Bowsher v. Merck & Co., Inc., 460 U.S. 824 (1983)

Bowsher v. Merck & Co., Inc.

No. 81-1273

Argued December 1, 1982
Decided April 19, 1983 *
460 U.S. 824

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

Syllabus

Merck & Co. entered into three fixed-price negotiated contracts with the Defense Supply Agency and one such contract with the Veterans’ Administration for the sale of pharmaceutical products to those agencies. The prices were based on Merck’s catalog prices. As required by statute, each contract contained a standard access-to-records clause granting the Comptroller General the right to examine any "directly pertinent" records involving transactions related to the contract. Relying on these clauses, the Comptroller General, for the stated purpose of reviewing the reasonableness of the contract prices, demanded of Merck access to cost records pertinent to the contracts, including records of costs of direct materials, labor, and overhead, and support for the prices charged. Merck refused to comply with the demand, and brought an action in Federal District Court seeking a declaratory judgment that the Comptroller General’s demand exceeded his statutory authority. The District Court granted partial summary judgment for each party, permitting access to records of direct costs, including manufacturing and delivery costs, but barring access to records of indirect costs, including research and development, marketing and promotion, distribution, and administration costs, except to the extent that these costs were included in the direct costs. The Court of Appeals affirmed.

Held: The Comptroller General may inspect Merck’s records of direct costs, but not records of indirect costs. Pp. 830-844.

(a) It is plain from the face of the statutes in question that the words "directly pertinent" are words of limitation designed to restrict the class of records to which access is permitted by requiring some close connection between the type of record sought and the particular contract. The legislative history underscores what the language reflects: Congress’ intention to limit to some degree the Comptroller General’s access power. The legislative history also reveals that Congress sought, in granting this access authority, to equip the General Accounting Office (GAO), which the Comptroller General heads, with a tool to detect fraud, waste, inefficiency, and extravagance in Government contracting. Given these dual, conflicting congressional aims, in construing the statute, the public interest served by GAO investigations must be balanced against the private interest in freedom from officious governmental intermeddling in the contractor’s private business affairs. Pp. 830-835.

(b) To define as "directly pertinent" the records of any costs defrayed from commingled revenues that include Government payments under the contract would completely eviscerate the congressional goal of protecting the privacy of the contractor’s business records by permitting far-ranging governmental scrutiny of records of nongovernmental transactions completely unrelated to either the contract or the product procured under the contract. P. 836.

(c) There is no merit to the Government’s argument that the GAO has had a consistent and longstanding interpretation of its authority under the access-to-records statutes that supports the view that indirect cost records are subject to examination under the contracts in question. Pp. 837-839.

(d) Here, the appropriate balance of public and private interests weighs in favor of access to Merck’s direct cost records, but against access to its indirect costs records. Because direct costs have a direct influence on the price charged the Government, the GAO needs to examine records of these costs to determine whether the contractor is making an excessively high profit or the Government is getting a "fair deal" under the contract. On the other hand, even though indirect costs may influence the setting of a catalog price, nevertheless, the degree of intrusion into the contractor’s private business affairs is far greater, particularly where fixed-price contracts are involved. Pp. 839-843.

(e) The fact that the records here were sought for the purpose of either conducting an economic study of the pharmaceutical industry or securing information desired by individual Members of Congress did not vitiate the GAO’s authority under the statutes to examine directly pertinent records under the contracts in order to determine the reasonableness of the contract prices and to detect inefficiency and wastefulness. Pp. 843-844.

214 U.S.App.D.C. 418, 665 F.2d 1236, affirmed.

O’CONNOR, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, POWELL, and REHNQUIST, JJ., joined, and in Part V of which WHITE and MARSHALL, JJ., joined. WHITE, J., filed an opinion concurring in part and dissenting in part, in which MARSHALL, J., joined, post, p. 845. BLACKMUN, J., filed an opinion concurring in part and dissenting in part, in which STEVENS, J., joined,post, p. 860.