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HRD-78-167 1 (1978-09-14)

handle is hein.gao/gaobaayae0001 and id is 1 raw text is: .. .... ItD No tl to * WOe!P~'d oubSU the Cenilal Accountng Office Oxcet i'' of Specific approval by P11 gfft@ = fe nget aLIOLL OU4KAL Or n tim. U rTATM WAEN&MTON. . Zan B-175834 OCTOER S, 197 The Nonorable Henry M. Jackson Cha.rman, Permanent Subcommittee RELEASED on Investigitions Committee on Governmental Affairs United States Senate Dear Mr. Chairman: On January 13, 1978, you asked us to examine the factual support and the contractor's justificat: ns for interest ex- pense and lost interest income include,, , shipbuilding claims fileai between 1973 and 1976 by the Newpou; News Shipbuilding and Dry Dock Company with the Department of the Navy. Specifically, you asked if the contractor understaced the amount of Government progress payments. Also you were inter- ested in knowing the contractor's borrowing sources and the amounts and propriety of interest attributable to compensating balances the contractor was required to maintain for bank loans. After discussions with your office, we mutually agreed to limit our work to a sample of 12 monthly accounting periods from the 9-year period covered in the claims. Newport News filed five separate claims, with total imputed interest calculated at about $77 million. The company sought equitable adjustments that would include an increased profit for the use of capital in financing the additional work and delays caused by the Navy. The $77 million should not be con- strued as the amount requested by Newport News to be paid on settlement oecause the financing claims would be governed by the cost-sharing provisions of the contracts. The contractor estimated that about $29.9 million of the company's requested additional financing costs would be reimbursed if the claims were approved as filed. Newport News points out that receipt of the $29.9 million would amount to an interest rate of about 5 percent of the !mount claimed by Newport News to have been financed. How- eler, we do not believe the effective interest rate is relevant to the questions we responded to. In oitr examination we did not address the issue of whether the claimed amounts were r questz for reimbursement of inter- est :financing costs) or requests for compensation in the form PSAD-78-137 (950445) RELEASED

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