received by the Board have indicated a number of improvements in contract negotiation and administration of Board promulgations. COST REDUCTIONS We have been advised by the Department of Defense that through December 1978, that is the most recent data available, there was a nonrecurring net decrease in contract cost of approximately $230,000,000. In addition they estimated annual recurring cost reductions of $130,000,000. These are the most recent figures available from the Department of Defense. The estimates were identified with CASB rules and regulations even though some items may have been questioned under ASPR and other requirements in the absence of CAS. We believe that there may be additional contract cost reductions which cannot be quantified. For example, lower contract prices may have resulted from better cost visibility and reliability due to Standards. This is attributable not only to the fact that negotiations with an individual contractor can be carried out on a more informed basis but to the fact that the use of common cost allocation standards by contractors makes it possible to compare the cost proposals of competing contractors more precisely. The need to continue and enhance the government's capacities in these respects is particularly important, in view of the consistent pattern of cost overruns which we have been experiencing and the substantial increase in defense contracting which the President's budget projects. FUTURE PLANS When hearings were held concerning the CASB's budget estimates for fiscal year 1980, there was an extended discussion of the Board's future. Partly as a direct result of those discussions, the Board has spent a significant amount of its time reviewing its activities and considering how it can best fulfill its future responsibilities. As a consequence of the review that we have made, we have recognized clearly that the nature of the Board's responsibilities is changing. In recognition of this fact we are restructuring the organization. By the beginning of fiscal year 1981, the process will be complete. The Board will then be in a position to accomplish its task with a significantly reduced budget. Moreover, should Public Law 91-379 be amended to merge the CASB into the General Accounting Office, as I recommended in a hearing held in November of 1979 before the Senate Banking Committee, the new structure will be completely compatible. It will also be adaptable to being merged into any other existing agency. With substantial completion of the major task assigned to it by Public Law 91-379, the major functions which will continue under the law include the need to assure that defense contractors and government agencies are implementing promulgated Cost Accounting Standards in the manner intended by the Board. Additionally, there is the need to review the Cost Accounting Standards to simplify them whenever practical and still achieve the purposes of the law. The Board's decision to reorient its efforts in this manner is totally consistent with the views of the Deputy Under Secretary of Defense, Dale Church who, by memorandum to Board Member Wacker, recommended a general review of Standards, rules and regulations. In some instances he indicated that further action by the CASB may be effective in reducing contract disputes. In other instances he suggested that revisions might serve to simplify the implementation of Standards and Board rules and regulations. I sent you a copy, Mr. Chairman, of this exchange of correspondence in December, but it occurred to me it might be useful to have it as a matter of record, so I would like to put it in the record, if that is agreeable. Mr. BENJAMIN. Without objection. [The information follows:] COMPTROLLER General of the United STATES, Washington, D.C., December 19, 1979. Hon. ADAM BENJAMIN, DEAR Mr. CHAIRMAN. Knowing of your interest in the Cost Accounting Standards Board, I thought that you would be interested in having the enclosed exchange of letters between myself and Mr. Wacker and Mr. Church of the Department of Defense. I also wanted to advise you that at the meeting of the Board during the past 2 days, we agreed fully with the need for major emphasis to be placed in fiscal year 1981 on the review of Standards in operations, to simplify them if possible, minimize administrative requirements, and improve their effectiveness. During fiscal year 1979, our staff initiated meetings with contractors and Government agencies at a number of locations to identify problems and possibilities for Standards' improvement. You will note that Dale Church fully supports this idea. As you know, the issued Standards have the full effect of law and we want to be sure that we are administering these Standards in a way which would be consistent with the original intent of the Board. Sincerely, ELMER B. STAATS. At the next meeting of the Cost Accounting Standards Board, I would like to discuss followup actions to our Evaluation Conference and to the hearings before the Senate Banking, Housing and Urban Affairs Committee with respect to possible changes in the basic legislation which established the Board. In particular, I would like to request that you consult with Dale Church and others in the Department of Defense to ascertain their priorities with respect to issued Standards which should be given high priority by the Board in its program to review Standards in operation. I am impressed--as I testified and as I stated before the Evaluation Conference--with the need for us to reassess Standards which are believed by the industry to be in need of modification. Specifically, we should always be aware of the need for scrutinizing these Standards so that we will achieve their basic objectives with a minimum of paperwork and cost on the part of industry and the Government. As you know, it is my view that work on the basic Standards will be substantially completed by the end of the current fiscal year and it is important, therefore, that the Board turn its attention to simplification, wherever practicable, of existing Standards. Over all, I believe that the Board has done a good job in attempting to measure the relative costs and benefits of the Standards which have been issued. How ever well this job has been done, there still remains a question of whether or not it is possible, in the light of experience, to improve their application. As you know, our Board will be meeting again on Monday, December 17. I would appreciate it, therefore, if we could have the benefit of your advice sufficiently in advance of that time so that we can provide copies to members of the Roard and be prepared to have a useful discussion and, hopefully, be able to give our staff guidance as to work. priorities. In response to the request contained in your letter of Enclosure Sincerely, Fred Fred P. Wacker We are very pleased to see that Mr. Staats is emphasizing the need to reassess the Standards. We agree with his view that work on the basic Standards will be complete by the end of the current fiscal year and, therefore, the Board should turn its attention to simplification of existing Standards. In our opinion, the first efforts of the Board should be directed to the following areas: a. Review of Standards 403, Allocation of Home Office Expense to Segments, and 410, Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives. Our attempts to implement these Standards have resulted in an inordinate number of disputes. b. A general review of each Standard to determine whether the provisions of the Standards require, in comparison to commercial practices, complex accounting practices which exceed the apparent benefits to the Government. c. A review of the contract clause and the other rules and regulations to see if they can be simplified or eliminated. For instance, with the work on the basic Standards complete, will it still be necessary for contractors to submit Disclosure Statements and changes thereto to the CAS Board. De Chane DALE W. CHURCH Deputy Under Secretary (Acquisition Policy |