B-113252, MAY 6, 1954, 33 COMP. GEN. 543

B-113252: May 6, 1954

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PROVIDED THAT IT IS ADMINISTRATIVELY AUTHORIZED AND DETERMINED THAT SUCH CHARGES ARE REASONABLE AND EQUITABLE. 1954: REFERENCE IS MADE TO LETTER OF NOVEMBER 23. THERE WAS BROUGHT TO YOUR ATTENTION THE SPECIFIC CASE ARISING UNDER CONTRACT NO. WHERE THE CONTRACTOR WAS REIMBURSED AS AN ALLOWABLE CHARGE AGAINST THAT CONTRACT THE PRORATED COSTS INCURRED IN ITS UNSUCCESSFUL BIDDING ACTIVITIES TO OBTAIN OTHER BUSINESS. IT WAS THE OPINION OF THIS OFFICE THAT. " PAYMENT OF THE COSTS RESULTING THEREFROM WAS PRECLUDED BY PARAGRAPH 15-205 (Q) OF SECTION XV OF THE ARMED SERVICES PROCUREMENT REGULATION. THE ASSISTANT SECRETARY STATES THAT IN THE PREPARATION OF THE CITED PARAGRAPH OF THE REGULATION IT WAS NOT CONTEMPLATED THAT IT WOULD BE CONSTRUED TO EXCLUDE A FAIR APPORTIONMENT OF UNSUCCESSFUL BIDDING EXPENSES.

B-113252, MAY 6, 1954, 33 COMP. GEN. 543

CONTRACTS - COST-PLUS - BID PREPARATION EXPENSES COST-PLUS-A-FIXED-FEE CONTRACTORS WHO INCUR EXPENSES IN CONNECTION WITH THE CURRENT UNSUCCESSFUL BIDDING FOR CONTRACTS MAY APPORTION SUCH EXPENSES AS REIMBURSABLE ITEMS OF INDIRECT COST TO THE COST-PLUS-A FIXED-FEE CONTRACTS BEING PERFORMED, PROVIDED THAT IT IS ADMINISTRATIVELY AUTHORIZED AND DETERMINED THAT SUCH CHARGES ARE REASONABLE AND EQUITABLE. SEE B- 113252, MARCH 31, 1953, MODIFIED.

ACTING COMPTROLLER GENERAL WEITZEL TO THE SECRETARY OF DEFENSE, MAY 6, 1954:

REFERENCE IS MADE TO LETTER OF NOVEMBER 23, 1953, FROM THE ASSISTANT SECRETARY OF DEFENSE ( COMPTROLLER), REQUESTING RECONSIDERATION OF THE MATTER SET FORTH IN OFFICE LETTER OF MARCH 31, 1953, TO YOU, RELATIVE TO THE POLICY ADOPTED BY THE SEVERAL DEPARTMENTS WITHIN THE DEPARTMENT OF DEFENSE TO INCLUDE AS ALLOWABLE ITEMS OF EXPENSE UNDER COST-PLUS-A FIXED- FEE CONTRACTS AN APPORTIONED COST OF THE UNSUCCESSFUL BIDDING EXPENSES INCURRED BY THE CONTRACTOR IN THE NORMAL CONDUCT OF ITS BUSINESS.

IN THE LETTER OF MARCH 31, 1953, B-113252, THERE WAS BROUGHT TO YOUR ATTENTION THE SPECIFIC CASE ARISING UNDER CONTRACT NO. NOBSR-42001, ENTERED INTO BETWEEN THE DEPARTMENT OF THE NAVY AND ENGINEERING RESEARCH ASSOCIATES, INCORPORATED, WHERE THE CONTRACTOR WAS REIMBURSED AS AN ALLOWABLE CHARGE AGAINST THAT CONTRACT THE PRORATED COSTS INCURRED IN ITS UNSUCCESSFUL BIDDING ACTIVITIES TO OBTAIN OTHER BUSINESS. IT WAS THE OPINION OF THIS OFFICE THAT, SINCE THOSE ACTIVITIES APPEARED TO BE IN THE NATURE OF " SELLING AND DISTRIBUTION ACTIVITIES NOT RELATED TO THE CONTRACT PRODUCTS," PAYMENT OF THE COSTS RESULTING THEREFROM WAS PRECLUDED BY PARAGRAPH 15-205 (Q) OF SECTION XV OF THE ARMED SERVICES PROCUREMENT REGULATION, ENTITLED " CONTRACT COST PRINCIPLES.'

IN REQUESTING FURTHER CONSIDERATION OF THE MATTER, THE ASSISTANT SECRETARY STATES THAT IN THE PREPARATION OF THE CITED PARAGRAPH OF THE REGULATION IT WAS NOT CONTEMPLATED THAT IT WOULD BE CONSTRUED TO EXCLUDE A FAIR APPORTIONMENT OF UNSUCCESSFUL BIDDING EXPENSES. TO RECTIFY THE SITUATION HE PROPOSED TO INCLUDE IN A PENDING REVISION OF THE PERTINENT PARAGRAPH OF THE REGULATION OF THE FOLLOWING PROVISION:

15-320.4 BIDDING EXPENSES. CURRENT BIDDING EXPENSES OF BOTH SUCCESSFUL AND UNSUCCESSFUL BIDS NORMALLY WILL BE TREATED AS INDIRECT EXPENSES AND APPORTIONED CURRENTLY TO ALL BUSINESS OF THE CONTRACTOR, IN WHICH EVENT NO BIDDING EXPENSES OF PAST ACCOUNTING PERIODS WILL BE CHARGEABLE TO DEFENSE CONTRACTS. HOWEVER, WHERE IT IS THE CONTRACTOR'S ESTABLISHED PRACTICE TO TREAT BIDDING EXPENSES BY SOME OTHER METHOD, SUCH METHOD MAY BE ACCEPTABLE IF THE RESULTS ARE CONSIDERED TO BE EQUITABLE.

REVIEWING THE MATTER IN THE LIGHT OF THE INFORMATION SET FORTH IN THE ASSISTANT SECRETARY'S LETTER OF NOVEMBER 23, 1953, I AM IN ACCORD WITH THE CONCLUSION THAT CURRENT UNSUCCESSFUL BIDDING EXPENSES MAY BE REGARDED AS INDIRECT COSTS PROPERLY FOR APPORTIONMENT AS A REIMBURSABLE ITEM TO COST- PLUS-A-FIXED-FEE CONTRACTS BEING PERFORMED BY A CONTRACTOR, IF IT BE DETERMINED THAT SUCH CHARGES ARE REASONABLE AND EQUITABLE. HOWEVER, IN ORDER TO CLARIFY THE LANGUAGE OF THE LAST SENTENCE OF THE PROPOSED REVISION AND TO EMPHASIZE THE FACT THAT THE ELEMENT OF REASONABLENESS SHOULD APPLY TO ALL ACCEPTABLE ACCOUNTING METHODS, IT IS SUGGESTED THAT SUCH SENTENCE BE AMENDED TO READ AS FOLLOWS:

* * * HOWEVER, THE CONTRACTOR'S ESTABLISHED PRACTICE MAY BE TO TREATBIDDING EXPENSES BY SOME OTHER RECOGNIZED METHOD. REGARDLESS OF THE METHOD USED THE RESULTS OBTAINED MAY BE ACCEPTED ONLY IF FOUND TO BE REASONABLE AND EQUITABLE.

WITH THIS QUALIFICATION, THIS OFFICE PERCEIVES NO OBJECTION TO THE INCLUSION OF THE PROVISION IN THE REVISED REGULATION PROPOSED BY YOUR DEPARTMENT.