A-53847, JULY 7, 1934, 14 COMP. GEN. 17

A-53847: Jul 7, 1934

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NO CHARGES AGAINST APPROPRIATED MONEYS WILL BE APPROVED FOR QUANTITY PURCHASES OF AIRPLANES FOR THE ARMY AND NAVY ON AND AFTER MAY 21. WILL BE APPROVED. IN ORDER THAT IT MAY BE DETERMINED IN CONNECTION WITH SUCH FINAL PAYMENTS WHETHER THE CONTRACTORS HAVE RECEIVED OR WOULD RECEIVE UNREASONABLE PROFITS BY REASON OF FAILURE TO COMPLY WITH THE LAW AS TO ADVERTISING AND COMPETITIVE BIDS FOR THE MANUFACTURE OF SUCH AIRPLANES AND WHETHER. THE OFFICERS AND EMPLOYEES OF THE CONTRACTOR HAVE NOT BEEN PAID UNREASONABLE SALARIES. 1934: THERE HAVE BEEN RECEIVED BY REFERENCE FROM THE JUDGE ADVOCATE GENERAL OF THE NAVY. HE IS AUTHORIZED TO MAKE PAYMENTS UNDER CONTRACT NOS- 34144. THESE CONTRACTS WERE ENTERED INTO WITHOUT ADVERTISING.

A-53847, JULY 7, 1934, 14 COMP. GEN. 17

CONTRACTS - ADVERTISING - QUANTITY PURCHASES OF AIRPLANES UNDER SECTION 10 (T) OF THE ACT OF JULY 2, 1926 (44 STAT. 784), QUANTITY PURCHASES OF AIRPLANES FOR THE ARMY AND NAVY MAY BE MADE ONLY AS THE RESULT OF ADVERTISING FOR COMPETITIVE BIDS ON THE BASIS OF SPECIFICATIONS PERMITTING FULL AND FREE COMPETITION BY ALL QUALIFIED BIDDERS. NO CHARGES AGAINST APPROPRIATED MONEYS WILL BE APPROVED FOR QUANTITY PURCHASES OF AIRPLANES FOR THE ARMY AND NAVY ON AND AFTER MAY 21, 1934, WHERE THERE HAS BEEN NO COMPLIANCE WITH THE LAW REQUIRING THE OBTAINING OF COMPETITIVE BIDS FOR SUCH AIRPLANES, AND AS TO CONTRACTS ENTERED INTO PRIOR TO SAID DATE, PROGRESS PAYMENTS, IF OTHERWISE CORRECT, WILL BE APPROVED, BUT FINAL PAYMENT VOUCHERS UNDER SUCH CONTRACT SHOULD BE TRANSMITTED TO THE GENERAL ACCOUNTING OFFICE FOR DIRECT SETTLEMENT ACCOMPANIED BY A REPORT OF THE AUDIT OF THE BOOKS, ETC., OF THE RESPECTIVE CONTRACTORS SHOWING IN DETAIL THE COSTS OF THE CONTRACTOR, IN ORDER THAT IT MAY BE DETERMINED IN CONNECTION WITH SUCH FINAL PAYMENTS WHETHER THE CONTRACTORS HAVE RECEIVED OR WOULD RECEIVE UNREASONABLE PROFITS BY REASON OF FAILURE TO COMPLY WITH THE LAW AS TO ADVERTISING AND COMPETITIVE BIDS FOR THE MANUFACTURE OF SUCH AIRPLANES AND WHETHER, IN ORDER TO ABSORB PROFITS, THE OFFICERS AND EMPLOYEES OF THE CONTRACTOR HAVE NOT BEEN PAID UNREASONABLE SALARIES.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE NAVY, JULY 7, 1934:

THERE HAVE BEEN RECEIVED BY REFERENCE FROM THE JUDGE ADVOCATE GENERAL OF THE NAVY, PRESUMABLY BY YOUR AUTHORITY, LETTERS DATED JUNE 21 AND 30, 1934, FROM CAPT. J. H. KNAPP (S.C.), UNITED STATES NAVY, REQUESTING DECISION WHETHER IN VIEW OF THE PROVISIONS OF THE ACT OF JULY 2, 1926 (44 STAT. 784 ET SEQ.), HE IS AUTHORIZED TO MAKE PAYMENTS UNDER CONTRACT NOS- 34144, DATED DECEMBER 27, 1933, WITH THE CONSOLIDATED AIRCRAFT CORPORATION AND NOS-34906, DATED FEBRUARY 26, 1934, WITH THE CURTISS AEROPLANE AND MOTOR CO., INC., IN THE AMOUNTS OF $82,523.42 AND $121,560, RESPECTIVELY, AS PARTIAL PAYMENTS FOR AIRPLANES. THESE CONTRACTS WERE ENTERED INTO WITHOUT ADVERTISING, AND IN THIS RESPECT ARE SIMILAR TO CONTRACT NO:- 34217, DATED JANUARY 9, 1934, WITH THE GREAT LAKES AIRCRAFT CORPORATION, WHICH WAS THE SUBJECT OF MY LETTER OF MAY 21, 1934, TO YOU; CONTRACT NOS- 36254, DATED MAY 17, 1934, WITH THE GRUMMAN AIRCRAFT ENGINEERING CORPORATION FOR THE DELIVERY OF 54 AIRPLANES AND SPARE PARTS, AND CONTRACTS NOS-33862, DATED DECEMBER 11, 1933, WITH THE GRUMMAN AIRCRAFT ENGINEERING CORPORATION, AND NOS-34223, DATED JANUARY 15, 1934, WITH THE DOUGLAS AIRCRAFT CO., INC., FOR A QUANTITY DELIVERY OF AIRPLANES, AND IN CONNECTION WITH THE LATTER CONTRACTS THERE HAS BEEN CONSIDERED YOUR LETTER OF JUNE 26, 1934, WITH RESPECT TO THE MATTER.

THE QUESTION INVOLVED IN THESE CASES WAS CAREFULLY CONSIDERED IN MY DECISION OF MAY 21, 1934, A-53847, CONCERNING CONTRACT NOS-27827, DATED JUNE 13, 1932, AND AN AMENDMENT THERETO OF FEBRUARY 24, 1934, WITH THE GREAT LAKES AIRCRAFT CORPORATION FOR THE DELIVERY OF 27 AIRPLANES AND SPARE PARTS, WHICH WAS ENTERED INTO WITHOUT ADVERTISING. IT WAS THEREIN HELD THAT THE ONLY AUTHORITY OF LAW FOR QUANTITY PURCHASES OF AIRPLANES IN SECTION 10 (T) OF THE ACT OF JULY 2, 1926, AND THAT SAID SUBSECTION DOES NOT PERMIT OF QUANTITY PURCHASES EXCEPT AS THE RESULT OF ADVERTISING FOR COMPETITIVE BIDS BASED ON SPECIFICATIONS DEVELOPED AS THE RESULT OF THE PURCHASE OF EXPERIMENTAL AIRPLANES AND DESIGNS AS CONTEMPLATED BY OTHER SUBSECTIONS OF SECTION 10 OF SAID ACT. INCIDENTALLY THE SAME CONCLUSION WAS REACHED BY THE COMMITTEE ON MILITARY AFFAIRS, HOUSE OF REPRESENTATIVES, AND YOUR ATTENTION IS INVITED TO HOUSE REPORT NO. 2060, SEVENTY-THIRD CONGRESS, SECOND SESSION, WHEREIN THE COMMITTEE ON MILITARY AFFAIRS STATED, AMONG OTHER THINGS, THAT:

SUBDIVISION 10 (T) OF THE AIR CORPS ACT (SUPRA) CLEARLY DEFINES THE ONLY METHOD BY WHICH AIRCRAFT PROCUREMENT IN QUANTITY CAN BE OBTAINED; THAT IS, BY COMPETITIVE BIDDING; A POLICY DEFINITELY ESTABLISHED BY LAW, NOT ONLY IN THE AIR CORPS ACT OF 1926 BUT ALSO BY SECTION 3709 OF THE REVISED STATUTES, MARCH 2, 1861, AND THE ACT OF MARCH 2, 1901.

IN VIEW OF THE SHOWING MADE IN THE DECISION OF MAY 21, 1934, TO YOU, AND THE STATEMENTS MADE BY THE COMMITTEE ON MILITARY AFFAIRS IN THE ABOVE- QUOTED REPORT, IT WOULD APPEAR NO LONGER OPEN TO ARGUMENT THAT THERE IS NO AUTHORITY OF LAW WHATEVER TO MAKE QUANTITY PURCHASES OF AIRPLANES EXCEPT AS THE RESULT OF COMPETITIVE BIDS, AS PROVIDED IN SECTION 10 (T) OF THE ACT OF JULY 2, 1926, AND THE CONCLUSION IN THE DECISION OF MAY 21, 1934, IS ADHERED TO THAT FROM MAY 21, 1934, NO SIMILAR PURCHASING PROCEDURE OF OBTAINING QUANTITY PURCHASES OF AIRPLANES WITHOUT COMPETITION, AS REQUIRED BY LAW, MAY BE ACCEPTED BY THIS OFFICE AS OBLIGATING APPROPRIATED MONEYS.

THIS OFFICE HAS NOT OVERLOOKED THE STATEMENT CONTAINED IN YOUR LETTER OF JUNE 26, 1934, THAT YOU BELIEVE THE LAW DOES NOT REQUIRE ADVERTISING FOR PROPOSALS BEFORE YOU MAY ENTER INTO A CONTRACT FOR AIRCRAFT IF A PARTICULAR MANUFACTURER IS SOLELY OR PECULIARLY IN POSITION TO FURNISH THE REQUIRED TYPE OR DESIGN, AND THAT AS TO THIS FACT THE AUTHORITY, AS WELL AS THE RESPONSIBILITY, IS VESTED IN THE SECRETARY OF THE NAVY. BUT I FIND NO PROPER BASIS IN THE LAW FOR THAT VIEW, AND IF THERE SHOULD BE SUCH ADMINISTRATIVE ACTION AS TO INVOLVE THE UNITED STATES IN LITIGATION, AS YOU INDICATE, WITH POSSIBLE JUDGMENTS AGAINST THE GOVERNMENT, IT IS NOT TO BE OVERLOOKED THAT SUCH JUDGMENTS MAY NOT BE PAID FROM APPROPRIATED MONEYS, BUT MUST BE REPORTED TO THE CONGRESS PURSUANT TO THE EXPRESS TERMS OF THE ACT OF APRIL 27, 1904 (33 STAT. 422), FOR AN APPROPRIATION BEFORE THEY MAY BE PAID. THE MATTER WILL THEN BE FOR THE CONSIDERATION OF THE CONGRESS WHETHER SUCH AN APPROPRIATION SHALL BE MADE.

ALSO, THERE HAS BEEN NOTED YOUR STATEMENT THAT, AS A MATTER OF POLICY, YOU ARE, AS A GENERAL RULE,"IN FAVOR OF ADVERTISING EVEN UNDER SUCH CIRCUMSTANCES AND, IN ALL PROBABILITY, WOULD IN THE FUTURE ADVERTISE FOR PROPOSALS UNDER THE CONDITIONS WHICH WERE KNOWN TO EXIST WHEN THE CONTRACTS NOW IN QUESTION WERE MADE.' THIS OFFICE IS NOT CONCERNED WITH WHETHER THE ADVERTISING FOR COMPETITIVE BIDS ON THE BASIS OF SPECIFICATIONS STATING THE JOB TO BE PERFORMED--- THE NEED OF THE UNITED STATES--- RESULTS FROM CONVICTION THAT SUCH A COURSE OF PROCEDURE IS REQUIRED BY THE ACT OF JULY 2, 1926, OR WHETHER IT IS DONE AS A MATTER OF POLICY, SO LONG AS THERE IS IN FACT PROPER ADVERTISING AS REQUIRED BY LAW. WHATEVER MAY BE THE ADMINISTRATIVE RESPONSIBILITY IN THIS CONNECTION, THIS OFFICE HAS THE DUTY AND RESPONSIBILITY IMPOSED BY ACTS OF CONGRESS TO SEE THAT THE APPROPRIATIONS ARE APPLIED SOLELY TO THE OBJECTS FOR WHICH THEY ARE RESPECTIVELY MADE AND FOR NO OTHER, AS HAS BEEN THE REQUIREMENT SINCE THE ACT OF MARCH 3, 1809, NOW SECTION 3678, REVISED STATUTES, AND THAT THE MANDATORY REQUIREMENT PRESCRIBED BY THE CONGRESS IN CONTRACTING ON BEHALF OF THE UNITED STATES SHALL BE FOLLOWED.

AS WAS STATED IN THE DECISION OF MAY 21, 1934, CONCERNING THE CONTRACT WITH THE GREAT LAKES AIRCRAFT CORPORATION, WHICH WAS ENTERED INTO WITHOUT ADVERTISING AND CONTRARY TO LAW, THE CONTRACTORS IN THESE SEVERAL CASES ARE NOT FREE FROM FAULT, INASMUCH AS THEY WERE ON NOTICE AS TO THE LIMIT OF THE STATUTORY AUTHORITY CONFERRED ON THE ADMINISTRATIVE OFFICERS OF THE NAVY DEPARTMENT IN THE PURCHASE OF AIRPLANES AND AIRPLANE PARTS. HOWEVER, IT IS THE PRIMARY OBLIGATION OF THE ADMINISTRATIVE OFFICERS TO OBSERVE THE MANDATORY REQUIREMENTS OF THE LAW, AND IT APPEARS THAT THESE CONTRACTORS HAVE PROCEEDED UNDER THEIR CONTRACTS AND HAVE MADE CONSIDERABLE EXPENDITURES IN RELIANCE, APPARENTLY, UPON THE BELIEF THAT THE ADMINISTRATIVE OFFICERS WERE PROCEEDING IN ACCORDANCE WITH LAW. A SENSE OF FAIRNESS, EVEN IF NOT SUPPORTED BY STRICT LEGAL RULES, WOULD SEEM TO AFFORD SOME JUSTIFICATION IN THE CIRCUMSTANCES APPEARING FOR THIS OFFICE TO PERMIT CHARGES AGAINST THE APPLICABLE APPROPRIATIONS FOROTHERWISE PROPER PROGRESS PAYMENTS UNDER THESE PARTICULAR CONTRACTS ENTERED INTO PRIOR TO THE DECISION OF MAY 21, 1934, BUT THERE SHOULD BE WITHHELD FOR FINAL PAYMENTS THEREUNDER SUFFICIENT AMOUNTS TO PROTECT THE UNITED STATES AGAINST ANY UNREASONABLE PROFITS WHICH MIGHT ACCRUE TO THE SEVERAL CONTRACTORS BECAUSE OF THE FAILURE TO OBSERVE SECTION 10 (T) OF THE ACT OF JULY 2, 1926, IN LETTING THESE CONTRACTS AS A RESULT OF 1926, IT IS REQUIRED THAT THE MANUFACTURING PLANT AND BOOKS OF ANY CONTRACTOR FOR FURNISHING OR CONSTRUCTING AIRCRAFT, AIRCRAFT PARTS, OR AERONAUTICAL ACCESSORIES FOR THE NAVY DEPARTMENT SHALL BE AT ALL TIMES SUBJECT TO INSPECTION AND AUDIT BY ANY PERSON DESIGNATED BY THE SECRETARY OF THE NAVY, AND IT IS PROVIDED, ALSO, THAT ALL AUDITS AND REPORTS OF INSPECTION UNDER THE STATUTE SHALL BE PRESERVED FOR A PERIOD OF 10 YEARS. THE INTERESTS OF THE UNITED STATES WOULD SEEM TO REQUIRE THAT SUCH AUDIT BE MADE OF THE BOOKS, ETC., OF CONTRACTORS FOR THE MANUFACTURE OF AIRCRAFT, AIRCRAFT PARTS, AND AERONAUTICAL ACCESSORIES UNDER THESE CONTRACTS AND THAT THE FINAL-PAYMENT VOUCHERS UNDER EACH OF THESE CONTRACTS BE TRANSMITTED TO THIS OFFICE FOR DIRECT SETTLEMENT, ACCOMPANIED BY A REPORT OF SUCH AUDIT, IN ORDER THAT THERE MAY BE DETERMINED WHETHER ANY OF THESE CONTRACTORS HAVE RECEIVED OR WOULD RECEIVE UNDER THESE CONTRACTS UNREASONABLE PROFITS BY REASON OF THE FAILURE TO LET THE CONTRACTS AS A RESULT OF COMPETITIVE BIDS.

ACCORDINGLY YOU ARE ADVISED THAT PROGRESS PAYMENTS UNDER THESE SEVERAL CONTRACTS MAY BE CHARGED TO THE APPLICABLE APPROPRIATIONS, BUT THE FINAL- PAYMENT VOUCHERS UNDER EACH OF THESE CONTRACTS IN SUFFICIENT AMOUNT PROPERLY TO PROTECT THE PUBLIC INTERESTS SHOULD BE TRANSMITTED TO THIS OFFICE FOR DIRECT SETTLEMENT, ACCOMPANIED BY A REPORT OF THE AUDIT OF THE BOOKS OF SUCH CONTRACTORS IN SUFFICIENT DETAIL TO SHOW THE CONTRACTOR'S PROFITS IN THE PERFORMANCE OF THE CONTRACTS, AND WHETHER, IN ORDER TO ABSORB PROFITS, THE OFFICERS AND EMPLOYEES OF THE CONTRACTOR HAVE NOT BEEN PAID UNREASONABLE SALARIES.