A-54011, A-59433, APRIL 24, 1935, 14 COMP. GEN. 786

A-54011,A-59433: Apr 24, 1935

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IS PAYABLE. IS TO REQUIRE CLAIMANT CONTRACTOR TO SHOW COMPLIANCE WITH A CODE OR THE AGREEMENT. IT IS NOT SUFFICIENT TO ESTABLISH A VALID CLAIM FOR RELIEF UNDER THE ACT OF JUNE 16. HAVE BEEN INCREASED BY A CERTAIN AMOUNT WITHIN THE LIMITATION OF PROFIT PRESCRIBED BY THE ACT. IT MUST BE PROVEN THAT THE INCREASED COSTS WERE ACTUALLY DUE DIRECTLY TO COMPLIANCE WITH A CODE OF FAIR COMPETITION OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT. ARE NOT PAYABLE UNDER THE RELIEF ACT OF JUNE 16. UNLESS IT CAN BE CONCLUSIVELY ESTABLISHED THAT THE INCREASED COSTS OF MATERIAL WERE DUE TO COMPLIANCE WITH A CODE OF FAIR COMPETITION. ARE NOT ALLOWABLE UNDER THE ACT OF JUNE 16. IF THE CONTRACTORS WERE NOT IN VIOLATION DURING THE CONTRACT PERIOD.

A-54011, A-59433, APRIL 24, 1935, 14 COMP. GEN. 786

CONTRACTORS - RELIEF ACT THE ONLY PROPER PROCEDURE TO DETERMINE WHETHER A CLAIM FOR ONE ITEM OF INCREASED COST ALLEGED TO BE CAUSED BY COMPLIANCE ON AND AFTER AUGUST 10, 1933, WITH A CODE OF FAIR COMPETITION OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT, IS PAYABLE, AND WITHIN THE 7-PERCENT PROFIT LIMITATION ON THE COST OF PERFORMING THE CONTRACT PRESCRIBED BY SECTION 3 OF THE ACT OF JUNE 16, 1934, 48 STAT. 974, IS TO REQUIRE CLAIMANT CONTRACTOR TO SHOW COMPLIANCE WITH A CODE OR THE AGREEMENT, AND TO PRESENT SATISFACTORY EVIDENCE OF ALL ITEMS OF INCREASED COSTS IN PERFORMING THE CONTRACT, IN ADDITION TO THE PARTICULAR ITEM OF INCREASED COST CLAIMED. IT IS NOT SUFFICIENT TO ESTABLISH A VALID CLAIM FOR RELIEF UNDER THE ACT OF JUNE 16, 1934, 48 STAT. 974, THAT A CONTRACTOR ALLEGE THAT HIS COSTS OF PERFORMANCE AFTER AUGUST 10, 1933, OF A CONTRACT ENTERED INTO PRIOR TO SAID DATE, HAVE BEEN INCREASED BY A CERTAIN AMOUNT WITHIN THE LIMITATION OF PROFIT PRESCRIBED BY THE ACT, BUT IT MUST BE PROVEN THAT THE INCREASED COSTS WERE ACTUALLY DUE DIRECTLY TO COMPLIANCE WITH A CODE OF FAIR COMPETITION OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT. CLAIMS OF CONTRACTORS FOR INCREASED MATERIAL COSTS, EVEN THOUGH DUE IN PART TO THE RESULTING EFFECT OF ADMINISTRATION OF THE RECOVERY ACT OF JUNE 16, 1933, ARE NOT PAYABLE UNDER THE RELIEF ACT OF JUNE 16, 1934, 48 STAT. 974, UNLESS IT CAN BE CONCLUSIVELY ESTABLISHED THAT THE INCREASED COSTS OF MATERIAL WERE DUE TO COMPLIANCE WITH A CODE OF FAIR COMPETITION. CLAIMS OF CONTRACTORS FOR REPLACEMENT OF STOCK ON HAND, COST OF PREPARATION OF CLAIMS UNDER THE ACT, EXCESS COST DUE TO INCREASE OF WAGES BEYOND THOSE REQUIRED BY THE APPLICABLE APPROVED CODE OF FAIR COMPETITION OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT, ARE NOT ALLOWABLE UNDER THE ACT OF JUNE 16, 1934, 48 STAT. 974, AS ITEMS OF INCREASED COSTS CAUSED BY COMPLIANCE WITH A CODE OF FAIR COMPETITION OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT. NO CLAIM OF A CONTRACTOR FOR RELIEF UNDER THE ACT OF JUNE 16, 1934, 48 STAT. 974, SHOULD BE ALLOWED IN RESPECT OF INCREASED COSTS DURING ANY PERIOD PRIOR TO THE DATE OF THE EXECUTION BY THE CLAIMANT OF THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR THE DATE UPON WHICH AN APPLICABLE CODE OF FAIR COMPETITION BECAME EFFECTIVE. VIOLATIONS OF CODES OF FAIR COMPETITION OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT BY CONTRACTORS AT TIMES OTHER THAN DURING THE PERIOD OF PERFORMANCE OF A GOVERNMENT CONTRACT, DO NOT PRECLUDE RECOGNITION OF OTHERWISE VALID CLAIMS FOR RELIEF UNDER THE ACT OF JUNE 16, 1934, 48 STAT. 974, IF THE CONTRACTORS WERE NOT IN VIOLATION DURING THE CONTRACT PERIOD. AS DECEMBER 16, 1934, TERMINATION OF SIX MONTHS FROM THE APPROVAL OF THE ACT OF JUNE 16, 1934, 48 STAT. 974, ALLOWED BY SECTION 4 WITHIN WHICH TO FILE CLAIMS, WAS SUNDAY, CLAIMS RECEIVED ON MONDAY, DECEMBER 17, 1934, ARE PROPERLY FOR CONSIDERATION. AS THE COMPTROLLER GENERAL OF THE UNITED STATES IS VESTED WITH DISCRETIONARY POWER TO CONSIDER CLAIMS OF CONTRACTORS FOR RELIEF UNDER THE ACT OF JUNE 16, 1934, 48 STAT. 974, PRESENTED AFTER THE TIME LIMITATION OF SIX MONTHS FIXED BY SECTION 4 OF THE ACT, ALL CLAIMS WHICH ARE PRESENTED AFTER THAT TIME SHOULD BE ADMINISTRATIVELY EXAMINED AND SUBMITTED TO THE GENERAL ACCOUNTING OFFICE FOR CONSIDERATION.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE TREASURY, APRIL 24, 1935:

THERE HAS BEEN RECEIVED YOUR LETTER OF JANUARY 26, 1935, AS FOLLOWS:

THE FOLLOWING QUESTIONS, WHICH HAVE ARISEN DURING THE COURSE OF AN EXAMINATION OF THE CLAIMS FILED WITH THIS DEPARTMENT PURSUANT TO PUBLIC ACT 369, 73D CONGRESS, ARE SUBMITTED TO YOU FOR DETERMINATION IN VIEW OF THE FACT THAT AUTHORITY FOR THE ADJUSTMENT AND SETTLEMENT OF SUCH CLAIMS IS VESTED IN YOU:

1. SECTION 3 OF THE ABOVE ACT PROVIDES THAT NO ALLOWANCE SHALL BE MADE WHICH WILL RESULT IN A PROFIT TO THE CLAIMANT EXCEEDING "7 PERCENTUM ON THE COST OF PERFORMANCE OF THE CONTRACT IN RESPECT OF WHICH THE CLAIM IS MADE.' THE HEAD OF THE DEPARTMENT CONCERNED, SUBJECT TO YOUR APPROVAL, IS GIVEN AUTHORITY TO DETERMINE THE "ACTUAL COST AND PROFIT THEREON.'

ALMOST INVARIABLY A CLAIMANT SUBMITS SUBSTANTIATING DATA ONLY IN SUPPORT OF THE PARTICULAR ITEMS OF INCREASED COST UPON WHICH HIS CLAIM IS BASED. TO ILLUSTRATE:

A CLAIMANT PRESENTS A CLAIM FOR INCREASED LABOR COSTS IN THE AMOUNT OF $70. HE STATES HIS ENTIRE COST OF PERFORMANCE AS FOLLOWS: LABOR, $400; MATERIAL, $500; OVERHEAD, $100. IN SUPPORT OF HIS CLAIM FOR INCREASED LABOR COSTS, HE SUBMITS HIS PAY ROLLS WHICH SHOW IN DETAIL SUCH INCREASED COSTS. HOWEVER, NO SUBSTANTIATING DATA ARE FURNISHED WITH RESPECT TO THE OTHER ITEMS OF COST IN RESPECT OF WHICH NO CLAIM IS MADE.

OF COURSE, IF THE OTHER ITEMS OF COST ARE ACTUALLY LOWER THAN STATED IN THE CLAIM, THE ALLOWABLE AMOUNT OF HIS CLAIM IS REDUCED BY THE SEVEN- PERCENT LIMITATION.

ALL ITEMS OF A CLAIM ARE SWORN TO BY THE CLAIMANT AND, IF THE CLAIM IS IN EXCESS OF $1,000, BY A CERTIFIED PUBLIC ACCOUNTANT AS WELL.

IT IS SUGGESTED THAT THE PRACTICAL METHOD OF DEALING WITH THIS PROBLEM IS TO REQUIRE SUBSTANTIATING DATA AS REGARDS ITEMS OF COST OTHER THAN THOSE IN RESPECT OF WHICH THE CLAIM IS MADE, ONLY IN CASES IN WHICH THE ADMINISTRATIVE REVIEWERS OF THE CLAIM BELIEVE THAT THE OTHER ITEMS OF COST ARE TOO HIGH.

2. TO WHAT EXTENT SHOULD A CLAIMANT BE REQUIRED TO ESTABLISH BY EVIDENTIARY FACTS THAT HIS INCREASED COSTS WERE DUE TO HIS COMPLIANCE WITH THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR APPLICABLE CODES OF FAIR COMPETITION?

MOST CLAIMANTS MERELY SHOW ACTUAL COSTS AFTER AUGUST 10, 1933, AS COMPARED TO COSTS PRIOR TO THE ENACTMENT OF THE NATIONAL INDUSTRIAL RECOVERY ACT, AND DO NOT ATTEMPT TO ESTABLISH (OTHER THAN BY ASSERTION) THAT THE INCREASED COST WAS DUE ALONE TO COMPLIANCE WITH THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR APPLICABLE CODES.

IT IS READILY APPARENT THAT ANY PARTICULAR ITEM OF INCREASED COST MIGHT HAVE BEEN DUE IN WHOLE OR IN PART TO NUMEROUS OTHER FACTORS. TO ASCERTAIN PRECISELY WHAT PORTION OF INCREASED COST WAS DUE TO COMPLIANCE OR DUE TO OTHER ECONOMIC FACTORS, IS, OF COURSE, IMPOSSIBLE; AND TO REQUIRE CLAIMANTS TO MAKE THE STUDY OF GENERAL ECONOMIC CONDITIONS WHICH WOULD BE REQUIRED IN ORDER TO REACH EVEN AN APPROXIMATELY CORRECT RESULT, WOULD SEEM UNFAIRLY BURDENSOME.

HERE, AGAIN, IT IS SUGGESTED THAT THE ADMINISTRATIVE REVIEWERS STUDY THE CLAIM WITH THIS PROBLEM IN MIND AND MAKE SUCH EQUITABLE ADJUSTMENTS AS THEIR EXPERIENCE AND KNOWLEDGE OF ECONOMIC CONDITIONS GENERALLY WOULD INDICATE TO BE JUST, SEEKING ADDITIONAL DATA FROM CLAIMANTS ONLY IN CASES IN WHICH THEY CONSIDER IT NECESSARY SO TO DO.

3. TO WHAT EXTENT MUST A CLAIMANT'S INCREASED COSTS HAVE BEEN DUE DIRECTLY TO COMPLIANCE WITH THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR APPLICABLE CODES OF FAIR COMPETITION:

(A) SOME CLAIMANTS HAVE INCLUDED CLAIMS FOR INCREASED WAGES WHICH RESULTED FROM THEIR DESIRE TO MAINTAIN WAGE DIFFERENTIALS, ALTHOUGH THE PARTICULAR CODES TO WHICH SUCH CLAIMANTS WERE SUBJECT DID NOT SO REQUIRE.

IT WOULD SEEM TO THIS DEPARTMENT THAT THE FAIR AND EQUITABLE SETTLEMENT OF SUCH CLAIMS WOULD REQUIRE THE PAYMENT OF THE ADDITIONAL COSTS THUS INDIRECTLY INCURRED.

(B) A NUMBER OF CLAIMS ARE FOR INCREASED MATERIAL COSTS. IT IS BELIEVED THAT IN MOST CASES, SUCH INCREASED COSTS WERE DUE TO THE GENERAL INCREASE OF PRICES (CAUSED BY THE NATIONAL INDUSTRIAL RECOVERY ACT OR BY GENERAL ECONOMIC CONDITIONS) AND NOT TO THE COMPLIANCE BY THE PARTICULAR CLAIMANTS WITH THE PROVISIONS OF THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR APPLICABLE CODES OF FAIR COMPETITION.

INCREASED MATERIAL COSTS DUE TO ANY ONE CLAIMANT'S COMPLIANCE CAN BE SHOWN ONLY IN THE FOLLOWING TWO TYPES OF CASES:

(A) CASES IN WHICH THE INCREASED MATERIAL COSTS WERE DUE TO COMPLIANCE WITH THE PROVISIONS OF SECTION 12 OF THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR WITH THE PROVISIONS OF ARTICLE VI OF THE CODE OF FAIR COMPETITION FOR THE CONSTRUCTION INDUSTRY, WHICH REQUIRE A BUYER WHO SHALL HAVE CONTRACTED PRIOR TO JUNE 16, 1933, TO PURCHASE GOODS AT A FIXED PRICE FOR DELIVERY DURING THE PERIOD OF THE PRESIDENT'S REEMPLOYMENT AGREEMENT, TO MAKE AN APPROPRIATE ADJUSTMENT OF SUCH PRICE TO MEET ANY INCREASE IN COST TO THE SELLER CAUSED BY THE SELLER HAVING SIGNED THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR HAVING BECOME BOUND BY ANY CODE OF FAIR COMPETITION.

(B) CASES IN WHICH THE INCREASED MATERIAL COSTS WERE DUE TO COMPLIANCE WITH THE PROVISIONS OF SECTION 10 OF THE PRESIDENT'S REEMPLOYMENT AGREEMENT, WHICH REQUIRE EACH SIGNATORY TO PATRONIZE ESTABLISHMENTS WHICH HAVE SIGNED SUCH AGREEMENT, AND IN WHICH IT IS ESTABLISHED THAT THE CLAIMANT COULD HAVE PURCHASED THE MATERIALS IN QUESTION AT A LOWER PRICE FROM AN ESTABLISHMENT WHICH DID NOT SIGN SUCH AGREEMENT.

LITERALLY READ, THE ACT SEEMS TO REQUIRE THAT THE INCREASED COSTS OF A CLAIMANT BE DUE TO HIS COMPLIANCE. IT IS THE VIEW OF THIS DEPARTMENT, HOWEVER, THAT A CONSTRUCTION OF THE ACT WHICH LIMITED RECOVERY TO THE TWO CASES INDICATED ABOVE, WOULD DO VIOLENCE TO ITS SPIRIT; AND IT IS SUBMITTED THAT THE ACT SHOULD BE CONSTRUED, IF POSSIBLE, SO AS TO PERMIT OF RECOGNITION OF CLAIMS FOR INCREASED MATERIAL COSTS IN ALL CASES IN WHICH SUCH INCREASED COSTS WERE DUE TO THE ENACTMENT OF THE NATIONAL INDUSTRIAL RECOVERY ACT.

(C) IN CERTAIN CASES, CLAIMS ARE PREDICATED UPON THE INCREASED COST OF REPLACING STOCK ON HAND WHICH HAD BEEN ACQUIRED PRIOR TO AUGUST 10, 1933, AND WHICH WAS USED ON GOVERNMENT PROJECTS. OTHER CLAIMANTS HAVE INCLUDED THE EXPENSE OF HAVING AN ACCOUNTANT PREPARE THEIR CLAIMS.

IT IS THE VIEW OF THIS DEPARTMENT THAT NEITHER TYPE OF CLAIM IS PROPER FOR ALLOWANCE UNDER THE ACT.

(D) CERTAIN CLAIMANTS HAVE CONTENDED THAT THEIR INCREASED LABOR COSTS WERE ATTRIBUTABLE TO LABOR-UNION ACTIVITIES RESULTING DIRECTLY FROM THE ENACTMENT OF SECTION 7 (A) OF THE NATIONAL INDUSTRIAL RECOVERY ACT, WHICH NECESSITATED WAGE INCREASES BEYOND THOSE REQUIRED BY THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR APPLICABLE CODES OF FAIR COMPETITION.

IT IS THE VIEW OF THIS DEPARTMENT THAT SUCH CLAIMS SHOULD NOT BE ALLOWED.

4. THE PROBLEMS INDICATED BELOW HAVE ARISEN WITH RESPECT TO THE NATURE OF THE COMPLIANCE WITH THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR APPLICABLE CODES OF FAIR COMPETITION, WHICH IS A PREREQUISITE TO ALLOWANCE OF A CLAIM UNDER THE ACT.

(A) CERTAIN CLAIMS HAVE BEEN PRESENTED BY PERSONS WHO DID NOT SIGN THE PRESIDENT'S REEMPLOYMENT AGREEMENT, AND WHO, DURING A PART OR ALL OF THE TIME DURING WHICH THE ADDITIONAL COSTS WERE INCURRED, WERE NOT SUBJECT TO ANY CODE OF FAIR COMPETITION. IN SOME CASES, THE CLAIMANT STATES THAT HE DID NOT SIGN THE PRESIDENT'S REEMPLOYMENT AGREEMENT BECAUSE OF THE FACT THAT A CODE WAS IN THE PROCESS OF PREPARATION. IN OTHER CASES, NO EXPLANATION IS GIVEN. HOWEVER, EACH SUCH CLAIMANT STATES THAT HE INCREASED WAGES AND COMPLIED IN ALL RESPECTS WITH THE SPIRIT OF THE PRESIDENT'S REEMPLOYMENT AGREEMENT DURING THE PERIOD.

IT IS THE OPINION OF THIS DEPARTMENT THAT, IN VIEW OF THE REQUIREMENT OF THE ACT THAT THE INCREASED COSTS BE INCURRED "BY REASON OF COMPLIANCE * * * WITH A CODE OR CODES OF FAIR COMPETITION * * * OR * * * WITH AN AGREEMENT WITH THE PRESIDENT EXECUTED UNDER SECTION 4 (A) OF SAID ACT," NO CLAIM SHOULD BE ALLOWED IN RESPECT OF INCREASED COSTS DURING ANY PERIOD PRIOR TO THE DATE OF THE EXECUTION BY THE CLAIMANT OF THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR THE DATE UPON WHICH AN APPLICABLE CODE OF FAIR COMPETITION BECAME EFFECTIVE.

(B) IT HAS BEEN FOUND THAT CERTAIN CLAIMANTS HAVE VIOLATED SOME OF THE PROVISIONS OF THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR OF APPLICABLE CODES OF FAIR COMPETITION. SOMETIMES, SUCH VIOLATIONS ARE IN CONNECTION WITH WORK DONE ON THE PROJECT IN RESPECT OF WHICH THE CLAIM IS MADE; SOMETIMES ANOTHER PROJECT IS INVOLVED. IN CERTAIN CASES THE NONCOMPLIANCE CONSISTS OF A FAILURE TO PAY AN ASSESSMENT LEVIED BY A PARTICULAR CODE AUTHORITY; IN OTHER CASES, IT HAS BEEN DUE TO A FAILURE TO ABIDE BY SECTION 7 (A). IN SOME CASES, THE CLAIMANT WAS IN VIOLATION AT THE TIME THAT THE WORK, FOR WHICH THE CLAIM IS MADE, WAS PERFORMED BUT HAS SUBSEQUENTLY COMPLIED. IN OTHER CASES THE VIOLATION POSTDATED THE PERFORMANCE OF THE WORK IN RESPECT OF WHICH THE CLAIM IS MADE.

THIS DEPARTMENT HAS REACHED THE CONCLUSION THAT ALL CLAIMS SHOULD BE RECOGNIZED, SO FAR AS VIOLATIONS ARE CONCERNED, OF CLAIMANTS WHO WERE NOT IN VIOLATION OF THE PRESIDENT'S REEMPLOYMENT AGREEMENT OR OF ANY CODE PROVISION DURING ANY PART OF THE PERIOD OF TIME SUCH CLAIMANTS WERE ENGAGED UPON THE WORK IN RESPECT OF WHICH THEIR CLAIMS ARE MADE; AND THAT ALL OTHER CLAIMS BE REJECTED, EXCEPT IN CASES IN WHICH THE VIOLATION WAS SUBSEQUENTLY ADJUSTED TO THE SATISFACTION OF THE COMPLIANCE DIVISION OF THE NATIONAL INDUSTRIAL RECOVERY ADMINISTRATION OR, IN CASES ARISING UNDER SECTION 7A (1) OR (2), TO THE SATISFACTION OF THE NATIONAL LABOR RELATIONS BOARD.

5. SECTION 4 PROVIDES THAT CLAIMS MUST BE PRESENTED ALTERNATIVELY WITHIN SIX MONTHS AFTER JUNE 16, 1934, THE DATE OF THE APPROVAL OF THE ACT.

IT IS ASSUMED, IN VIEW OF THE FACT THAT DECEMBER 16, 1934, WAS A SUNDAY, THAT CLAIMS RECEIVED ON MONDAY, DECEMBER 17, 1934, ARE PROPER FOR CONSIDERATION.

6. IN VIEW OF THE FACT THAT YOU ARE VESTED WITH DISCRETIONARY POWER TO CONSIDER CLAIMS PRESENTED AFTER THE TIME LIMIT FIXED IN THE ACT, THIS DEPARTMENT PLANS TO SUBMIT TO YOUR OFFICE, PRIOR TO ADMINISTRATIVE EXAMINATION, ALL CLAIMS WHICH ARE PRESENTED AFTER THE STATUTORY PERIOD OF LIMITATION. DOES THIS PROCEDURE MEET WITH YOUR APPROVAL?

AS TO QUESTION 1, IT IS RECOGNIZED BY ALL WHO ARE INFORMED IN SUCH MATTERS THAT THERE ARE VARYING DEGREES OF EFFICIENCY IN VARIOUS MANUFACTURING ESTABLISHMENTS AND CONTRACTING CONCERNS AND THAT COSTS OF PERFORMANCE VARY UP OR DOWN WITHIN MINIMUM AND MAXIMUM LIMITS SOMEWHAT IN ACCORDANCE WITH THE DEGREE OF EFFICIENCY EXERCISED BY A CONTRACTOR. EVEN IF IT WERE POSSIBLE TO DETERMINE WITH ANY DEGREE OF ACCURACY THE MINIMUM AND MAXIMUM DEGREES OF EFFICIENCY FOR MANUFACTURING AND OTHER CONTRACTING CONCERNS PRESENTING CLAIMS UNDER THE ACT OF JUNE 16, 1934, 48 STAT. 974, AND TO STRIKE A GENERAL AVERAGE THEREOF AS AMONG ALL SUCH CONTRACTORS OR AMONG CONTRACTORS ENGAGED IN MANUFACTURING, OTHERS ENGAGED IN CONSTRUCTION WORK, AND OTHER VARIOUS CLASSES--- WHICH WOULD SEEM TO BE A HOPELESS TASK- -- THE APPLICATION OF SUCH GENERAL AVERAGE WOULD OPERATE TO ALLOW SOME CONTRACTORS MORE THAN THE MAXIMUM OF 7 PERCENT PROFIT. THERE HAS BEEN NO SHOWING THAT ADMINISTRATIVE REVIEWERS OF CLAIMS UNDER THE ACT OF JUNE 16, 1934, HAVE ANY SUCH INTIMATE KNOWLEDGE OF COSTS IN THE VARIOUS PLANTS AND ORGANIZATIONS OF CONTRACTORS WHO MAY PRESENT CLAIMS UNDER THE ACT OF JUNE 16, 1934, AS WOULD ENABLE SUCH REVIEWERS TO DETERMINE WITH ANY DEGREE OF ACCURACY WHETHER THE ALLOWANCE OF CLAIMS FOR EXCESS COSTS DUE TO ALLEGED CODE COMPLIANCE AFTER AUGUST 10, 1933, IN THE PERFORMANCE OF CONTRACTS ENTERED INTO PRIOR TO THAT DATE, WOULD RESULT IN THE CONTRACTORS RECEIVING PROFITS IN EXCESS OF THE ALLOWABLE MAXIMUM OF 7 PERCENT. CONSEQUENTLY, THE ONLY PROPER PROCEDURE IN THIS MATTER IS TO REQUIRE CLAIMANT CONTRACTORS TO PRESENT SUCH EVIDENCE OF COSTS OF PERFORMANCE UNDER THE ENTIRE CONTRACT IN ADDITION TO THE CLAIMED INCREASED COST OF PERFORMANCE AFTER AUGUST 10, 1933, AND FOR SUCH ADMINISTRATIVE EXAMINATIONS TO BE MADE, AS WILL DEFINITELY ESTABLISH THE MATTER AS ONE OF FACT. IT MAY BE ADDED THAT THIS SECTION 3 OF THE ACT OF JUNE 16, 1934, CONTAINING THE 7 PERCENT PROFIT IS LIMITATION SUBSTANTIALLY AS ADMINISTRATIVELY DRAFTED AND RECOMMENDED BY THE SECRETARY OF THE TREASURY IN LETTER DATED APRIL 4, 1934, TO THE CONGRESS.

AS TO QUESTION 2, IT IS, OF COURSE, THE GENERAL RULE THAT A CLAIMANT MUST ESTABLISH THE FACTS OF HIS CLAIM AND SUCH RULE HAS BEEN CONSISTENTLY APPLIED FOR A LONG NUMBER OF YEARS. THE ACT OF JUNE 16, 1934, EVIDENCES NO INTENTION TO DEPART FROM THAT SALUTARY RULE AND IT IS NOT SUFFICIENT, TO ESTABLISH A CLAIM UNDER SAID ACT, FOR A CONTRACTOR TO ALLEGE THAT HIS COSTS OF PERFORMANCE AFTER AUGUST 10, 1933, OF CONTRACTS ENTERED INTO PRIOR TO SAID DATE HAVE BEEN INCREASED IN A CERTAIN AMOUNT AND THAT HIS PROFIT, IF ALLOWED SAID AMOUNT, WOULD NOT EXCEED THE MAXIMUM OF 7 PERCENT STATED IN THE STATUTE. IN GENERAL, THE ANSWER TO QUESTION 1 IS APPLICABLE TO QUESTION 2; THAT IS TO SAY, THE ADMINISTRATIVE FINDINGS OF FACTS AND RECOMMENDATIONS UNDER THE ACT OF JUNE 16, 1934, MUST BE BASED ON FACTS AND NOT CONJECTURES. NO INCREASED COSTS ARE ALLOWABLE EXCEPT THOSE ESTABLISHED AS DUE "DIRECTLY" TO "COMPLIANCE WITH A CODE OF FAIR COMPETITION OR WITH AN AGREEMENT WITH THE PRESIDENT.' WITH RESPECT TO QUESTION 3 (A), IT WOULD APPEAR TO BE ANSWERED BY THE ANSWER TO QUESTION 2, SUPRA. SEE, ALSO, SECTION 1 OF THE ACT WHICH LIMITS TO CLAIMS "FOR ADDITIONAL COSTS INCURRED BY REASON OF COMPLIANCE ON AND AFTER AUGUST 10, 1933, WITH A CODE OR CODES OF FAIR COMPETITION APPROVED BY THE PRESIDENT" OR CAUSED BY COMPLIANCE WITH THE PRESIDENT'S REEMPLOYMENT AGREEMENT. THE CONTRACTOR MUST SHOW THAT HE DID, IN FACT, COMPLY WITH THE APPLICABLE APPROVED CODE OF FAIR COMPETITION AND, IF NO CODE, THEN WITH THE PRESIDENT'S REEMPLOYMENT AGREEMENT AND THAT THE CLAIMED EXCESS COSTS WERE IN FACT DIRECTLY DUE TO SUCH COMPLIANCE. NO CLAIMS OTHER THAN THOSE FOR THE AMOUNT OF COST INCREASES DUE DIRECTLY TO COMPLIANCE WITH THE APPLICABLE APPROVED CODE OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT MAY BE ALLOWED, WHETHER TERMED WAGE DIFFERENTIALS OR OTHERWISE.

WITH RESPECT TO QUESTION 3 (B) RELATING TO INCREASED MATERIAL COSTS, PAYMENTS MADE PRIOR TO JUNE 16, 1934, BY A PRIME CONTRACTOR AS PER YOUR ILLUSTRATIONS (A) AND (B) AND CONCLUSIVELY ESTABLISHED WOULD APPEAR POSSIBLE OF CONSIDERATION, BUT THE LAW CLEARLY DOES NOT PERMIT OF A CONSTRUCTION TO COVER ALL INCREASED MATERIAL COSTS EVEN IF DUE IN PART TO THE RESULTING EFFECT OF ADMINISTRATION OF THE RECOVERY ACT OF JUNE 16, 1933.

REPLACEMENT OF STOCK ON HAND AND COST OF PREPARATION OF CLAIMS UNDER THE ACT OF JUNE 16, 1934, ARE NOT WITHIN ITS TERMS. EXCESS COSTS DUE TO INCREASES OF WAGES BEYOND THOSE REQUIRED BY THE APPLICABLE APPROVED CODE OF FAIR COMPETITION OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT ARE NOT ALLOWABLE.

THE ADMINISTRATIVE CONCLUSION WITH RESPECT TO QUESTION 4 (A) APPEARS CORRECT AND, ALSO, AS TO QUESTION 4 (B) EXCEPT THAT WHERE THE VIOLATION POSTDATED THE PERFORMANCE OF THE CONTRACT IN RESPECT TO WHICH THE CLAIM IS MADE, SUCH POSTDATED VIOLATION DOES NOT AFFECT THE RIGHTS OF THE CONTRACTOR AND SUBCONTRACTOR UNDER THE ACT OF JUNE 16, 1934, WHETHER OR NOT ADJUSTED TO THE SATISFACTION OF THE NATIONAL LABOR RELATIONS BOARD OR SOME OTHER AGENCY.