## Facts

- The Defense Contract Audit Agency (DCAA) was created to assist the Department of Defense in auditing and administering defense contracts and to provide accounting and financial advisory services.
- Under cost and cost-plus contracts, the government reimburses a contractor’s allowable direct and indirect costs, as determined under federal procurement cost principles.
- DCAA issued an administrative subpoena to Newport News Shipbuilding and Dry Dock Company (NNS), a major Navy contractor, seeking federal income tax returns, financial statements, and supporting schedules.
- The subpoena invoked DCAA’s statutory authority to access contractor records relating to negotiated defense contracts under 10 U.S.C. § 2313.
- NNS refused to comply, contending that § 2313 did not authorize compelled production of certain requested materials (including tax returns) and that the request was not sufficiently relevant and improperly intruded on confidential records.

## Issues

1. Whether DCAA’s subpoena authority under 10 U.S.C. § 2313 extends to a contractor’s federal income tax returns, financial statements, and related schedules sought for audits of cost-type defense contracts.
2. Whether the requested records were reasonably relevant to DCAA’s audit functions and therefore enforceable under standard administrative-subpoena principles.
3. Whether confidentiality concerns justified limiting or denying enforcement absent a showing of undue burden, indefiniteness, or improper purpose.

## Decision

- The Fourth Circuit reversed the district court’s order that had denied enforcement in substantial part and remanded.
- The court held the district court construed DCAA’s statutory subpoena power too narrowly and thereby unduly restricted DCAA’s access to contractor records.
- The court concluded the subpoenaed tax returns, financial statements, and supporting schedules fell within § 2313 and were reasonably relevant to determining and testing allowable costs under cost-type contracts.
- The court rejected confidentiality objections as a categorical bar, finding no showing that the subpoena was indefinite, unduly burdensome, or issued for an improper purpose.

## Legal Principles

- Statutory access-to-records provisions for negotiated defense contracts are construed to permit effective government audits aimed at verifying allowable costs and protecting public funds.
- An administrative subpoena is enforceable when: (1) the inquiry is within the agency’s authority; (2) the demand seeks information reasonably relevant to the inquiry; (3) the request is sufficiently definite; and (4) compliance is not unduly burdensome and the subpoena is not issued for an improper purpose.
- “Reasonable relevance” in administrative subpoena enforcement is broad; financial statements and tax returns may be relevant tools for verifying cost data, allocations, and indirect cost structures under cost-type contracts.
- Contractor confidentiality concerns may be considered in assessing burden or abuse but do not, without more, negate otherwise lawful audit access authorized by Congress.

## Conclusion

The Fourth Circuit required enforcement of DCAA’s subpoena for a defense contractor’s tax returns and financial records, holding that § 2313 authorizes broad access to reasonably relevant documents necessary to audit and validate costs under cost-type negotiated defense contracts.


United States v. Newport News Shipbuilding & Dry Dock Co., 862 F.2d 464 (4th Cir. 1988)