurance.
       3. Indemnification is provided for personal injury and 
     death claims resulting from the transportation of medical 
     evacuation patients, whether or not the claim is related to 
     war risks.
       4. Indemnification of risks involving the operation of 
     aircraft, as discussed above, is limited to claims or losses 
     arising out of events, acts, or omissions involving the 
     operation of an aircraft for airlift services for a CRAF 
     mission, from the time that aircraft is withdrawn from the 
     contractors regular operations (commercial, DoD, or other 
     activity unrelated to airlift services for a CRAF mission), 
     until it is returned for regular operations. Indemnification 
     with regard to other contractor personnel or property 
     utilized or services rendered in support of CRAF missions is 
     limited to claims or losses arising out of events, acts, or 
     omissions occurring during the time the first prepositioning 
     of personnel, supplies, and equipment to support the first 
     aircraft of the contractor used for airlift services for a 
     CRAF mission is commenced, until the timely removal of such 
     personnel, supplies, and equipment after the last such 
     aircraft is returned for regular operations.
       5. Indemnification is contingent upon the contractor 
     maintaining, if available, non-premium insurance under 
     Chapter 443 of Title 49, United States Code, as amended, and 
     normal commercial insurance, as required, by this contract or 
     other competent authority. Indemnification for losses covered 
     by a contractor self-insurance program shall only be on such 
     terms as incorporated in this contract by the contracting 
     officer in advance of such a loss.

                         Contingent Liabilities

       Provisions to indemnify contractors against liabilities 
     because of claims for death, injury, or property damage 
     arising from nuclear radiation, use of high energy 
     propellants, or other risks not covered by the Contractor's 
     insurance program were included; the potential cost of the 
     liabilities cannot be estimated since the liability to the 
     United States Government, if any, would depend upon the 
     occurrence of an incident as describe in the indemnification 
     clause.


        Contactor                                                Number
Civil Reserve Air Fleet (CRAF) FY 1997 Annual Airlift Contracts.......1
                                                               ________
                                                               
      Total........................................................\1\1

\1\ One additional indemnification was approved; however, the Air Force 
has deemed it to be ``classified,'' not subject to this report's 
purview.


                        DEFENSE LOGISTICS AGENCY

       Contractor: Roche Products Limited.
       Type of Action: Contingent Liability.
       Actual or estimated potential cost: Estimated or potential 
     cost cannot be determined at this time.
       Service and activity: Defense Personnel Support Center, 
     Defense Logistics Agency
       Description of product or service: Pyridostigmine Bromide 
     Tablets (PBT)
       Background: Roche Products Limited submitted a request that 
     the clause entitled ``Indemnification Under Public Law 85-
     804,'' FAR 52.250-1, be included in Contract SPO200-95-D-
     0005.
       On September 13, 1995, the Defense Personnel Support Center 
     (DPSC), a field activity of the Defense Logistics Agency 
     (DLA), awarded indefinite quantity contract SPO2000-95-D-0005 
     to Roche for Pyridostigmine Bromide Tablets, 30mg (PBT), NSN 
     6505-01-178-7903. PBT is used as a nerve agent pre-treatment 
     to enhance the efficacy of post-exposure antidote therapy. 
     Under the terms of the contract, delivery was contingent upon 
     approval of indemnification.

                           Statement of facts

       This indemnification action would facilitate the national 
     defense since the availability of PBT was critical to the 
     protection and welfare of military personnel in combat 
     situations where the threat of nerve agents existed. In 
     addition, Roche is the sole manufacturer of this item: Duphar 
     B.V. no longer manufactures nerve agent antidotes for the 
     Department of Defense. Due to allegations that PBT played a 
     role in Gulf War veterans' illnesses, Roche refused to 
     deliver PBT without an indemnification provision.
       Acquisition of the PBT involves an unusually hazardous risk 
     that could impose liability upon the contractor in excess of 
     financial protection reasonably available. Since allegations 
     have been made that PBT, or PBT in combination with other 
     agents, e.g., insecticides, have caused Gulf War veterans' 
     illnesses, Roche, as manufacturer, was threatened by 
     unknown liability for which insurance coverage was not 
     available. It was not possible to determine the actual or 
     estimated cost to the Government as a result of the use of 
     an indemnification clause because the liability of the 
     Government, if any, would depend upon the occurrence of an 
     incident described in the indemnification clause.
       The Contracting officer believed the approval of the 
     Indemnification Request would be in the best interests of the 
     Government. Accordingly, it was agreed that the following 
     would be incorporated in the contract, if indemnification was 
     approved:
       ``The Contractor requests inclusion of Indemnification 
     Clause FAR 52.250-1 in Contract SPO200-95-D-0005 for the 
     supply of pyridostigmine bromide in a 30 milligram dose 
     (``the Product''). Indemnification was requested because the 
     Contractor identified an unusually hazardous risk associated 
     with supply and use of the Product. Specifically, there is an 
     unusually hazardous risk since the Contractor is acting 
     purely as a contract manufacturer and has no knowledge of the 
     Product's safety or efficacy for the Government's purpose or 
     any purpose whatsoever. The contractor considered this risk 
     magnified since the Product will be relied upon for military 
     combat use as a pretreatment against nerve-agent 
     intoxication, although there is no actual clinical experience 
     with pyridostigmine bromide as an effective pre-treatment 
     antidote to actual chemical weapons attack. Given the 
     critical nature of the Product's use, individual may be 
     injured or killed. Those individuals or their estates may 
     seek to hold the contractor responsible for the injuries or 
     death, thus exposing the contractor to unlimited liability. 
     In addition, there have been allegations that pyridostigmine 
     bromide, either alone or in combination with other agents, in 
     a possible causative factor in Gulf War veterans' illnesses. 
     The Contractor regards any risk (known or unknown, and 
     arising anywhere in the world) associated with the 
     procurement, use or distribution of the Product as unusually 
     hazardous. In light of the foregoing, the parties have agreed 
     to the following definition of the risk:
       (1) Claims as to lack of efficacy of the Product; and
       (2) Claims as to adverse short-term or long--term reactions 
     as a result of human use of the Product, alone or in 
     combination with other agents, including, but not limited to, 
     temporary or permanent disability, birth defects, or death.''

                                Decision

       It was determined that authorization of the inclusion of 
     the FAR Indemnification Clause in DPSC contract SPO200-95-D-
     005 with Roche Products Limited will facilitate the national 
     defense. Pursuant to the authority vested in the Under 
     Secretary of Defense (Acquisition and Technology) by Public 
     Law 85-804 and Executive Order 10709, the inclusion of clause 
     52.250-1 in the instant

[[Page H1253]]

     contract for the risks identified above was authorized.

                         Contingent Liabilities

       Provisions to indemnify Contractor against liabilities due 
     to claims which may result from the hazardous risk associated 
     with the supply and use of pyridostigmine bromide, or other 
     risks, as defined, not covered by the Contractor's insurance 
     program were included; the potential cost of the liability 
     cannot be estimated since the liability to the United States 
     Government, if any, would depend upon the occurrence of an 
     incident as described in the indemnification clause.


        Contractor                                               Number
Roche Products Limited................................................1
                                                               ________
                                                               
      Total...........................................................1


                   defense information systems agency

       Contractor: Total Procurement Services, Inc.
       Type of action: Formalization of Informal Commitment.
       Actual or estimated potential cost: $10,000.
       Service and activity: Defense Information Systems Agency, 
     Defense Commercial Communications Office.
       Description of product or service: Processing of 
     noncompliant transactions.
       Background: The Defense Information Technology Contracting 
     Organization (DITCO) notified Total Procurement Services, 
     Inc. (TPS) by letter dated September 24, 1996, that the 
     Defense Information Systems Agency (DISA) would no longer 
     process TPS's noncompliant transactions. DITCO and the 
     operational personnel in the electronic commerce initiative 
     had been working with TPS since at least July 1996, but non-
     compliance continued.
       TPS responded to that notice in a letter dated September 
     24, 1996. TPS's letter raised a number of issues but 
     essentially contended that the noncompliance was on the part 
     of the Network Entry Point (NEP) at Ogden, principally in the 
     areas of script writing and segment delimiters and 
     terminators. TPS further claimed $10,000 under authority of 
     Public Law 85-804 for TPS's cost to support the 2003 
     Implementation Convention (IC) over a ten month period.

                                Decision

       DISA did not agree that the Government was at fault in the 
     problems TPS experienced. DISA did not see evidence of 
     Government-caused problems. As TPS was aware, the Government 
     conducted an extensive Independent Validation and 
     Verification (IV&V) review of Ogden NEP operations in 
     relation to TPS. The Government took great pains and incurred 
     great expense to ensure that this IV&V of the Ogden NEP was 
     conducted independently and with no bias toward the Ogden 
     operation or against TPS. This review, conducted by expert 
     personnel not associated with the Ogden NEP, concluded that 
     NEP processing and communications were not responsible for 
     frequent data anomalies reported and observed in unprocessed 
     data retrieved from TPS since August 26, 1996. Furthermore, 
     the IV&V found no indication that TPS's data problems 
     reported before August 26, 1996, were caused by NEP 
     processing or the NEP-TPS file exchange.
       On November 1, 1996, the EC/EDI system migrated from the 
     NEP environment to the Electronic Commerce Processing Node 
     (ECPN) environment. This new system will provide far greater 
     accuracy in identifying and rejecting incoming transactions 
     that do not comply with processing standards. The system is 
     not designed to allow for human intervention.
       Insofar as TPS's claim was concerned, no loss was shown. 
     The Navy's migration to the 3050 IC was delayed. If the 
     migration had been on schedule, however, DISA presumed that 
     TPS would have been supporting 3050 IC. Implicit in TPS's 
     continued support of the 2003 IC was a desire to continue 
     processing Navy business for TPS's trading partners. Thus, 
     either the 2003 or the 3050 IC would have been supported.
       It should be noted that the authority conferred by Public 
     Law 85-804 is for use in extraordinary situations where the 
     productive ability of a contractor or its continued operation 
     as a source of supply is essential to national defense. Even 
     if a loss occurred, which it did not, that is not a 
     sufficient basis for exercising the authority. Furthermore, 
     the statute may not be relied on when other adequate legal 
     authority exists within the Agency to address the claim. The 
     old VAN License Agreement incorporated the Disputes clause 
     which represents an adequate legal authority to resolve this 
     claim. TPS's claim of September 24, 1996, was denied.
       Contingent Liabilities: None.
       Contractor: None.

                          ____________________