A-62602, MAY 5, 1936, 15 COMP. GEN. 958

A-62602, MAY 5, 1936, 15 COMP. GEN. 958

TAXES - SOCIAL SECURITY AND DISTRICT OF COLUMBIA UNEMPLOYMENT COMPENSATION ACTS - OBLIGATION OF CONTRACTOR TAXES IMPOSED AGAINST A GOVERNMENT CONTRACTOR PURSUANT TO THE SOCIAL SECURITY ACT AND THE DISTRICT OF COLUMBIA UNEMPLOYMENT COMPENSATION ACT ARE REGARDED AS INCLUDED WITH OTHER EXPENSES DESIGNATED AS OVERHEAD TO BE ABSORBED BY THE CONTRACTOR IN THE GENERAL OVERHEAD OF ITS BUSINESS, AND IN THE ABSENCE OF A CONTRACT PROVISION FOR PAYMENT BY THE GOVERNMENT OF ANY AMOUNT ON ACCOUNT OF TAXES SUBSEQUENTLY IMPOSED, THERE IS NO LEGAL BASIS FOR INCLUDING THE ESTIMATED AMOUNT OF SUCH TAXES AS AN ITEM OF COST UNDER ANY CHANGE ORDER ISSUED.

COMPTROLLER GENERAL MCCARL TO THE ARCHITECT OF THE CAPITOL, MAY 5, 1936:

THERE HAS BEEN RECEIVED YOUR LETTER OF APRIL 27, 1936, AS FOLLOWS:

UNDER DATE OF MARCH 4, 1936, THE FOLLOWING LETTER WAS ADDRESSED TO YOU:

"IN CONNECTION WITH CONTRACT NUMBER ACCONG-139 DATED JUNE 12, 1935, WITH THE CONSOLIDATED ENGINEERING COMPANY, INC., OF BALTIMORE, MARYLAND, FOR THE COMPLETION OF AN ANNEX BUILDING TO THE LIBRARY OF CONGRESS, WASHINGTON, D.C., THIS OFFICE IS IN RECEIPT OF PROPOSALS FROM THE CONTRACTOR COVERING THE COST OF CERTAIN PROPOSED CHANGES. THESE PROPOSALS INCLUDE AN ITEM OF 2 PERCENT ON THE ESTIMATED COST OF ADDITIONAL LABOR FURNISHED TO MAKE THE CHANGES AND TO PERFORM THE EXTRA WORK, OF WHICH 1 PERCENT IS TO COVER THE TAX ON EMPLOYERS AS PROVIDED UNDER THE SOCIAL SECURITY ACT OF AUGUST 14, 1935, PUBLIC NO. 271, 74TH CONGRESS, AND 1 PERCENT IS TO COVER THE EMPLOYER'S TAX PROVIDED FOR BY THE DISTRICT OF COLUMBIA UNEMPLOYMENT COMPENSATION ACT OF AUGUST 28, 1935, PUBLIC NO. 385 (386), 74TH CONGRESS.

"YOUR OPINION WOULD BE APPRECIATED AS TO WHETHER THE CHARGE IS A PROPER ONE AND AS TO WHETHER THE ESTIMATED AMOUNT OF THE TAXES MAY PROPERLY BE ADDED TO THE COST OF THE CHANGES.'

SINCE THE ABOVE WAS WRITTEN, THE FOLLOWING LETTER, DATED APRIL 16, 1936, HAS BEEN RECEIVED FROM THE CONSOLIDATED ENGINEERING COMPANY WITH REFERENCE TO THE SAME SUBJECT:

"SINCE SUBMITTING OUR PROPOSAL AND SINCE SIGNING OUR CONTRACT WITH YOU ON THE ANNEX, LIBRARY OF CONGRESS BUILDING, THE FEDERAL GOVERNMENT HAS IMPOSED AN EXTRA EXPENSE UNDER THE PROVISIONS OF THE SOCIAL SECURITY ACT AND THE DISTRICT OF COLUMBIA UNEMPLOYMENT COMPENSATION ACT.

"IT IS OUR INTENTION TO BILL YOUR OFFICE FOR THE YEAR 1936 AT THE RATE OF 2 PERCENT ON OUR TOTAL PAYROLLS AND THE PAYROLLS OF OUR SUBCONTRACTORS ASSOCIATED WITH US ON THE ANNEX, LIBRARY OF CONGRESS OPERATION, PLUS THE ADDITIONAL COST OF PREPARING THE NECESSARY REPORTS. THE YEARS FOLLOWING 1936 THE RATE WILL BE INCREASED AS SET FORTH IN THE ABOVE MENTIONED ACTS.

"WE WOULD THANK YOU TO KINDLY ADVISE US IF WE MAY EXPECT A CHANGE ORDER FROM YOU COVERING THIS EXTRA EXPENSE WHICH, AS MENTIONED ABOVE, HAS BEEN LEGISLATED BY THE OWNERS, THAT IS, THE FEDERAL GOVERNMENT, SINCE THE AWARD OF THE CONTRACT TO US.'

IT WOULD BE APPRECIATED IF YOU WOULD INCLUDE IN YOUR REPLY TO OFFICE LETTER OF MARCH 4, 1936, YOUR VIEWS AS TO WHETHER THE CONTRACTOR MAY PROPERLY BE REIMBURSED FOR THE ADDED EXPENSE OF THE PAYROLL TAXES AS SUGGESTED IN HIS LETTER OF APRIL 16, 1936.

SPECIFICATIONS FOR THE CONTRACT INVOLVED, UNDER THE HEAD OF GENERAL CONDITIONS, ARTICLE 50, PROVIDE:

ADJUSTMENT IN PRICE ON ACCOUNT OF CHANGES.--- IN THE CASE OF CHANGES, AS CONTEMPLATED BY ARTICLE 3 OF THE STANDARD FORM OF CONTRACT, THE COST OF ADDITIONS SHALL BE THE ESTIMATED ACTUAL COST TO THE CONTRACTOR, AND THE COST OF DEDUCTIONS SHALL BE THE ESTIMATED COST TO THE CONTRACTOR AS OF THE TIME WHEN THE CONTRACT WAS MADE. IN ARRIVING AT THE AMOUNT OF ADJUSTMENT FOR CHANGES, DUE ALLOWANCE SHALL BE MADE, IN THE DISCRETION OF THE ARCHITECT, FOR OVERHEAD CHARGES. ON CHANGES INVOLVING AN INCREASE IN CONTRACT PRICE, AN ALLOWANCE OF 10 PERCENT OF THE NET INCREASE IN COST SHALL BE ALLOWED FOR PROFIT.

THE ABOVE PROVISION WILL NOT APPLY FOR ITEMS OF WORK COVERED BY UNIT PRICES ACCEPTED AT THE TIME OF THE SIGNING OF THE CONTRACT, AS SUCH UNIT PRICES SHALL INCLUDE BOTH PROFIT AND OVERHEAD CHARGES.

ATTACHED TO THE CONTRACT THERE IS A LIST SPECIFYING UNIT PRICES FOR 27 ITEMS OF COMPLETED WORK AND MATERIAL. YOUR LETTER DOES NOT STATE THE NATURE OF THE PROPOSED CHANGES IN THE CONTRACT WORK, BUT IT IS MANIFEST THAT ANY ITEMS OF CHANGE COMING WITHIN THE ITEMIZED LIST ARE SUBJECT TO THE SECOND PARAGRAPH OF THE CITED PROVISION AND THAT THERE IS NO LEGAL BASIS FOR ALLOWANCE TO THE CONTRACTOR OF ANY AMOUNT IN EXCESS OF THE UNIT COST SPECIFIED IN THE CONTRACT.

CHANGES IN THE WORK "WITHIN THE GENERAL SCOPE" OF THE DRAWINGS AND SPECIFICATIONS OF THE CONTRACT MUST BE MADE STRICTLY IN ACCORDANCE WITH THE TERMS THEREOF. NEITHER THE SPECIFICATIONS NOR THE CONTRACT MAKES PROVISION FOR PAYMENT BY THE GOVERNMENT OF ANY AMOUNT ON ACCOUNT OF TAXES SUBSEQUENTLY IMPOSED, AND THERE APPEARS NO LEGAL BASIS FOR INCLUDING THE ESTIMATED AMOUNT OF SUCH TAXES AS AN ITEM OF COST UNDER ANY CHANGE ORDER ISSUED. THE TERM "COST" HAS AN ACCEPTED MEANING AS APPLYING TO THE ACTUAL COST OF LABOR AND MATERIAL AND POSSIBLY MACHINERY AND EQUIPMENT NECESSARY FOR THE PERFORMANCE OF A PARTICULAR CONTRACT, AND IS NOT INCLUSIVE OF TAXES. TAXES ARE INCLUDED WITH OTHER EXPENSES DESIGNATED AS OVERHEAD, WHICH ARE EXPENSES NECESSARY TO THE MAINTENANCE OF THE ADMINISTRATIVE AND SUPERVISORY ORGANIZATION AND PLANT OF THE CONTRACTOR IRRESPECTIVE OF A PARTICULAR CONTRACT, AND THE TAXES TO WHICH YOUR LETTER HAS REFERENCE WOULD APPEAR PROPER TO BE ABSORBED BY THE CONTRACTOR IN THE GENERAL OVERHEAD OF ITS BUSINESS, AND NOT PROPERLY CHARGEABLE TO THE GOVERNMENT.

IF THE CONTEMPLATED CHANGES FALL WITHOUT THE ITEMIZED LIST APPEARING IN THE CONTRACT, THE AMOUNT TO BE PAID THE CONTRACTOR THEREFOR MUST BE THE ACTUAL COST OF THE WORK TO THE CONTRACTOR PLUS AN ALLOWANCE OF 10 PERCENT ON THAT AMOUNT. THERE IS NOTED THE PROVISION THAT IN ARRIVING AT THE AMOUNT OF ADJUSTMENT FOR CHANGES, DUE ALLOWANCE SHALL BE MADE, IN THE DISCRETION OF THE ARCHITECT, FOR OVERHEAD CHARGES. IN DETERMINING SUCH OVERHEAD CHARGES ONLY SUCH PORTION OF THE ENTIRE AMOUNT OF THE CONTRACTOR'S OVERHEAD AS IS APPLICABLE TO THE PARTICULAR CONTRACT INVOLVED IS PROPERLY FOR CONSIDERATION, AND IN NO EVENT SHOULD AN ESTIMATED AMOUNT FOR THE TAXES INVOLVED BE INCLUDED THEREIN OR THE 10 PERCENT PROFIT ALLOWABLE TO THE CONTRACTOR BE DETERMINED UPON THE COST OF PERFORMANCE INCLUSIVE OF SUCH TAXES. IF IT COULD BE CONCEDED THE CONTRACTOR MIGHT BE ENTITLED TO ALLOWANCE OF SOME AMOUNT ON ACCOUNT OF THE TAXES, THERE WOULD BE NO LEGAL AUTHORITY FOR THE ALLOWANCE OF ANY AMOUNT IN EXCESS OF THAT ACTUALLY PAID BY THE CONTRACTOR TO THE GOVERNMENT AND TO THE DISTRICT OF COLUMBIA IN DISCHARGE OF THE SAID TAXES.