Opinion ID: 355306
Heading Depth: 2
Heading Rank: 1

Heading: The Meaning of the Statutes

Text: 56 At least as applied to the pharmaceutical industry, we think that the broad reading of Hewlett-Packard is the reading most consistent with the plain meaning of the statutory language and with the legislative history. In interpreting the statutory language, as the Comptroller General contends, it is hard to imagine anything more directly related to a contract than the cost of producing the items covered by it or the matters going into the makeup of the price (Reply Br. 9). Accord, Hewlett-Packard Company v. United States, supra, at 1016. That such costs can be directly pertinent to the contract even though they are not all assigned by the company to the contract or to the product can be explained, at least as applied to contracts with pharmaceutical companies, by the fact that the manufacturing and distribution costs of individual pharmaceutical products have been estimated to constitute as little as 9 per cent of the products' sale prices. See Rucker, Public Policy Considerations and the Pricing of Prescription Drugs in the United States, 4 Int. J. Health Services 171, 173 (1974). Although it might be possible to argue in other industries that costs such as research and development have such a small impact that they are not directly pertinent to the contract and its price, research and other costs not immediately attributable to one product form such a large portion of the costs of a pharmaceutical product that their import to such a contract seems inescapable. 57 In response to plaintiff's argument that including these items would not give full effect to the limits on disclosure implied by the use of the word directly, without disputing that directness is a difficult concept to define, 6 it should be noted that costs such as research and development at the least appear to have a logical, causal and consequential relationship to a portion of the price of the products purchased by the Government. Further, contrary to plaintiff's contention, such costs are not remote within the established definitions of that term in relation to at least a portion of the price because their inclusion in the price of the product is not unforeseeable once the costs are incurred, nor is their impact on a part of the price significantly altered by any intervening cause. See generally W. Prosser, Law of Torts § 42 (4th ed. 1971). If such costs constituted a minimal share of the total price of the contract, it might be difficult to argue that these costs are directly pertinent to the price of the contract as a whole, but that issue does not seem to be presented on these facts. Thus in relation to the contract as a whole, these costs fit within the common and legal understandings of directly pertinent. The mere fact that, as plaintiff asserts, it does not or even could not allocate costs such as research and development to an individual contract does not undercut the proposition that those costs are directly pertinent to an individual contract but merely indicates that they are directly pertinent to more than one individual contract. 58 While plaintiff did not offer this Court any precise alternate manner of interpreting the phrase directly pertinent, its argument seems to limit directly pertinent to an inquiry into what issues were negotiated at the time of contracting (see, e. g., Br. 48-49). This interpretation apparently is based on the assumption that if the Government did not negotiate about an issue, it thereby considered it not to be pertinent. Such an interpretation might be reasonable if the statutory standard were that the information must be directly pertinent to the negotiation, but the standard is directly pertinent to the contract and plaintiff offers no reason to suppose that there would be a reason to negotiate about each item that might have a significant effect on the seller's cost or performance. In fact, plaintiff's proposed method of defining pertinence by analyzing what was negotiated would not serve even its interests in the long run because such a standard once adopted would simply encourage the Government to protract the negotiations by raising any conceivable issue about which it later might want information and would allow the Government to make an issue pertinent simply by introducing it in the negotiations. 59 In the final analysis, plaintiff's suggested interpretation of examining what was negotiated rests on its conclusion that Sections 2313 and 254 were designed only to uncover improprieties in the negotiation of Government contracts (Br. 43, quoting 97 Cong.Rec. 13377). However, our view of the legislative history, outlined in the following section, is that controlling fraud was not the only purpose of the legislation and that another concern of the legislators was with excessive pricing. Given this latter purpose and our view of the meaning of directly pertinent, the access-to-records clauses should be interpreted so that an item is directly pertinent to a contract if it is a significant input in the cost of the product purchased in the contract.