B-134500, AUG. 13, 1959

B-134500, AUG. 13, 1959

TO FLIPPIN MATERIALS COMPANY:

YOUR LETTER OF JUNE 2, 1959, REQUESTS REVIEW OF GENERAL ACCOUNTING OFFICE SETTLEMENT DATED MAY 8, 1959, WHICH DISALLOWED YOUR CLAIM FOR $11,995 FOR PROFESSIONAL SERVICES, TRAVEL EXPENSE, LEGAL FEES, AND MISCELLANEOUS OTHER EXPENSES CONSIDERED BY YOU AS A PART OF YOUR "ADJUSTED COST" UNDER CONTRACT NO. W-03-050-ENG-525, DATED NOVEMBER 3, 1947.

UNDER THE CONTRACT YOU, AS JOINT VENTURERS, AGREED TO PRODUCE MATERIALS FOR CONCRETE AGGREGATE FROM A GOVERNMENT-OWNED QUARRY SITE IN THE VICINITY OF FLIPPIN, ARKANSAS, AND TO DELIVER, PROCESS, AND PLACE THE FINISHED MATERIAL INTO DESIGNATED STORAGE PILES ON THE RIGHT ABUTMENT AT BULL SHOALS DAM SITE, LOCATED ON THE WHITE RIVER IN THE STATE OF ARKANSAS. PAYMENT THEREFORE WAS TO BE MADE AT STIPULATED UNIT PRICES SUBJECT TO THE PROVISIONS OF ARTICLE 29 OF THE CONTRACT ENTITLED ,REDUCTION IN PRICE," WHICH PROVIDED IN PERTINENT PART AS FOLLOWS:

"A. THE TERM "CONTRACTOR'S ADJUSTED COST" SHALL BE THE CONTRACTOR'S ACTUAL COST OF PERFORMANCE AS DETERMINED IN ACCORDANCE WITH SUBPARAGRAPH D BELOW, PLUS 10 PERCENT.

"B.THE TERM "COMPUTED CONTRACT PRICE" SHALL BE THE TOTAL CONTRACT PRICE COMPUTED AT THE UNIT PRICES PROVIDED IN SCHEDULE "A" AND IN PARAGRAPH SC- 12 D OF THE SPECIFICATIONS USING THE ACTUAL QUANTITIES OF WORK PERFORMED.

"C. IN THE EVENT THAT THE CONTRACTOR'S ADJUSTED COST IS LESS THAN THE COMPUTED CONTRACT PRICE, THE CONTRACT PRICE SHALL BE REDUCED BY A LUMP SUM EQUAL TO ONE-HALF THE DIFFERENCE BETWEEN THE CONTRACTOR'S ADJUSTED COST AND THE COMPUTED CONTRACT PRICE.

"D. IT IS UNDERSTOOD AND AGREED BETWEEN THE PARTIES HERETO THAT THE ACTUAL COST OF PERFORMANCE SHALL INCLUDE ALL EXPENDITURES ACTUALLY MADE OR COST INCURRED IN THE PERFORMANCE OF THE CONTRACT AND SHALL BE COMPUTED IN ACCORDANCE WITH RECOGNIZED COMMERCIAL ACCOUNTING PRINCIPLES. THE FOLLOWING COSTS SHALL BE INCLUDED. IT IS UNDERSTOOD AND AGREED THAT THE FOLLOWING LIST IS NOT A COMPLETE OUTLINE OF COSTS TO BE INCLUDED AND THAT THE APPLICABILITY OF ITEMS NOT LISTED SHALL BE DETERMINED IN ACCORDANCE WITH THE PRINCIPLES SET FORTH ABOVE.

"/2) HOME OFFICE EXPENSE AT THE RATE OF TWO PERCENT (2 PERCENT) OF THE TOTAL COSTS OF PERFORMING THE WORK UNDER THE CONTRACT.

"G. IF THE PARTIES FAIL TO AGREE UPON THE ADJUSTMENT TO BE MADE THE DISPUTE SHALL BE DETERMINED AS PROVIDED IN ARTICLE 11 HEREOF.'

ARTICLE 11 PROVIDED THAT EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THE CONTRACT, ALL DISPUTES CONCERNING QUESTIONS OF FACT ARISING UNDER THE CONTRACT WERE TO BE DECIDED BY THE CONTRACTING OFFICER SUBJECT TO WRITTEN APPEAL BY THE CONTRACTOR TO THE HEAD OF THE DEPARTMENT CONCERNED OR HIS DULY AUTHORIZED REPRESENTATIVE WHOSE DECISION WAS TO BE FINAL AND CONCLUSIVE UPON THE PARTIES.

IN THE COURSE OF MAKING PAYMENTS UNDER THE CONTRACT DOUBT AROSE AS TO WHETHER CERTAIN ITEMS OF COST IN CONNECTION WITH THE CONTRACT WORK SHOULD BE INCLUDED IN THE COMPUTATION OF THE ,CONTRACTOR'S ADJUSTED COST" AS DEFINED IN ARTICLE 29 OF THE CONTRACT. IN OUR DECISION OF MARCH 18, 1958, B-134500, WE HELD THAT OF THE THREE ITEMS PRESENTED FOR OUR CONSIDERATION, ONLY THE ITEM HERE INVOLVED WAS NOT TO BE SO CONSIDERED. THAT ITEM IN THE AMOUNT OF $11,881.78--- LATER SHOWN AS $11,995--- WAS MADE THE SUBJECT OF A CLAIM PRESENTED TO OUR OFFICE AND WAS DISALLOWED BY THE SETTLEMENT OF MAY 8, 1959.

IN YOUR LETTER OF JUNE 2 YOU REFER TO THE STATEMENT IN OUR DECISION THAT "WHILE COSTS OF SUCH NATURE COULD BE ALLOWED IF INCURRED IN EFFORTS TO OBTAIN A SATISFACTORY SETTLEMENT OF ALL MATTERS INVOLVING THE OBLIGATION OF THE GOVERNMENT TO MAKE PAYMENT PURSUANT TO THE CONTRACT PROVISIONS, IT WOULD NOT BE PROPER TO ALLOW ANY AMOUNT EXPENDED IN THE PROSECUTION OF AN UNLIQUIDATED DAMAGE CLAIM AGAINST THE GOVERNMENT.' ALSO, YOU STATE THAT THE AMOUNT OF $11,995 COMPRISES TWO ITEMS. THE FIRST ITEM OF $10,717.49 REPRESENTS AMOUNTS CLAIMED TO HAVE BEEN EXPENDED FOR ROUTINE LEGAL WORK AND PRESENTATION OF CLAIMS AGAINST THE GOVERNMENT ARISING UNDER THE CONTRACT. THE SECOND ITEM OF $1,277.51 REPRESENTS EXPENSES INVOLVED IN CONNECTION WITH THE FILING OF A SUIT AGAINST THE UNITED STATES IN THE COURT OF CLAIMS ON JANUARY 7, 1957, FOR THE RECOVERY OF $646,000 ALLEGEDLY EXPENDED BY YOU BECAUSE THE GOVERNMENT-OWNED QUARRY WAS NOT AS REPRESENTED. IT HAS BEEN INFORMALLY ASCERTAINED THAT THE SUIT IS STILL PENDING IN COURT.

WHEN YOUR CLAIM, IN THE AMOUNT OF $11,995, WAS SUBMITTED TO OUR OFFICE FOR SETTLEMENT IT WAS ACCOMPANIED BY A STATEMENT DATED MARCH 4, 1959, BY THE CONTRACTING OFFICER, COLONEL A. M. JACOBY, CORPS OF ENGINEERS. THAT STATEMENT HE POINTS OUT THAT THE AUDITING OF YOUR ACCOUNTS BY A CERTIFIED PUBLIC ACCOUNTANT INDICATES A VERIFICATION OF YOUR EXPENDITURES BUT IS NOT, IN ITSELF, ACCEPTED BY THE CONTRACTING OFFICE AS CLASSIFYING ALL COSTS, PARTICULARLY LEGAL EXPENSES, AS ALLOWABLE COSTS. THE CONTRACTING OFFICER STATES FURTHER THAT COSTS INCURRED IN PROSECUTION OF CLAIMS AGAINST A PARTY OTHER THAN A MEMBER OF THE ORGANIZATION NO DOUBT WOULD BE CONSIDERED GOOD COSTS AND ACCEPTED UNDER RECOGNIZED COMMERCIAL ACCOUNTING PRINCIPLES. THE GOVERNMENT, HOWEVER, WAS CONSIDERED BY HIM AS A "MEMBER OF THE ORGANIZATION" SINCE IT PARTICIPATED IN CERTAIN PROFITS OF THE VENTURE THROUGH APPLICATION OF ARTICLE 29 OF THE CONTRACT. AND "IF LEGAL COSTS OF THE CONTRACTOR ON SUITS AGAINST THE GOVERNMENT ARE ALLOWABLE" HE POSES THE QUESTION AS TO HOW THE EXPENSES OF DEFENSE BY THE GOVERNMENT SHOULD BE CONSIDERED. HE RECOMMENDED THAT THE CLAIM BE DISALLOWED IN ITS ENTIRETY FOR THE REASON THAT HE BELIEVED THAT EXPENSES INVOLVING CONTROVERSIES BETWEEN THE PARTIES PARTICIPATING IN A PORTION OF THE PROFITS APPEARED TO BE EXPENSES WHICH NORMALLY SHOULD BE PAID FROM FUNDS AVAILABLE FOR HOME OFFICE OPERATIONS, WHICH IN THIS CASE WAS FIXED AT TWO PERCENT OF THE TOTAL COSTS OF PERFORMING THE WORK UNDER THE CONTRACT.

THE RECORD PRESENTLY BEFORE OUR OFFICE DOES NOT SHOW THAT WE WERE FULLY APPRISED AT THE TIME OF OUR DECISION, OF ALL THE DETAILS OF THE EXPENSES NOW CLAIMED. HOWEVER, IN VIEW OF THE FOREGOING, IT MUST BE CONCLUDED THAT THE LEGAL AND OTHER EXPENSES INVOLVED IN PROCESSING CLAIMS AGAINST THE GOVERNMENT MUST BE REGARDED AS INCLUDED IN THE TWO PERCENT ALLOWANCE FOR HOME OFFICE EXPENSE.

WITH REGARD TO YOUR REQUEST TO BE ADVISED AS TO THE ADMINISTRATIVE PROCEDURE "AVAILABLE TO US AT THIS TIME" SINCE YOU WERE NOT ADVISED BY THE CONTRACTING OFFICER AS TO THE MERITS OF YOUR CLAIM AFTER YOU SUBMITTED IT TO HIM ON OCTOBER 15, 1958, YOUR ATTENTION IS INVITED TO THE PROVISIONS OF ARTICLES 11 AND 29 (G) OF THE CONTRACT. IT IS NOTED, HOWEVER, THAT AT THE TIME OF FILING YOUR CLAIM YOU DID NOT REQUEST A FINDING FROM THE CONTRACTING OFFICER IN REGARD TO THE MATTER SO THAT YOU MIGHT TAKE AN APPEAL THEREFROM IF THE FINDING WERE ADVERSE TO YOU.