B-35488, OCT 30, 1944

B-35488, OCT 30, 1944

PRECIS-UNAVAILABLE

THE HONORABLE, THE SECRETARY OF THE NAVY:

I HAVE YOUR LETTER OF OCTOBER 16, 1944, WHEREIN YOU STATED THAT WHILE, IN THE MAJORITY OF INSTANCES, IT HAS BEEN THE POLICY OF YOU DEPARTMENT TO DISALLOW CHARITABLE CONTRIBUTIONS CLAIMED AS ALLOWABLE COSTS UNDER COST- PLUS-A-FIXED-FEE CONTRACTS, THE CRITERIA HERETOFORE APPLIED IN SUCH CASES HAVE NOT BEEN AS RESTRICTIVE AS THOSE SET FORTH IN MY DECISION OF AUGUST 15, 1944, TO THE SECRETARY OF WAR, AND THAT, CONSEQUENTLY, REVISED EXPENSE RULING B-11, HAS BEEN PREPARED FOR ISSUANCE TO ALL NAVY COST INSPECTORS.

THE SAID REVISED EXPENSE RULING, AN ADVANCE COPY OF WHICH WAS FORWARDED WITH YOUR LETTER, IS AS FOLLOWS:

"CONTRIBUTIONS TO CHARITABLE ORGANIZATIONS

"A. TO BE ALLOWABLE AS AN ELEMENT OF COST OF NAVY CONTRACTS, CONTRIBUTIONS TO LOCAL CHARITABLE OR COMMUNITY AND SIMILAR ORGANIZATIONS MUST BE REASONABLE IN AMOUNT, ORDINARY AND NECESSARY BUSINESS EXPENSES, AND INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACTS.

"B. THE REVIEW OF CONTRIBUTIONS TO DETERMINE THAT THEY MEET THESE REQUIREMENTS WILL NECESSITATE CAREFUL CONSIDERATION OF THE NATURE AND EXTENT OF THE SERVICES RENDERED OR MADE AVAILABLE BY THE ORGANIZATION TO THE CONTRACTOR OR THE EMPLOYEES ENGAGED UPON THE CONTRACT WORK.

"C. THE SERVICES TO BE DERIVED BY REASON OF THE CONTRIBUTION MUST (TO BE ALLOWABLE) BE IN ADDITION TO THOSE WHICH THE CONTRACTOR OR ITS EMPLOYEES WOULD RECEIVE EVEN IF NO CONTRIBUTION WAS MADE BY THE CONTRACTOR. CONTRIBUTION TO A LOCAL HOSPITAL UNDER AN ARRANGEMENT WHEREBY THE HOSPITAL WILL PROVIDE MEDICAL ATTENTION TO EMPLOYEES INJURED IN THE PERFORMANCE OF THE CONTRACT WORK WOULD, IF REASONABLE IN AMOUNT IN RELATION TO THE SERVICES EXPECTED TO BE RENDERED, BE AN EXAMPLE OF AN ALLOWABLE CONTRIBUTION.

"D. VOLUNTARY PAYMENTS FOR WHICH NO SERVICES, INCIDENT TO OR NECESSARY FOR THE PERFORMANCE OF THE CONTRACTS WERE RECEIVED WOULD NOT BE REIMBURSABLE. DONATIONS FOR FOREIGN RELIEF, COMMUNITY FUNDS, NAVY RELIEF FUND, THE AMERICAN RED CROSS AND THE USO ARE EXAMPLES OF CONTRIBUTIONS WHICH SHOULD ORDINARILY BE CONSIDERED AS NOT ALLOWABLE.

"E. THE ABOVE RULING WILL BE EFFECTIVE IN RESPECT OF ALL CONTRIBUTIONS FOR WHICH THE CONTRACTOR MAKES PAYMENT ON AN AFTER 1 OCTOBER 1944."

AS WAS POINTED OUT IN THE DECISION OF AUGUST 15, 1944, THE QUESTION OF WHETHER A PARTICULAR TYPE OR KIND OF EXPENSE MAY BE REIMBURSED BY THE GOVERNMENT UNDER A COST-PLUS-A-FIXED-FEE CONTRACT DEPENDS PRIMARILY UPON THE TERMS OF THE CONTRACT ITSELF. MOREOVER, THERE CAN EXIST LITTLE, IF ANY, DOUBT THAT CHARITABLE CONTRIBUTIONS GENERALLY ARE TO BE REGARDED AS OVERHEAD EXPENSES OR AT LEAST AS IN THE NATURE OF OVERHEAD EXPENSES. SEEMS EVIDENT, THEREFORE, THAT IN THOSE CASES WHERE THE PARTICULAR CONTRACT INVOLVED CONTAINS NO PROVISION FOR REIMBURSEMENT OF CHARITABLE CONTRIBUTIONS BUT DOES PROVIDE, EITHER EXPRESSLY OR BY NECESSARY IMPLICATION, THAT PAYMENT OF THE FIXED FEE STIPULATED THEREIN SHALL INCLUDE COMPLETE COMPENSATION FOR OVERHEAD AND PROFIT, REIMBURSEMENT OF NO PART OF THE CONTRACTOR'S CHARITABLE CONTRIBUTIONS WOULD BE AUTHORIZED UNDER THE CONTRACT EVEN THOUGH THEY SHOULD BE FOUND TO MEET THE REQUIREMENTS CONTEMPLATED BY THE ABOVE-QUOTED RULING.

IN ADDITION TO THE FOREGOING IT MAY BE STATED THAT THERE IS PERCEIVED NO LEGAL BASIS FOR APPLYING THE PRINCIPLES OF THE RULING TO ONLY THOSE PAYMENTS MADE ON OR AFTER OCTOBER 1, 1944. THE VERY FACT THAT THE TERMS OF THE APPLICABLE CONTRACT ARE CONTROLLING IN DETERMINING WHETHER, AND TO WHAT EXTENT, A CONTRACTOR'S CHARITABLE CONTRIBUTIONS ARE PROPER FOR REIMBURSEMENT BY THE GOVERNMENT WOULD SEEM TO RENDER IMMATERIAL THE QUESTION AS TO WHEN THE CONTRIBUTIONS ACTUALLY WERE MADE.

WITH THE EXCEPTIONS ABOVE INDICATED, THE PROPOSED RULING APPEARS ADEQUATE TO ACCOMPLISH THE PURPOSE FOR WHICH IT IS INTENDED AND I HAVE NO FURTHER COMMENTS TO OFFER RELATIVE THERETO AT THIS TIME.