A-68085, AUGUST 11, 1938, 18 COMP. GEN. 148

A-68085: Aug 11, 1938

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CONTRACTS - INCREASED COSTS - PROCESSING TAXES AND NATIONAL INDUSTRIAL RECOVERY ACT A CONTRACTOR IS NOT ENTITLED TO RELIEF UNDER THE ACT OF JUNE 16. A CONTRACTOR IS NOT ENTITLED TO RELIEF UNDER THE ACT OF JUNE 16. WHERE THE INCREASED WAGE RATES FORMING THE BASIS FOR THE CLAIM WERE BROUGHT ABOUT BY THE DEMANDS OF A GARMENT WORKERS' UNION RATHER THAN COMPLIANCE WITH THE APPLICABLE COTTON TEXTILE CODE. THE EMPLOYEES INVOLVED WERE FOR THE MOST PART ALREADY IN RECEIPT OF A WAGE RETURN EQUAL TO OR IN EXCESS OF THE CODE MINIMUM. A CONTRACTOR IS NOT ENTITLED TO REIMBURSEMENT FOR ALLEGED INCREASED COSTS AS A RESULT OF PROCESSING TAXES IMPOSED ON MATERIAL USED UNDER THE CONTRACT AND PASSED ON TO HIM BY THE SUBCONTRACTORS FROM WHOM THE MATERIAL WAS PROCURED AS A PART OF THE PURCHASE PRICE.

A-68085, AUGUST 11, 1938, 18 COMP. GEN. 148

CONTRACTS - INCREASED COSTS - PROCESSING TAXES AND NATIONAL INDUSTRIAL RECOVERY ACT A CONTRACTOR IS NOT ENTITLED TO RELIEF UNDER THE ACT OF JUNE 16, 1934, 48 STAT. 974, IN CONNECTION WITH THE FURNISHING OF MECHANICS' SUITS, FOR ASSERTED INCREASED COSTS AS FOR COMPLIANCE ON AND AFTER AUGUST 10, 1933, WITH THE NATIONAL INDUSTRIAL RECOVERY ACT OF JUNE 16, 1933, 48 STAT. 195, WHERE THE INCREASED COSTS COMPLAINED OF REPRESENT THE INCREASED PRICES OF THE MATERIALS OBTAINED FROM SUBCONTRACTORS WHO HAD COMPLIED WITH THE APPLICABLE CODE OR CODES OF FAIR COMPETITION, NOT PAID BY THE CONTRACTOR BECAUSE OF ANY MANDATE OF THE APPLICABLE COTTON TEXTILE CODE BUT MERELY AS AN INCIDENT TO THE SUBCONTRACTOR'S COMPLIANCE. A CONTRACTOR IS NOT ENTITLED TO RELIEF UNDER THE ACT OF JUNE 16, 1934, 48 STAT. 974, IN CONNECTION WITH THE FURNISHING OF MECHANICS' SUITS, FOR ASSERTED INCREASED COSTS AS FOR COMPLIANCE ON AND AFTER AUGUST 10, 1933, WITH THE NATIONAL INDUSTRIAL RECOVERY ACT OF JUNE 16, 1933, 48 STAT. 195, WHERE THE INCREASED WAGE RATES FORMING THE BASIS FOR THE CLAIM WERE BROUGHT ABOUT BY THE DEMANDS OF A GARMENT WORKERS' UNION RATHER THAN COMPLIANCE WITH THE APPLICABLE COTTON TEXTILE CODE, AND THE EMPLOYEES INVOLVED WERE FOR THE MOST PART ALREADY IN RECEIPT OF A WAGE RETURN EQUAL TO OR IN EXCESS OF THE CODE MINIMUM. A CONTRACTOR IS NOT ENTITLED TO REIMBURSEMENT FOR ALLEGED INCREASED COSTS AS A RESULT OF PROCESSING TAXES IMPOSED ON MATERIAL USED UNDER THE CONTRACT AND PASSED ON TO HIM BY THE SUBCONTRACTORS FROM WHOM THE MATERIAL WAS PROCURED AS A PART OF THE PURCHASE PRICE, WHERE THE CONTRACT PRICE ADJUSTMENT STIPULATION PROVIDES FOR ADJUSTMENT FOR TAXES SUBSEQUENTLY IMPOSED IF ,PAID BY THE CONTRACTOR," IT BEING WELL SETTLED THAT A TAX ONCE PAID CEASES TO BE SUCH AND "THE AMOUNT ADDED BECAUSE OF THE TAX IS PAID TO GET THE GOODS AND FOR NOTHING ELSE.' BATAVIA MILLS AND RIGHTER COURT OF CLAIMS CASES, DISTINGUISHED.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE COWDEN MANUFACTURING CO., AUGUST 11, 1938:

YOUR LETTER OF JUNE 15, 1937, REQUESTS REVIEW OF THAT PART OF SETTLEMENT NO. 0418369 DATED SEPTEMBER 2, 1936, WHICH DISALLOWED YOUR CLAIM FOR $13,071.79--- REDUCED TO $12,873.72--- FOR REIMBURSEMENT OF ASSERTED INCREASED COSTS INCURRED IN CONNECTION WITH THE FURNISHING OF MECHANICS' SUITS UNDER CONTRACT NO. W-669-QM-4800, DATED JUNE 24, 1933, AS A RESULT OF COMPLIANCE ON AND AFTER AUGUST 10, 1933, WITH THE NATIONAL INDUSTRIAL RECOVERY ACT OF JUNE 16, 1933, 48 STAT. 195, AND FOR REIMBURSEMENT OF ALLEGED INCREASED COSTS AS A RESULT OF PROCESSING TAXES BEING IMPOSED ON MATERIAL USED IN THE MANUFACTURE OF MECHANICS' SUITS FURNISHED UNDER SAID CONTRACT.

YOU REQUEST REVIEW AS TO ALL ITEMS DISALLOWED IN THE AFORESAID SETTLEMENT AND EACH ITEM WILL BE TAKEN UP SEPARATELY, WHICH IS SET OUT IN THE BRIEF ATTACHED TO YOUR LETTER OF JUNE 15, 1937.

WITH RESPECT TO THE MATTER OF INCREASED COST OF MATERIALS YOU STATE THAT THE SUBCONTRACTORS FROM WHOM YOU OBTAINED THE MATERIALS FOR THE MANUFACTURE OF THE SUITS IN QUESTION COMPLIED WITH THE APPLICABLE CODE OR CODES OF FAIR COMPETITION AND THAT YOU COULD NOT HAVE OBTAINED THE MATERIALS FROM THESE SUBCONTRACTORS HAD YOU NOT PAID THE INCREASED COSTS RESULTING FROM THEIR COMPLIANCE WITH THE APPLICABLE CODE OR CODES, AND THAT THE PAYMENTS ON YOUR PART OF SUCH INCREASED COSTS WERE NOT VOLUNTARY AS STATED IN THE SETTLEMENT.

IF IT BE CONCEDED THAT YOUR PAYMENT OF THESE INCREASED COSTS WAS NOT VOLUNTARY, IT DOES NOT FOLLOW THAT SUCH PAYMENT BY YOU WAS COMPELLED OR EVEN INDUCED BY THE COMPLIANCE REQUIREMENTS OF THE COTTON TEXTILE CODE, TO WHICH YOUR FIRM WAS SUBJECT--- AND IT IS ONLY INCREASED COSTS OF THIS LATTER TYPE WHICH ARE FOR REIMBURSEMENT UNDER THE TERMS OF THE ACT OF JUNE 16, 1934, 48 STAT. 974. IT IS STATED IN THE SETTLEMENT, AND IT IS NOT DISPUTED BY YOU, THAT THERE WAS NO PROVISION IN THE COTTON TEXTILE CODE OF JULY 17, 1933, MAKING YOU LIABLE TO YOUR SUBCONTRACTORS FOR INCREASED COSTS RESULTING FROM COMPLIANCE WITH AN APPLICABLE CODE WHERE THE SUBCONTRACTS WERE ENTERED INTO SUBSEQUENT TO JUNE 16, 1933. YOUR MATERIALMEN MAY HAVE FOUND IT NECESSARY, AS AN INCIDENT TO THEIR COMPLIANCE, TO RAISE THE PRICES OF MATERIALS FURNISHED TO YOU, BUT IT IS NOT SHOWN THAT YOU PAID THESE ADDITIONAL AMOUNTS BECAUSE THE MANDATES OF THE COTTON TEXTILE CODE SO REQUIRED. ANY INCREASED MATERIAL COSTS INCURRED BY YOU ARE NOT SHOWN, THEREFORE, TO HAVE RESULTED FROM YOUR COMPLIANCE WITH A CODE OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT; ANY OBLIGATION ON YOUR PART TO PAY SUCH INCREASED COSTS MAINTAINED REGARDLESS OF WHETHER YOU COMPLIED WITH THE CODE OR NOT. ACCORDINGLY, YOUR CLAIM FOR INCREASED MATERIAL COSTS IS NOT WITHIN THE TERMS OF THE ACT OF JUNE 16, 1934, WHICH LIMITED ITS BENEFITS TO THE INCREASED COSTS INCURRED BY A CONTRACTOR DUE TO HIS COMPLIANCE WITH A CODE OR THE PRESIDENT'S REEMPLOYMENT AGREEMENT.

THE APPARENT VIOLATIONS OF THE PROVISIONS OF THE COTTON TEXTILE CODE LISTED IN THE SETTLEMENT OF SEPTEMBER 2, 1936, AND WHICH WERE THE BASIS FOR THE DISALLOWANCE OF INCREASED LABOR COSTS CLAIMED BY YOU, HAVE NOW BEEN THE SUBJECT OF FURTHER EXPLANATION ON YOUR BEHALF. FOR INSTANCE IT WAS STATED IN THE SETTLEMENT THAT YOUR PAY ROLL RECORDS INDICATED THAT A 52-HOUR WEEK PREDOMINATED IN THE CUTTING DEPARTMENT DURING THE WEEK PRECEDING COMPLIANCE AND THAT AFTER THE CODE BECAME EFFECTIVE 12 OF THESE EMPLOYEES RECEIVED LESS FOR THE 40-HOUR CODE WEEK THAN FOR THE LONGER PRE- CODE WEEK--- IN VIOLATION OF SECTION XIII OF THE COTTON TEXTILE CODE (WHICH REQUIRED THE SAME NET PAY FOR A CODE WEEK OF 40 HOURS AS FOR THE LONGER PRE-CODE WEEK). YOU POINTED OUT IN YOUR LETTER OF JUNE 14, 1937, HOWEVER, THAT A 40-HOUR WEEK PREDOMINATED IN THE CUTTING DEPARTMENT BEFORE THE CODE AND THAT ADDITIONAL HOURS IN EXCESS OF THIS NUMBER WERE OVERTIME FOR WHICH DOUBLE THE REGULAR RATE WAS PAID, AND THAT YOU IN FACT INCREASED THE RATE OF THESE EMPLOYEES 25 PERCENT ON JULY 17, 1933. AS A RESULT OF THIS REPRESENTATION SECTION XIII OF THE CODE SEEMED INAPPLICABLE AND YOU WERE THEREFORE REQUESTED BY OFFICE LETTER OF JULY 29, 1937, TO EXPLAIN WHY A 25 PERCENT WAGE INCREASE WAS DEEMED NECESSARY TO CODE COMPLIANCE, SINCE MOST OF YOUR EMPLOYEES, UPON THE BASIS OF YOUR EXPLANATION, APPEARED TO HAVE BEEN PAID, EVEN PRIOR TO THE CODE, A WAGE EQUAL TO OR IN EXCESS OF THAT REQUIRED FOR COMPLIANCE. IN YOUR REPLY OF OCTOBER 26, 1937, YOU FURNISHED A COPY OF A LETTER FROM THE GENERAL SECRETARY TREASURER OF THE UNITED GARMENT WORKERS OF AMERICA DATED JULY 7, 1933, WHEREIN YOU WERE "NOTIFIED TO RESTORE THE LAST REDUCTION GRANTED BY THIS ORGANIZATION TO THE WORKERS NOT LATER THAN THE WEEK OF JULY 17, 1933.' THIS SO-CALLED RESTORATION AMOUNTED IN EFFECT TO A WAGE ADVANCE OF APPROXIMATELY 25 PERCENT.

IT IS APPARENT, THEREFORE, THAT THE INCREASED LABOR COST OCCASIONED BY THIS INCREASE IN WAGES WAS BROUGHT ABOUT FOR THE MOST PART BY YOUR COMPLIANCE WITH THE DEMANDS OF THE GARMENT WORKERS' UNION RATHER THAN BY YOUR COMPLIANCE WITH THE REQUIREMENTS OF THE COTTON TEXTILE CODE. THE FACT THAT THE EFFECTIVE DATE OF THIS CODE FELL ON THE SAME DAY AS THE EFFECTIVE DATE OF THE DEMAND OF THE UNITED GARMENT WORKERS OF AMERICA TO "RESTORE" WAGE RATES SEEMS TO HAVE BEEN COINCIDENTAL, AND THE 25 PERCENT INCREASE WOULD APPARENTLY HAVE TAKEN PLACE EVEN IF THE CODE HAD NOT GONE INTO EFFECT ON THAT DATE.

OF COURSE, THE CODE MADE MANDATORY A WAGE INCREASE TO EMPLOYEES WHO RECEIVED LESS THAN THE CODE WAGE PRIOR TO JULY 17, 1933, BUT THE INCREASE THUS REQUIRED ONLY AMOUNTED TO THE DIFFERENCE BETWEEN THE PRE CODE RATE AND THE MINIMUM NECESSARY TO MEET COMPLIANCE REQUIREMENTS. IT APPEARS, AS NOTED ABOVE, THAT FOR THE MOST PART YOUR EMPLOYEES RECEIVED A WAGE RETURN EQUAL TO OR IN EXCESS OF THE CODE MINIMUM EVEN PRIOR TO THE EFFECTIVE DATE OF THAT INSTRUMENT. WITH RESPECT TO THE LIMITED NUMBER OF INSTANCES WHERE THE WEEKLY WAGE PRIOR TO THE CODE APPEARS TO HAVE BEEN LESS THAN YOUR CODE REQUIRED THERE ARE NO SUFFICIENT DATA OF RECORD TO PERMIT ACCURATE DETERMINATION OF THE AMOUNT, IF ANY, OF EXCESS COSTS WHICH RESULTED IN THE PERFORMANCE OF YOUR CONTRACT FROM THE NECESSITY OF RAISING EMPLOYEES TO THE COMPLIANCE MINIMUM. NO RIGHT TO REIMBURSEMENT FOR INCREASED LABOR COSTS IS ESTABLISHED THEREFORE BY THE PRESENT RECORD.

WITH RESPECT TO THE MATTER OF PROCESSING TAXES TOTALING $4,469.98 ALLEGED TO HAVE BEEN PAID TO YOUR SUBCONTRACTORS, YOU INVITE ATTENTION TO THE RECENT CASES OF BATAVIA MILLS, INC. V. UNITED STATES, CT.CLS.NO. 43176, AND OF G. HARRY RIGHTER V. UNITED STATES, CT.CLS.NO. 43346, BOTH DECIDED JUNE 1, 1937. THE CONTRACT UNDER CONSIDERATION IN THE BATAVIA MILLS CASE CONTAINED THE FOLLOWING PROVISION:

IT IS UNDERSTOOD THAT THE PRICES SET FORTH IN THIS CONTRACT INCLUDE AS A PART OF THE PURCHASE PRICE TO BE PAID FOR THE SUPPLIES ALL SALES TAX DUTIES, IMPOSTS, REVENUES, EXCISE, OR OTHER TAXES APPLICABLE TO THE SUPPLIES COVERED BY THIS CONTRACT UNDER ANY FEDERAL LAW IN FORCE UPON THE DATE THE BID UPON WHICH THIS CONTRACT IS BASED WAS OPENED. IF ANY CHANGE IN THE AMOUNT OF SUCH TAXES IS MADE BY CONGRESS OR IF ANY NEW TAXES ARE MADE APPLICABLE TO SUCH SUPPLIES BY CONGRESS AFTER THE DATE OF OPENING OF THE BID UPON WHICH THIS CONTRACT IS BASED, THE PRICES NAMED IN THIS CONTRACT WILL BE INCREASED OR DECREASED ACCORDINGLY.

THE RIGHTER CASE INVOLVED A SIMILAR CONTRACT PROVISION. A QUITE DIFFERENT PROVISION, HOWEVER, IS UNDER CONSIDERATION IN THE INSTANT CASE. IT READS:

FEDERAL TAXES.--- PRICES BID HEREIN INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE MATERIAL ON THIS BID. IF ANY SALES TAX, PROCESSING TAX, ADJUSTMENT CHARGE, OR OTHER TAXES OR CHARGES ARE IMPOSED OR CHANGED BY THE CONGRESS AFTER THE DATE SET FOR THE OPENING OF THIS BID AND MADE APPLICABLE DIRECTLY UPON THE PRODUCTION, MANUFACTURE, OR SALE OF THE SUPPLIES COVERED BY THIS BID, AND ARE PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES HEREIN CONTRACTED FOR, THEN THE PRICES NAMED IN THIS BID WILL BE INCREASED OR DECREASED ACCORDINGLY, AND ANY AMOUNT DUE THE CONTRACTOR AS A RESULT OF SUCH CHANGE WILL BE CHARGED TO THE GOVERNMENT AND ENTERED ON VOUCHERS (OR INVOICES) AS SEPARATE ITEMS. A LIKE PROVISION WILL BE INCLUDED IN THE CONTRACT.

THE COURT MERELY HELD IN THE BATAVIA MILLS AND RIGHTER CASES THAT THE PROVISIONS OF THE CONTRACTS THERE UNDER CONSIDERATION DID NOT REQUIRE PAYMENT OF THE TAX DIRECTLY TO THE UNITED STATES BY THE CONTRACTOR IN ORDER FOR THE UNITED STATES TO BECOME LIABLE TO BEAR THIS ADDED BURDEN. BUT THOSE CONTRACTS MERELY STIPULATED THAT IF ANY NEW TAXES WERE MADE APPLICABLE TO THE SUPPLIES COVERED BY THE AGREEMENTS THE PRICES WOULD BE INCREASED OR DECREASED ACCORDINGLY; THE PRESENT CONTRACT PROVIDES THAT IF ANY TAXES OF CERTAIN TYPES ARE IMPOSED AND ARE PAID BY THE CONTRACTOR ON THE ARTICLES CONTRACTED FOR THE PRICES WILL BE INCREASED OR DECREASED ACCORDINGLY. THE DISTINCTION BETWEEN THE PROVISIONS SEEMS CLEAR. UNDER THE AGREEMENT UPON WHICH YOUR CLAIM DEPENDS IT IS A CONDITION PRECEDENT TO A RIGHT TO PASS THE TAX ON TO THE GOVERNMENT THAT YOU SHALL HAVE PAID IT. NOR CAN IT BE SUCCESSFULLY CONTENDED THAT YOU PAID THE TAX IN THAT IT WAS PASSED ON TO YOU BY YOUR SUBCONTRACTORS AS A PART OF THE PURCHASE PRICE, BECAUSE IT IS WELL SETTLED THAT A TAX ONCE PAID CEASES TO BE SUCH AND "THE AMOUNT ADDED BECAUSE OF THE TAX IS PAID TO GET THE GOODS AND FOR NOTHING ELSE.' LASH'S PRODUCTS CO. V. UNITED STATES, 278 U.S. 175, 176. UNDER THE FACTS AND CIRCUMSTANCES OF YOUR CASE IT APPEARS THAT THE AMOUNT CLAIMED FOR SUCH TAXES WERE PROPERLY DISALLOWED.

UPON REVIEW, THE SETTLEMENT OF SEPTEMBER 2, 1936, MUST BE, AND HEREBY IS, SUSTAINED.