Legal Document

460 U.S. 824 103 S.Ct. 1587 75 L.Ed.2d 580 Charles A. BOWSHER, Comptroller General of the United States, et al., Petitioners,v.MERCK & CO., INC. MERCK INC., Petitioner, v. States and States. Nos. 81-1273, 81-1472. Argued Dec. 1, 1982. Decided April 19, 1983. Syllabus Merck Co. entered into three fixed-price negotiated contracts with Defense Supply Agency one such contract Veterans Administration for sale pharmaceutical products to those agencies. The prices were based on Merck's catalog prices. As required by statute, each contained a standard access-to-records clause granting right examine any "directly pertinent" records involving transactions related contract. Relying these clauses, General, stated purpose reviewing reasonableness prices, demanded access cost pertinent contracts, including costs direct materials, labor, overhead, support charged. refused comply demand brought an action in Federal District Court seeking declaratory judgment that General's exceeded his statutory authority. granted partial summary party, permitting costs, manufacturing delivery but barring indirect research development, marketing promotion, distribution, administration except extent included costs. Appeals affirmed. Held: may inspect not Pp. 1591-1599. (a) It is plain from face statutes question words are limitation designed restrict class which permitted requiring some close connection between type record sought particular legislative history underscores what language reflects: Congress' intention limit degree power. also reveals Congress sought, this authority, equip Accounting Office (GAO), heads, tool detect fraud, waste, inefficiency, extravagance Government contracting. Given dual, conflicting congressional aims, construing public interest served GAO investigations must be balanced against private freedom officious governmental intermeddling contractor's business affairs. 830-835. (b) To define as defrayed commingled revenues include payments under contract, would completely eviscerate goal protecting privacy far-ranging scrutiny nongovernmental unrelated either or product procured 836. (c) There no merit Government's argument has had consistent longstanding interpretation its authority supports view subject examination question. 837-839. (d) Here, appropriate balance interests weighs favor records. Because have influence price charged Government, needs determine whether contractor making excessively high profit getting "fair deal" On other hand, even though setting price, nevertheless, intrusion affairs far greater, particularly where involved. 839-843. (e) fact here conducting economic study industry securing information desired individual Members did vitiate GAO's directly order inefficiency wastefulness. 843-844. 214 U.S.App.D.C. 418, 665 F.2d 1236, Jerrold J. Ganzfried, New York City, Bowsher, al. Philip Lacovara, Washington, D.C., Co., Inc. Justice O'CONNOR delivered opinion Court. 1 issue before scope whom fixed-price1 contracts. We conclude that, circumstances presented action, 2 * In 1973 ("Merck") Department Government. All four negotiated, rather than awarded after formal advertising.2 supplied commercial sold substantial quantities general public. App. 41a. term proposed was at item otherwise determined adequate competition. Before award Merck, there actual negotiation government contracting officers request submit data 3 10 U.S.C. § 2313(b) 41 254(c),3 August 1974 issued following: 4 "all books, documents, papers, include, limited (1) experienced corporate (2) (3) necessary use review adequacy protection afforded interests." 18a.4 5 commenced Columbia, authority.5 intervened counterclaimed enforce demand. 6 Court, 529 F.Supp. party. Rejecting predicate demand, court all 7 pertaining pricing producing items furnished . ., (including raw packaging labor fringe benefits, quality control supervision), overhead plant administration, production planning, warehousing, utilities security), royalty expenses, costs." Pet. Cert. No. p. 39a. 8 barred access, however, "with respect (except listed above)." Id., 40a. brief per curiam opinion, Columbia Circuit 1236 (1981). 9 Both parties certiorari. petitioned Appeals' determination General. 81-1472, challenges therefore examination. contends because made congressionally authorized purpose. certiorari petitions both parties, 456 925, 102 S.Ct 1968, 72 439 (1982), now affirm. II construction,6 we " 'must begin statute itself.' Bread Political Action Committee FEC, 455 577, 580, 1235, 1238, 71 432 quoting Dawson Chemical Rohm Haas 448 176, 187, 100 2601, 2608, 65 696 (1980). focal point controversy meaning phrase pertain involve relating contract." provisions contract.7 11 powers. originally introduced, bill codified 254(c) provided "pertinent" "involving to" See 97 Cong.Rec. 13371 (1951).8 Rep. Hoffman opposed original ground it "unnecessary snooping expeditions" allowed "go everybody's look over if they just wanted take it." 13373. He offered floor amendment insert word "directly" "pertinent," stating "is 'snooping' carried bill." 13377. sponsor bill, Hardy, oppose amendment, passed without debate discussion. 12 passage clearly want unrestricted "snooping" contractor. nevertheless attempts discount significance addition "directly." Based lack opposition limiting bill's debate, argues modification significantly alter Hardy bill. cannot agree. only explanation Hoffman. His statement, which, language, "authoritative guide statute's construction," North Haven Board Education Bell, 512, ----, 1912, 1921, 299 expressly indicates intent curtail investigation Although, emphasizes, votes defeat entirety, he circumscribe inquiry undertake. Moreover, accept contention substantive effect contradict settled principle construction give effect, possible, every statute. Fidelity Savings Loan Association De La Cuesta, 458 3014, 3022, 73 664 (1982). Therefore, our attempt pertinent," mindful aim protect contractors broad-ranging their 13 does follow, added guided solely policy, expressive aims embraced enacting provisions. agency generally. legislation, explained two major purposes "to tools do job instructed him provide deterrent improprieties wastefulness contracts." Cong. Rec. 13198 (1951). With regard former purpose, clear envisioned adjunct responsibility "investigate matters receipt, disbursement, application funds" "make recommendations looking greater economy efficiency expenditures." 31 53(a). §§ 60, 65(a).9 Obviously, broad enhance ability evaluate identify areas waste procurement. 14 discussion indication history, nor indeed itself, parameters area left restrictive defining limitation, thus traverse uncharted seas reflected history. Consequently, task apply aims. tension goals apparent. For industries types perhaps here, neither objective can achieved fully sacrificing other.10 full III 15 erred holding costs11 so arguing, maintains uses defray expenses. Thus, us 16 eviscerates Under definition, expenditures purchase materials manufacture entirely different invest stock another corporation inspection Hence, permit underlying Indeed, logical extreme, dictate few, any, immune scrutiny. short, definition admits doctrinal effectively reading "anti-snooping" policy out B 17 Nor persuaded here. Even could characterized consistent, entitled deference, for, noted above, inconsistent language. Southeastern Community College Davis, 442 397, 411, 99 2361, 2369, 60 980 (1979). 18 characterize current sweeping "consistent" generous. significant evidence indicating past itself acknowledged deficiency records.12 example, ruling facts case, 1967 confer upon business, when catalog-priced actually 162a-163a. late 1969, prepared memorandum consideration grant additional pursue profits defense industry. memorandum, informed 1951 extend conduct study. 115 25800-25801 (1969) (reprinting Memorandum Adequacy Legal Authority Conduct Comprehensive Study Profitability Contracting). Finally, 1970 internal belief power 160a-161a.13 19 statements supportive position occur testimony subcommittee 1963 regarding litigation Hewlett-Packard 385 1013 (CA9 1967), cert. denied, 390 988, 88 1184, 1292 (1968).14 light posture during hearings, well contrary expressions persuasive practice. IV 20 summarize, failed offer view, accommodation competing counsels draw line precisely lower courts drawn it. question, should costs.15 barred, inspecting incurred allocated attributable contract.16 21 Direct certainly are, readily identifiable specific rational businessman, will avoid loss product. very need Presumably, manner although unclear, given somewhat arbitrary accounting allocations portion attributed Nevertheless, occasioned pure Such entail exposure many transactions.17 situation records.18 Our decision accord majority appeals considered issue.19 22 objects strenuously impermissibly constrains efforts improve procurement process. represent large proportion total costs,20 critical understanding dealing assessment fairness advisability continued adherence methods employed contracts.21 23 already noted, adopting apparently willing forego benefits might gained far-reaching By inclusion injected accessible considerations besides information. impediment places path investigate chose adopt,22 arguments changed addressed Congress, courts.23 V 24 address briefly yet independent denied Specifically, members Congress. 25 Much said provides answer contention. assess paid reason compile lawfully obtain, within limits outlined arrive picture generally.24 senators encouraged lawful fullest possible irrelevant. branch exists part serve If provisions, origin requests congressmen reported VI 26 mandate through audits verify established procured, specified, received more amount due contractors' expressed Accordingly, affirm below. 27 ordered. 28 WHITE, MARSHALL joins, concurring dissenting part. 29 I join Part Court's concur remainder upholds "direct" records.1 dissent refuses allow "indirect" 30 issue, 254(c), intended reasonable needed excessive. Of course, unlimited; correctly identifies contractors, "officious intermeddling." Ante, 835. Unfortunately, conceded creating bright-line test, ante, 841, n. 18, goes astray rule flatly bars most regardless how urgent them be. frankly deny thereby impeding wasteful expenditures. 842-843. These undesirable consequences avoided, free unwarranted "snooping," burden showing requested likely impact 32 involved agreed certain fixed price. instance, "market" officer accepted proposal "haggling" Each contains statutorily-mandated provision allowing books 33 seeks indicate goods deems carry duty funds," 34 records, hopes able estimate fair one. confirmed experience common-sense observation mere "fact manufacturer's customer assurance reasonable."2 reveal unreasonably high, presumably recommend agencies "negotiate carefully obtain competition future similar procurements,"3 "looking efficiency," 53(a), 35 concludes, despite much produce This exalts displaces unquestionably accurate intend priority interests. What spared intrusions. irresponsibly lacking relevance purchased. But wish legitimately extravagance, ineffective prove fall latter category, sustained. 36 Jackson Transit Amalgamated Union, --- 2202, 639 (1982); Touche Ross Redington, 560, 568, 2479, 2485, 61 82 legislation requires unadvertised "that to, ." 2312(b). 245(c). 37 '[I]t hard imagine anything covered going makeup price.' Eli Lilly Staats, 574 904, 913 (CA7), 959, 362, 58 351 (1978). Accord, SmithKline Corp. 668 201, 208-209 (CA3 1981); 1013, 1016 (1968). contend otherwise. say about literal wording "some 831. course why inherently requisite "close connection." recognizes, 842-843, instances bearing least opportunity and, succeeds endeavor, access. 38 if, my belief, somehow regarded ambiguous, resort further refutes position. relatively point. demonstrates beyond doubt techniques ascertaining services. 39 sponsor, indicated various ways. remarked: 40 "The twofold: One, proper do; two, 13198. 53(a).4 42 early colleagues normal procedures called competitive bidding sometimes necessary. context, "operate[ ] brake Government," saw establish "every safeguard spending" funds. felt matter "conscientious honest" representatives be, would, great cases, tremendous advantage standpoint training experience. Ibid. chance world [would] come short end deal," deemed "at enable [GAO] check transaction, books." 43 days later heads discretion omit foreign id., 13371, Harvey exempted "a manufacturer processor who supplier material primary subcontractor" coverage. 13376. proposals ultimately defeated, but, lively amendments, several contradiction extremely asked whether, became law, subcontractor "would having opened up officials." 13372 (emphasis added). replied unless "casual item" performance understanding, argued needed, eventually find way supply answers everything manufactures." "[E]very section complete GAO." response, dispute characterization make impossible frequently vital 44 Hoffman, strong opponent times observed "GAO go [contractors] ask get want." snoop [a contractor's] [the services] cost[ make." 13375, Standing alone, weight,5 comments pro con midst free-wheeling proponent took Hoffman's Hardy's essential response require afford fears excessive groundless, inclination manpower supplier. 13376, 45 inclusion, At "pertinent." discussed "not be," agree to. Ibid.6 then defeat." point, remarked objection Ibid.7 46 throughout plausibly effected drastic reduction coverage continuously spoke mechanism combat federal procurement, vigorously successfully scope. acceptance been largely sop opponents. allay concerns let 13373 (Rep. Hoffman). gave used basis definitely bar procurement.8 47 Despite uphold wasted money entering Adopting so-called "Bristol test,"9 affirms 48 "manufacturing costs."10 Bristol test excludes: 49 "books, distribution above).11 50 describes inaccurately,12 being "direct costs" "allocated unallocated dichotomy. 51 adopted influenced form made. claims "defrayed overbroad; observes, 836, totally contracts.13 However, am convinced conclusion allowable test. 52 disclose GAO. "reflected responsible effort distinguish 'directly pertinent' clause."14 "only relation, charged."15 53 Although having, most, insubstantial relation apparent unexaminable relate charged, central importance industry, estimated "allocated" comprise nine cent products. "unallocated" costs—primarily advertising administrative taxes, profit—are larger economically significant.16 Yet, technique.17 54 correct case nature bear services purchased purchase. campaign promote project specifically develop products, pertinent."18 campaigns projects pertinence. advertisement other, these, questions If, proving 55 necessarily once establishes contractual circumscribed, protected, constitutional standards, Fourth Amendment requirement. 56 Where, wishes see declines accede voluntarily request, subpoena. subpoena, enforcement 54(c) (Supp. 1981).19 57 Once benefit jurisprudence bounds agency's entity's Essentially, assessing insisted reasonable. "when subpoenas subpoena sufficiently scope, relevant directive compliance unduly burdensome." City Seattle, 387 541, 544, 87 1737, 1739, 943 (1967). Morton Salt 338 632, 652-653, 70 357, 368, 94 401 (1950); Oklahoma Press Publishing Walling, 327 186, 208, 66 494, 505, 90 614 (1946); K. Administrative Law Treatise 4:15 (2d ed. 1978). flexible takes account enforced. supra, 545, S.Ct., 1740. present claimed expense disruption operations. claim entire team auditors remain site years.20 This, first-instance cause interference credible unreasonable burdensome way. 59 foregoing, remand cases instructions that: 1) contracts; 2) Merck. conforms proceed.21 BLACKMUN, STEVENS clauses law inserted authorize inserted. 2313(b); (permitting contracts). holds cost-based non-cost-based insofar permits 62 begins analysis focusing noting "words nod direction unaccountably estimation, fails closeness them. Instead, wanders off explore "aims provisions": intrusion, equipping fraud 833. "tension" "dual, aims," concludes "balance affairs." 834-835. reaches "appropriate history" costs," 839-840. 63 reflects goals, appears me "balancing" "accommodation" accomplished process, crafted narrow category records: partner. 64 asserts "are, 840 Records says, "completely 836 But, obviously difference "contracts" purchasing, "products" contracts.1 interpreting "presume care," Bureau Investigation Abramson, 2054, 2066, 376 (1982) (O'CONNOR, J., dissenting) (slip op. 3), pertinence "contract" "product" procured. fundamental canon "unless defined, interpreted taking ordinary, contemporary, common meaning." Perrin 444 37, 42, 311, 314, 199 ordinary meaning, legally enforceable bargain, formed mutual consent supported consideration. Restatement (Second) Contracts (1979); W. Jaeger, Williston (3d 1957). Particular agreement parties. Nothing suggests choice "contract."2 depended representations varied according (1951) (remarks Hardy).3 is, contract's negotiation, terms, performance. Apparently recognizing relationship "the product." "these Government." 840.4 affect seller's A all, meeting minds. Many factors party's willingness it, vast mentioned bargaining process play reached. An unarticulated motive assent bargain pertinent, less itself. 67 Pursuant promised pay promise Information requested, tied respect. irrelevant reached negotiations, terms same represented percent, ten hundred percent pay. seems inescapable consequently agreements Government.5 68 concerned paying too always negotiates future. Cost become simply wants concern time 69 hold makes negotiations contract" based. sold, well, dissent. furnish compensation performance, placing risk incurring unforeseen R. Nash Cibinic, Procurement 413 1977). Variations contain formula technique adjusting elements. 413-415 (discussing escalation clause, incentive redeterminable contract). employs procurement: advertised i.e., solicitation bids, negotiation. method situations procedure impractical unnecessary. 2304(a); 252(c). procuring discusses awards party offering advantageous 2313(b), applies provides: "Except subsection (c), chapter shall entitled, until expiration years final payment, contractor, subcontractors, subcontract." governed part: "All payment subcontractors engaged subcontracts." slight wording, civilian statutes. identical demands five companies. 1971, Sen. Gaylord Nelson suggested hearings drug invoke look" Hearings Competitive Problems Drug Industry Subcommittee Monopoly Senate Select Small Business, 92d Cong., 1st Sess., 8020 (1971). Following Nelson's staff urge (GAO) "without strings attached publicized firm." 144a; 142a-148a. Hearings, 2d 8537, 8581-8583 (1972). Finally June 1973, responded proposing two-phase economics voluntary participation companies cooperate first phase, contemplated gathering background 1974, second phase study, aimed developing "salient operational aspects industry." 141a. participating confidentiality supply. Initially confidential anonymous. 150a. Senators Kennedy staffs, reiterated subcommittee's objectives publication data. letters six participated Phase followed. Four remaining challenged request. 201 1981), pending, 81-2082, 81-2268; Laboratories Division Bristol-Myers 620 (CA2 1980) (per ), aff'd equally divided 451 400, 101 2037, 184 (1981); Abbott Laboratories, 597 672 (CA7 1979); 904 turns emphasize outset challenge impose, condition doing requirement Rather, bases dissent, BLACKMUN inexplicably wander purposes. Post, 860. observe infra, 834, tell exactly well-settled problem "we analyze policies scope." Rose Lundy, 509, 517, 1198, 1202, 379 chose. shown revealed justify modeled on, January First War Powers Act 1941. 12, 1951, Stat. 1257. That piece emergency crisis conditions created Korean War. severe wartime inflation, fixed-priced meet obligations. alleviate problem, President Truman renegotiate H.R.Rep. 3227, 81st 3-4 (1950). deter profiteering renegotiation 96 17123 Celler) ("The delve relieved overreaching done untoward."). initial amendments duration, shortly thereafter permanent version temporary learned negotiating modifications lacked Armed Services 1947 Property 1949. "In plug loophole," introduced Hardy). inspiration absence safeguards procures identified spending of" funds context transaction books," ensure "come deal." cited number "typical effective part." One example dealt detection inefficient market structure purchasing automotive parts dealer turn bought middleman, "profits handling assertion, abuse himself lot fraud." 13199. aware tension. compromise. adamantly breadth emerged accept. 13377 WHITE assumes, post, 9, compromise all. refers "largely opponents." record, tells voted weight majority. interprets "assurance procurement." Notwithstanding recognition amendment's adopts helpful determining 12. guise "interpretation" "construed" broadly indistinguishable bills expand rejected 1970's. note infra. approach bespeaks interpretation. Recognizing extreme encroachment permit, bring "balance" "reason" invoking courts' powers principles 857-858. Amendment, mean Military Appropriations 1970, Pub.L. 91-121, 408, 83 204, occasion deliberately kind conferring wary "fishing expedition," 25795 Ribicoff), single study." 25793 Proxmire). conclusive statutes, subsequent rebuffs expansion instructive reluctance broaden legislation. directed audit papers [or] S. 2049, 93d Sess. (1973) Another like 2049 never committee, undertake government, aggregating $1 million more. studies, "such maintained determines appropriate." (1974). 2268, 94th (1975). WHITE's deal own historic position, excepting litigation, expect consenting businesses approves. Hewlett-Packard, During desirability of, recommending action" Hewlett-Packard's refusal Relation Data Special Investigations House Services, 88th (1963). Robert Keller, Counsel GAO, testified concerning situation. "It relates [sic sufficient completeness detail prices." 10. Mr. Keller "how business." 23. 1965, records," Reports Audits Operations Operations, 89th (1965), again referred still pending courts, 45. 5. line-drawing practices chooses adopt. 856-857, 18. objection, accurate. matter, transactions, precluded falling extra identifying, purposes, thinks so, tie represents windfall, were, allocating Without effort, concerns. anomalous argue "limited" method. contrast, serves cost-based—as cost-plus contract—the complain intrusiveness claiming reimbursement justified transactions. supporting outweighs possesses 857. unworkable contractors. decide questions" pertinence, forced courts. Bright rules parties' expectations firmly preferable protracted suggestion engender. below, 81-2268, (1968) material, costs). little 9% sales Brief Petitioners 34. observe, suspect impropriety 41a-44a, 76a. believe 42a, fact, lowest anyone awarded. 26a, 42a. unclear. candidly doubts usefulness suggesting allocable time." 8578 dilemma prompted seek expanded Its appropriately forum. compilation obtainable accomplish. official explained: "[I]f specified attempt, report [for industry]." 154a-155a officials recognized restrictions necessitate changes prior rejects none theory emphatically below (CADC 81-2082; (1978); untenability advanced 428 1388 (SDNY 1977), aff'd, 1980), (1981), "obliged obtained review." F.Supp., 1389. Subcomm. Comm. (1963) GAO). 23a (affidavit Paul Dembling, addition, [t]he expenditure executive efficiently administered expended." 60. See, e.g., National Woodwork Manufacturers Ass'n NLRB, 386 612, 639-640, 1250, 1265, 357 (1967); Schwegmann Bros. Calvert Distillers Corp., 341 384, 394, 745, 750, 95 L.Ed. 1035 best [Rep. Hardy] think of. happened meeting, amendment. stronger mind, placate colleague, satisfied, "was him." stating, 8, "circumscribe[d] undertake," circumscription agreeable who, remarks sharp Immediately amended, 13378 following day, whatsoever. 13411. 1249 1981) (Mikva, part); 916 Comment, 92 Harvard L.Rev. 1148, 1157-1158 (1979) ("[t]he [in Lilly's insertion 'directly' sharply narrowed GAO"). 829-830. 830. held examinable "by means limit[ed]" 1391. concluding, 837-839, deference. 1390. 913; 1247 Reekie, Price Quality Competition Industry, J.Indus.Econ. 223, 235 Rucker, Public Policy Considerations Pricing Prescription Drugs Int'l Health 171, 173 percentage company went campaign, than, say, maintain control, recommendation. appear agreement, opinion. defines "costs 1597 (indirect "somewhat allocations"). agrees Government—such Government—should Potential confusion arises, read denying product-specific research. denies advertising, "except [to access]." Product-specific among access-permitted judgment, constitute adds uncertainty 840, arbitrarily refusing attribute emphasis "[b]right established," surprising precise My "objection" not, indicates, 16, ties practices. modification. rationale, result. "windfall" contractor-allocated sanctions. potential arises mainly speaks generally direct-indirect dichotomy, break down neatly along lines. event, fairly since 1980. 96-226 102(c), 312 (Apr. 3, (codified 54(c)). Prior 1980, sue opt latter, slower rights judicial Tr. Oral Arg. 29-30. Apparently, companies, LaRoche, (Hoffman), acceded According remained July 1975 1977 completing review, 1977, terminated participation. precedent accurate, disruption. explicitly discuss permissible enters reliance doubt, indirect. circumstances, "cost-based" records." 17. notes, formulas, trade secrets assistance evaluating success policies. available (1968), result today. refer whereby formulated," F.2d, 1016. invented "contract." citation declared: "[T]he 'contract,' broader embracing matter. described property concluded inappropriate adopt strained "contract," approves test" developed partly surrender Third Circuit, applied analysis. explains believes leads Representative examples useful. rate "as lump sum performing work past." pair fixed-price, charging [cost-plus] expenses third redetermination authorizing "an increase decrease payable progresses completed." examples, highly member When cost-based, tenuous. suppose costs; 842, taken relied factors, surveys set competitors. adding "circumscribe undertake." unnecessary place

Classification Label: 8