REQUEST FOR OVERRUN OF (Sanitized)FROM FISCAL YEAR-1965 FUNDS FOR CONTRACT NO.(Sanitized)

• Document Type: CREST
• Collection: NGA Records (Formerly NIMA)
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78B04770A000600030005-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 28, 2016
• Document Release Date: September 26, 2005
• Sequence Number: 5
• Publication Date: January 1, 1967
• Content Type: MFR

SECRET,
Approved F6r+Release 2005/11/21: CIA-RDP78BO4799A000600030005-9
ATTACHMENT TO
NPIC TDS D-831-67
25X1
25X1
25X1
25X1
25X1
25X1
MEMORANDUM FOR THE RECORD
SUBJECT: Request for Overrun of II from Fiscal Year-1 6 Funds for
Contract No.L
25X1
1. Historical Background
The subject contract for the development of a Modulated Light Roll
Film Viewer was let as a result of a concept originated late in 1963 by
a former member of the Technical Development Staff, 2 5X1
I iconcept was based on an existing piece of equipment, the
Automatic Dodging Printer, which was introduced to the aerial
photo-mapping community in 1956 and which subsequently has been utilized
extensively in duplicating aerial reconnaissance. The sr 25X1
automatically dodges the duplicate process
in such a fashion that it compensatesl for during
generralthe ly undesirablen photographic
effects produced by intense reflections from water areas, sand, clouds, snow,
fields, etc., as well as poorly illuminated areas resulting from cloud shad-
ows and fall-off in camera lens performance. In spite of widely-held opinions
that contact printers having automatic dodging provide duplicates having
significantly improved image perceptibility in areas where these undesirable
effects are present, NPIC was forced to cease routine utilization of this
equipment because it was found to have inferior resolution to the high per- 25X1
formance i (printers made by Company. However, the
printers have no automatic dodging capability.
might also be applied to film viewers in the illumination source modulated- 25X1
light) and that since the duplicates thus viewed would have been reproduced
on the high performance~~ printers no reduction in resolution would
result. In such an appln'the utilization of the automatic dodging
principle would be at the discretion of the P.I. who might turn it off or
on at will. Thus, the P.I. would only use the automatic dodging on the type
of imagery which might be improved by such an effect and at his own discretion.
--r- 11-- -------U" W.Lull c,peraziona.i groups throughout the building
and with other members of the Technical Development Staff. There were
divided opinions as to its potential utility, but all the individuals who
were familiar with electronic technology agreed that implementation of the
concept appeared to be within the state-of-the-art.
Upon obtaining approval from appropriate authorities within the build-
ing, including the Technical Development Board, feasibility studies were
simultaneously contracted with three different organizations, namely
25X1
LmU?60F~ ~ i p a1tloma, e
n,;radip; and
Declassification Rev ewpp bylease 2005/11/21 :CIA-RDP78B04770A0006000300 rP;~;rrc2;rr~~
 0. I
Approved FavoRelease 2005/11/21: CIA-RDP78B04 A000600030005-9
SUBJECT: Request for Overrun of from Fiscal Year-1965 Funds
for Contract No.
Corporation. Each of these organizations was known to have competence in
the field of electronic cathode ray tube applications and a reasonable
acquaintance with reconnaissance exploitation processes. These studies
were completed in the Spring of 1965. All of them included demonstration
of operational breadboards. The =study indicated a capability to reach
the most significant objectives of the development which had to be compro-
mised by technical limitations in the systems proposed by the other contrac-
tors. Extensive discussions with RCA technical representatives followed.
Toward the end of Fiscal Year 65 a satisfactory technical and cost
proposal relationship was reached with = and a contract was let for the
development of two prototype Modulated Light Film Viewers. The contract
was a CPFF type for a cost of a total of
The contract was let on 30 June 1965 and the period of performance .
extended until 22 December 1965. Although it is unconventional and generally
unwise to order two prototypes to be simultaneously developed, both PAG and
IAS indicated the requirement for such a device in their operational spaces,
and the feasibility studies had indicated that a practical. implementation
was within the state-of-the-art. In addition, the cost for the production
of two items was relatively modest and appeared to be consistent with the
technological effort anticipated by the 0 engineers. Therefore, TDS and
TDB agreed to the simultaneous development of two identical prototypes.
25X1
25X1
25X1
25X1
25X1
At this point, resigned from the Technical Development Staff,
and assumed responsibility for continuing this development. Shortly
after this, responsibilities as Deputy Chief of the Development
Branch precluded his adequate time commitment to this project, and it was
reassigned to der the supervision of This reassign- 25X1
ment of monitors was necessary in order to respond to managerial needs
within the Development Branch; however, it also confused and degraded the
management of this contract.
At the same time we were making these changes in the monitorship, we
were attempting to remain thoroughly coordinated with PAG and IAS in the
accomplishment of this development. In this process the monitor
took PAG and IAS representatives to the contractor's facility to comment on
the physical design of the Modulated Light Film Viewers. The contractor
took opportunity from the remarks made by these representatives to signifi-
cantly alter his design approach without permission from the Contracting
Officer or the technical monitor.
As a result of these changes, 0 sent us a letter on l4+ October 1965
in accordance with the "Limitation of Cost" clause of the contract, which
requested additional funds to accommodate Changes in Scope indicated by the
Approved For Release 2005/11/21: CIA-RDP78B04770A000600030005-9
25X1
25X1
 Approved W Release 2005/11/21: CIA-RDP78B0'~0A000600030005-9
SUBJECT: Request for Overrun of 0 from Fiscal Year-1965 Funds
for Contract No.
remarks of the PAG and IAS representatives amounting to a cost of
including the fee and an anticipated overrun of the contract which would
totally consume the existing funding level by 12 November 1965, more than a
month before the end of the period of performance. In the face of criticism
by the Contracting Officer and other Government representatives for the pre-
sumptuous assumption of these changes in requirement, admitted to an
error in judgment, and a negotiated settlement was made with them with the
following provisions:
(1)
0
of the overrun costs;
25X1 ';
25X1`
25X1
(2) The Government would assume of the overrun cost and 25X1
in costs associated with a change in scope which also carried an increase in
fee of thus changing the contract cost to Il and the fee to II 25X1'
a.total of
(3) The predelivery inspection of prototype No. 1 would be delayed
from 17 December 1965 until 6 January 1966, and prototype No. 2 would be
ready for inspection approximately 1 month later, on or about 6 February
1966.
2. Predelivery Inspection Meeting at" on 6 January 1966.
This meeting was held for the express purpose of obtaining a predelivery
inspection and approval from government representatives of the prototype
No. 1 Modulated Light Film Viewer. NPIC technical monitors had been assured
that the equipment was ready for such inspection. Because there had been
some misunderstandings in previous contractual relationships regarding this
development, which were placing inordinate responsibility oni the
assigned technical monitor, Messrs. I Iaccom-
panied him on this inspection trip. The trip was totally concerned with
the technical performance of the Prototype No. 1 and since discussion of the
administrative aspects of the contract were not anticipated, the Contracting
Officer did not accompany us on this visit. The roceedings of this meeting
are fairly well recorded in minutes prepared by ro and notes taken by the
Government representatives. These records confirm the fact that the equip-
ment was far from ready for predelivery inspection. None of the main features
of the equipment performed in a fashion approximating the Government stated
objectives or the performance specifications proposed by The Government
representatives criticized = thoroughly for their poor performance showing
and their administrative indiscretion for inviting a predelivery inspection
under such circumstances. At the same time =representatives were cautioned
not to commit additional Government funds in the process of correcting these
performance deficiencies without prior approval of the Contracting Officer.
Approved For Release 2005/11/21: CIA-RDP78B04770A000600030005-9
25X1
25X1
25X1
25X1
25X1
25X1
 Approved Fvr~Release 2005/11 RDP78B04MA000600030005-9
SUBJECT: Request for Overrun of II from Fiscal Year-1965 Funds 25X1
3. Meeting at F---Jon'8 February 1966 Regarding the Progress on the
Image Perceptibility Program.
25X1
25X1
This meeting was attended by
from NPIC for the purpose of reviewing and evaluating progress on various 25X1
tasks under another major contractual effort with them concerned with the
development and evaluation of techniques for Improving Image Perceptibility.
There was no intention or plan for discussing the Modulated Light Film Viewer
development contract. However, after the discussion of the tasks under the
Image Perceptibility contract had been completed, =representatives requested 25X1
opportunity to discuss the Modulated Light Film Viewer also.
At this time they announced to us that the Modulated Light Film Viewer
development project was in an overrun status and that the completion of the
contract would cost an estimated fee, totaling
approximately II which would amount to an overrun of 0 The
Government representatives expressed justifiable alarm at this announcement
and advised =that as Technical Monitors they had no authority to confirm
or deny the acceptability of these costs, and further advised them to imme-
diately contact the Contracting Officer in this regard. further advised
the Government representatives that all but of these addi-
tional costs had already been expended by 1 February 1966.
The minutes of this meeting prepared by which later were cited.in
their defense, incorrectly generalizes the Government representative's (Mr.
instruction to them regarding their overrun status as follows:
"He advised = to continue on its present work schedule but not to make any
new commitments until direction was received from the customer."
recollection of his statements at that time is better represented by the
previous description, which appears above.
4. NPIC/TDS Reaction tothe F70verrun Announcement of 8 February 1966.
The news of the " overrun status on the Modulated Light Film Viewer
contract was brought back to
(the Contracting Officer) on the following day. Immediate steps
were taken. in an attempt to determine the most beneficial position for the
Government to take in this case. It was necessary to determine the difference
in the cost of terminating the contract immediately and continuing it to its
logical conclusion. This decision was complicated by the fact that TDS
technical personnel were divided in their opinions concerning the feasibility
of this development, and =had shown poor performance to date and poor faith
by virtue of their late announcement of this extensive overrun. Consequently,
it would be difficult to believe that they could attain the required perform-
ance within their new cost projections.
- -
a-
Approved For Release 2005/11/21: CIA-RDP78B04770A000600030005-9
25X1
25X1
25X1
25X1
25X1
25X1
25X1
 SLUKL I ,
Approved Fat Release 2005/11/21: CIA-RDP78B0 0A000600030005-9
SUBJECT: Request for Overrun of from Fiscal Year-1965 Funds
for Contract No.
sought without success to determine from the OL/PD
representatives if we could hold the contractor to the then present contract
price of if we accepted the equipment in its present state.
the senior scientists of the TDS Exploratory
Development Lab, had both become skeptical of the likelihood of significant
benefit from this development. I remained convinced that the con-
cept was based on well established principles which had been widely accepted
as improvements in the display of aerial photography. He recommended that
new specifications be drawn up on the basis of the recent experience with
= which would tie down the critical performance parameters once and for
all and that =be invited to propose the completion of the development of
the Modulated Light Film Viewers against these more rigidly defined specifi-
cations on a Fixed Price basis.
5. Meeting of 23 February 1966 at NPIC to Receive and Evaluate a
New Cost Proposal from
25X1
25X1
This meeting was prior to the formulation and presentation of new speci-
fication requirements byl It was attended byl 25X1
(the Contracting Officer), and several
representatives from There was extensive discussion of the technical
and administrative problems associated with this development contract. I 25X1
representatives gave the following report concerning the cost status and.
cost to complete.
The cost at 20 February 1966 had risen to 0 including the
I had agreed to absorb resulting in a net cost to the Government of
plus approximately fee--a total of
They estimated an additional would be required to complete the
task, which would have made the final total price II including the
fee.
level of commitment to these costs and to the associated per-
formance guarantees for the equipment were entirely unsatisfactory to the
Government. Consequently, they were instructed to go back and prepare a
more specific proposal in terms of both cost and performance guarantees.
6. F_ ILetter of 1 March 1966.
On 1 March 1966 submitted a new performance proposal which it was
willing to guarantee or a ceiling price of including fee. All
this was over and above the they ha agree o absorb previously.
(At the same time they informed the Contracting Officer that all work and
charges against this contract had ceased as of 1 March 1966.) However, no
Approved For Release 2005/11/21: CIA-RDP78B04770A000600030005-9
25X1
25X1
25X1
25X1
25X1
 )LVRR . Uj
Approved Fe.' Release 2005/11/21: CIA-RDP78B04 0A000600030005-9
SUBJECT: Request for Overrun of from Fiscal Year-1965 Funds 25X1 for Contract No. 25X1
member of the Technical Development Staff believed that the performance com-
mitments in this proposal were reassuring enough to justify the level of
additional funding 0 was requesting in spite of the fact it was a ceiling
price. Shortly thereafter, =requested government technical representatives
to visit their'facility on the 7th of March to view improvements in the equip-
ment performance. made this visit, and although
there was visible improvement in the primary Light Modulating System, it was
still not adequate for a meaningful evaluation of this technique and it was
significantly short of the performance specifications.
7. Meeting at NPIC with- Representatives on 16 March 1966 to Define the
Performance Commitmen s hat Would be Necessary on Part Before
NPIC Could Consider Acceptance of the Overrun Request.
prepared a detailed critique of the previous performance
commitments submitted by lland indicated to the 0 representatives how
these commitments must be more precisely defined before the government would
be willing to consider the risk of additional funds on this development con-
tract. In addition to several 0 representatives,
were present at this meeting in which there was extensive
technical discussion of the equipment performance problems. The =repre-
sentatives accepted our. instructions and criticisms and indicated they would.
take them back to their office, evaluate them in depth, and advise us of
their response within the next few days.
8. II Letter of 22 March 1966.
This letter reiterated the proposal of 1 March 1966 to complete the
tables in accordance with the 3rd paragraph of that letter for the ceiling
price of also indicated that they were not interested in
submitting a more detailed proposal in accordance with our request for addi-
tional performance specifications on 16 March 1966. Q further indicated
that if we did not accept their new proposal they would deliver the equip-.
ment as is for the costs incurred to date which were approximately
They requested an answer no later than.28 March 1966. On this same date,
22 March 1966, TDS prepared a memorandum for the Chief, Procurement Division,
Office of Logistics, in which we informed him of the ultimatum requiring
a choice between accepting the equipment "as is" for or "completed"
for Q We also asked OL/PD for their advice concerning the possibility
of holding the contractor to the existing contract price'of if we
accepted the equipment "as is".
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
9. Procurement Division, Office of Logistics' Letter to F_ lof 25 March 1966. 25X1
By this letter the Procurement Division indicated to =that we would
accept the equipment in its present state of completion at the present maximum
25X1
Approved For Release 2005/11/21: CIA'=RDP78B04770A000600030005-9
 Approved FawRelease 2005/11/21: CIA-RDP78B047VdA000600030005-9
SUBJECT: Request for Overrun of F _____(from. Fiscal Year-1965 Funds
for Contract No.
25X1
25X1
amount stated in the contract of I had concurred 25X1
with this action on the basis of assurances from that the con- 25X1
tractor had virtually no recourse for claiming additional funds on this task
corder.
10. Letter of 19 April 1966 to the Contracting Officer.
With this letter "reviewed the course of the contract to date and
rejected the offer tendered by the Procurement Division on 25 March 1966.
In turn they requested that a contract modification be issued bringing the
contract cost up to plus the fee of making a total contract 25X1
value ofa deliver the equipment "as is .
11. Procurement Division, Office of Logistics' Letter to l1 of 22 July 1966. 25X1
After considerable discussion between Procurement Division and TDS
representatives, the Procurement Division established their position for
refusing to recognize the additional cost claimed by =and advised them of 25X1
this position with this letter. The Government's position was based on the
"Limitation of Cost" clause in the contract and the fact that =had pre- 25X1
viously indicated their awareness of the procedures stated therein by their
advanced notification of anticipated overruns in October 1965.
12. ~etter to Contracting Officer on 21 December 1966.
In accordance with rather typical processes related to contractual
procedures, no correspondence took place in regard to this contract until
this letter (5 months later) in which =reiterated their position in
defense of claiming all costs to date and requested a meeting with govern-
ment representatives "to amicably resolve the problems which have arisen."
13. Meeting at PD/OL on 23 January 1967.
At this point, Messrs, were invited to visit
the Chief, Procurement Division to discuss s latest = letter (21 Dec 66).
At this meeting, we were advised that he had not been familiar
previously with II claim that they had been instructed by to
continue with their present work schedule as planned but not to make any new
commitments until direction was received from the government. We were told
that this commitment on part as he understood it compromised
the Government's position and that consequently the Procurement Division
recommended that we negotiate with = for an equitable settlement. Mr.
held firm and indicated that he would like to maintain the'
original position of holding the contractor to the contract price until he
was satisfied that we must yield on this point in the negotiation process.
25X1
25X1
25X1
25X1
25X1
25X1
SECRRET,
3
Approved For Release 2005/11/21: CIA-RDP78BO477OA000600030005-9
 LUfU f
Approved F elease 2005/11/21: CIA-RDP78BO4 A000600030005-9
SUBJECT: Request for Overrun of from Fiscal
for Contract No.
11i. Meeting with F___1at Procurement Division on 24 January 1967.
This meeting was held in respone to the request tendered by on
21 December 1966 for the purpose of coming to an "amicable" resolution of
the problems associated with this contract. The first two hours of the meet-
ing consisted of an extensive criticism of the government monitors and
administrative procedures presented by The Procurement
Division representative, then attempted to explore the
possibility that =was open to negotiation on the subject. = indicated
they would only consider full reimbursement of the costs which had previously
been claimed and that if we were not willing to honor these, they were obliged
to take this case to the Board of Contract Appeals. At this time they held
that the I Idid not include the had previously agreed
to absorb. With this pronouncement, the meeting was dismissed.
25X1
25X1
25X1
25X1
25X1
25X1
15. Government Legal Preparations.
First, the Procurement Division got in touch with the. Board of Contract
Appeals and asked for counsel regarding this case. F_ I 25X1
a lawyer on the Appeals Board was assigned. He obtained the contract files
from the Procurement Division and interviewed
I I regarding the his. 25X1
tory of the case. Subsequently, on 3 March l9 b7 he delivered a Memorandum
of Opinion to the Procurement Division. We were advised by that 25X1
his analysis of this opinion led him to believe that the Government had about
a 30/70 position in this case. He explained that this meant if the case
went before the Board of Contract Appeals he felt that the contractor would
be awarded about 70% of his overrun claims, which at that time were for a
total contract value of an increase of Il over the existing 25X1 contract price. 70% of this overrun would amount to an award of approxi-
mately contract
to the contractor. On this basis I Irequested our 25X1
concurrence to reopen negotiations with complied. 25X1 16. Receipt of Equipment on 9 March 1967.
The equipment was delivered "in its present condition" to NPIC on or
about 9 March 1967. The first prototype model was in essentially the same
condition it was when it had last been viewed in February 1966 with the
typical depreciation that occurs under storage conditions. The overall
physical condition of the equipment could be rated as fair. Several minor
features, such as the removable plastic diffuser and rubber snubbers on
the microswitches were in poor condition. The only noticeable positive
change in the equipment was the fact that the microscope feedback system . i
had been installed and appeared to be operational. The quality of operation
is as yet undefined. Performance of the equipment in the direct viewing
mode appeared to be equivalent to that demonstrated by II in February 1966. 25X1:
Approved For Release 2005/11/21: CIA-RDP78BO477OA000600030005-9
 Approved FUVRelease 2005/11/21: CIA-RDP78B00916A000600030005-9
SUBJECT: Request for Overrun of from Fiscal Year-1965 Funds
for Contract No.
Prototype No. II was delivered in good condition but essentially incomplete
in that the main cathode ray tube had not yet been installed. Delivery of
the equipment satisfied the "as-is" conditions of the agreement. The equip-
ment is currently undergoing test and evaluation by the Equipment Performance
Staff.
17. Meeting at I lof 11 April 1967.
This meeting was arranged by I of OL/PD to reopen negotiations
regarding the cost settlement of this contract. Several representatives
were in attendance. and two contract
auditors represented the Government. In their review of contract costs,
the Government auditors determined that had actually been expended
on the contract. In the meeting we determined that this figure in fact in-
cluded the had agreed to absorb, which left a balance of
When the agreed upon minimum fee of was added to this the
25X1
25X1
25X1
25X1
,,25X1
25X1
25X1
25X1
total contract price came to which amounted to an overrun of I
By using additional information uncovered by the auditors, was 25X1
able to call into question about more of the cost claim on e basis
of unauthorized overtime charges and some costs that were incurred after the
contractor had announced termination of charges (as of 1 March 1966) to the
contract. However, Q felt that their claim for most of these costs would
hold up in court. Although the I price was considerably below the'
had claimed, the Government representatives could not in good
conscience accept this as an equitable settlement, in light of the fact
that = had incurred practically all of these overrun costs before they for-
mally announced to the Government that they ex ted to be reimbursed for
them, together bore in on the
point that 9
had to accept a significant portion of the responsibility for
the situation that had occurred. Although the government representatives
were all well aware of the Appeals Board counsel's analysis of the extent
of the Government's complicity, they continued to imply to 0 that the 25X1
Government was not willing to defray all these costs and would be willing
to go to the Board of Contract Appeals to prevent their payment. At an
appropriate time the 0 representatives were asked to reconsider their
position. After they had done so began to review the bidding on 25X1
the blackboard, considering the data and facts as he saw them. Finally,
after being pressured by the government representatives to cut through the
minutiae he offered to settle for above the existing contract 25X1 price. This would bring the new proposed contract price to a total of
including the fee of
The Government representatives asked to discuss this offer alone.
In this session indicated that he believed this settlement was
Approved For Release 2005/11/21: CIA-RDP78BO477OA000600030005-9
 Approved Fw Release 2005/11/21 : CIA-RDP78B0 0A000600030005-9
SUBJECT: Request for Overrun of 0 from Fiscal Year-1965 Funds
for Contract No.
25X1
25X1
considerably more favorable to the Government than would be obtained if we
went to the Board of Contract Appeals. In light of all the factors in the
case, had reached this same conclusion and
concurred on this point. It was unanimously agreed that we would recommend
-acceptance of the =offer. This would represent a negotiation of the
overrun downward by signed informal 25X1
statements which confirmed the specific settlement reached by the two parties.
18. Continuing Corrective Action;.
Steps have been taken to obviate a recurrence of this type of contract
management error insofar as it is controllable by the Technical Development
Staff. Some of the major steps are as follows:
(a) Procedures have been set up for more wide dissemination and feed-
back of technical and legal opinions regarding development concepts within
the Technical Development Staff so that the status of these opinions and the
basis for them are known at all times by appropriate authorities, including
the Assistant for Technical Development, his staff chiefs, the branch chiefs,
the technical monitors, and the project team members.
(b) Development Staff personnel have been instructed to make more com-
plete written records of all significant information referring to a contract
for which they have responsibility. Such significant information is referred
to the Staff Chief for sign-off and possible recommended action. In the
case that it may imply changes in cost, this information is immediately
forwarded in writing to the Assistant for Technical Development and the
Contracting Officer. Copies are filed in the contract folder.
(c) Development Staff personnel have been further cautioned to make
absolutely no commitments of any kind which the contractor may interpret
as a basis for increasing the scope or cost of the contract. They have also
been told to warn their respective contractors that unanticipated overrun
costs will not be honored. They have been advised of appropriate procedures
for anticipating necessary cost overruns or changes in scope including obtain-
ing prior approval from the Assistant for Technical Development, other
appropriate approval authorities, and the Contracting Officer before their
introduction into the contract.
(d) The Technical Development Staff has devised written "boiler-plate"
specifications for the contractor to use in reporting costs on a monthly
basis, which are now included as a part of the contract. No other form of
cost reporting will be accepted. This cost reporting form is designed to pro-
tect the Government from techniques contractors have used in the past to
hide costs until they are ready to report them at their on convenience.
3-
Approved For Release 2005/11/21: CIA-RDP78B04770A000600030005-9
 CGR
Approved F' Release 2005/11/21: CIA-RDP78B04 A000600030005-9
SUBJECT: Request for Overrun of 0 from Fiscal Year-1965 Funds
for Contract No.1
25X1
25X1
(e) The Contract Board of Appeals is in the process of beefing-up the
"Limitation of Cost" clause in the standard Government contract "boiler plate."
This is in the response to the fact that many Government claims based on the
assumed protection of this clause have not held up in court. However, it
may be several years before this is approved for inclusion in the standard
contract forms.
Deputy Chief, Development Staff, TDS
Approved For Release 2005/11/21: CIA-RDP78BO477OA000600030005-9
25X1