B-116514, AUGUST 26, 1953, 33 COMP. GEN. 93

B-116514: Aug 26, 1953

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1953: REFERENCE IS MADE TO YOUR REQUEST. A FORM OF RELEASE WAS TRANSMITTED BY HIM TO THE CONTRACTOR BY LETTER DATED SEPTEMBER 29. THE RELEASE THERE WERE EXCEPTED CLAIMS. AS WELL AS SEVERAL GENERAL CLASSES OF CLAIMS THE AMOUNT OR EXISTENCE OF WHICH WAS NOT KNOWN AT THE TIME OF EXECUTION OF THE RELEASE. THEREAFTER VOUCHERS COVERING OVERHEAD ITEMS WERE PRESENTED BY THE CONTRACTOR IN AN AGGREGATE AMOUNT OF APPROXIMATELY $15. THE BALANCE IS REPRESENTED BY THE APPROVED VOUCHERS SUBMITTED. AT THE TIME THIS RELEASE WAS EXECUTED THE CONTRACTOR'S ACCOUNTING POLICIES AND PROCEDURES WERE STILL UNDER REVIEW BY THE CONTRACTING OFFICER AND THESE WERE NOT APPROVED UNTIL 20 JUNE 1952. ITEMS INCLUDED IN OVERHEAD VOUCHERS SUBMITTED FOR PAYMENT BY CONTRACTOR WERE PROGRESS PAYMENTS AND SUBJECT NOT ONLY TO MODIFICATION TO CONFORM TO ACCOUNTING POLICIES BUT ALSO TO THE REVIEW OF GOVERNMENT AUDITORS.

B-116514, AUGUST 26, 1953, 33 COMP. GEN. 93

CONTRACTS - COST-PLUS - RELEASES - SUBSEQUENT AMOUNTS DUE IN EXCESS CLAIMS A COST-PLUS-FIXED-FEE CONTRACTOR WHO, INCIDENT TO COMPLETION OF CONTRACT, ACCEPTED FINAL PAYMENT AND EXECUTED RELEASE EXCEPTING AMOUNTS REPRESENTING ESTIMATES OF OVERHEAD COSTS MAY BE PAID ADDITIONAL AMOUNTS IN EXCESS OF AMOUNTS EXCEPTED FROM THE RELEASE UPON AUDIT DETERMINATION OF THE AMOUNTS PROPERLY CHARGEABLE TO OVERHEAD COSTS.

COMPTROLLER GENERAL WARREN TO LIEUTENANT COLONEL G. F. MANDRES, DEPARTMENT OF THE AIR FORCE, AUGUST 26, 1953:

REFERENCE IS MADE TO YOUR REQUEST, DATED JUNE 15, 1953, FOR ADVANCE DECISION AS TO THE PROPRIETY OF PAYMENT OF VOUCHERS NUMBERED B-63 THROUGH B-67 COVERING AMOUNTS ADMITTEDLY DUE TO THE GEOTECHNICAL CORPORATION UNDER COST-PLUS-FIXED-FEE CONTRACT NO. AF 33/038/14555, BUT IN EXCESS OF AMOUNTS EXCEPTED FROM THE OPERATION OF A RELEASE EXECUTED BY THE CONTRACTOR ON OR ABOUT OCTOBER 10, 1951, PURSUANT TO THE PROVISIONS OF THE CONTRACT.

ACCORDING TO THE REPORT OF THE CONTRACTING OFFICER, A FORM OF RELEASE WAS TRANSMITTED BY HIM TO THE CONTRACTOR BY LETTER DATED SEPTEMBER 29, 1951, AND RETURNED EXECUTED BY THE CONTRACTOR'S LETTER OF OCTOBER 10, 1951. THE RELEASE THERE WERE EXCEPTED CLAIMS, MAINLY OF OVERHEAD COSTS, IN STATED AMOUNTS AGGREGATING $8,907.27, AS WELL AS SEVERAL GENERAL CLASSES OF CLAIMS THE AMOUNT OR EXISTENCE OF WHICH WAS NOT KNOWN AT THE TIME OF EXECUTION OF THE RELEASE. THEREAFTER VOUCHERS COVERING OVERHEAD ITEMS WERE PRESENTED BY THE CONTRACTOR IN AN AGGREGATE AMOUNT OF APPROXIMATELY $15,000, OF WHICH SOME $7,500 HAS BEEN PAID, AND THE BALANCE IS REPRESENTED BY THE APPROVED VOUCHERS SUBMITTED, WHICH ALSO INCLUDE THE FINAL TEN PERCENT OF THE CONTRACTOR'S FIXED FEE.

UPON DETERMINATION OF THESE FACTS, THE CONTRACTING OFFICE BY LETTER OF JULY 1, 1952, CALLED THE ATTENTION OF THE CONTRACTOR TO THE DISCREPANCY BETWEEN THE AMOUNTS CLAIMED AND THE AMOUNTS EXCEPTED IN THE RELEASE, REQUESTING INFORMATION "CONCERNING YOUR WISHES AS TO DISPOSITION OF THESE EXCESS COSTS.' THE CONTRACTOR REPLIED UNDER DATE OF JULY 3, 1952, IN PART AS FOLLOWS:

4. AT THE TIME THIS RELEASE WAS EXECUTED THE CONTRACTOR'S ACCOUNTING POLICIES AND PROCEDURES WERE STILL UNDER REVIEW BY THE CONTRACTING OFFICER AND THESE WERE NOT APPROVED UNTIL 20 JUNE 1952. ITEMS INCLUDED IN OVERHEAD VOUCHERS SUBMITTED FOR PAYMENT BY CONTRACTOR WERE PROGRESS PAYMENTS AND SUBJECT NOT ONLY TO MODIFICATION TO CONFORM TO ACCOUNTING POLICIES BUT ALSO TO THE REVIEW OF GOVERNMENT AUDITORS. THE AUDIT OF THE CONTRACTOR'S BOOKS FOR THE FISCAL YEAR ENDED 30 JUNE 1951 WAS NOT COMPLETED UNTIL 28 MAY 1952. CONSEQUENTLY FINAL VOUCHERS FOR THE PAYMENT OF OVERHEAD UNDER CONTRACT 14555 COULD NOT BE SUBMITTED UNTIL JUNE 1952.

5. IT WILL, THEREFORE, BE EVIDENT THAT THE CLAIMS FOR OVERHEAD SET FORTH IN THE RELEASE OF 10 OCTOBER 1951 WERE NOT FINALLY DETERMINED AMOUNTS BUT REPRESENTED ONLY ESTIMATES OF THE OVERHEAD BASED ON THE INFORMATION AVAILABLE AT THAT TIME. AT THAT TIME THE OVERHEAD DUE THE CONTRACTOR WAS IMPOSSIBLE OF EXACT STATEMENT FOR THE REASONS SET FORTH IN THE PRECEDING PARAGRAPH. IN EXECUTING THE RELEASE IT WAS CONTRACTOR'S UNDERSTANDING OF SECTION 35 OF THE CONTRACT THAT THE AMOUNTS OF OVERHEAD STATED IN THE RELEASE WERE NECESSARILY APPROXIMATE AND WOULD BE SUBJECT TO MODIFICATION AND ADJUSTMENT WHEN THE OVERHEAD AUDIT WAS COMPLETED. THE FACT THAT THE AMOUNTS OF OVERHEAD STATED IN THE RELEASE WERE NECESSARILY INEXACT WAS FULLY KNOWN BOTH TO YOURSELF AND TO THE CONTRACTOR. IT WOULD THEREFORE SEEM PROPER THAT THE RELEASE BE CONSTRUED AS SUBJECT TO THE EXCEPTION CONTAINED IN PARAGRAPH 35 (A) (I) OF THE CONTRACT.

6. SINCE THE EXECUTION OF THE RELEASE CONTRACTOR HAS PRESENTED FOR PAYMENT VOUCHERS IN THE TOTAL AMOUNT OF $15,204.86, OF WHICH $7,517.99 HAS BEEN PAID AND $7,686.87, IS UNPAID. THIS AMOUNT IS ENTIRELY OVERHEAD WHICH HAD NOT BEEN SET UP ON THE CONTRACTOR'S BOOKS AT THE TIME THE RELEASE WAS EXECUTED BECAUSE AGREEMENTS HAD NOT BEEN REACHED AS TO WHAT ITEMS OF OVERHEAD COST WOULD FINALLY BE INCLUDED IN THE OVERHEAD POOL. NONE OF THE EXCESS WHICH HAS BEEN VOUCHERED IS DIRECT COST.

7. IT IS ACCORDINGLY REQUESTED THAT THE AMOUNTS OF OVERHEAD STATED IN THE RELEASE TO TOTAL $7,724.15 BE CONSIDERED AS ESTIMATES ONLY AND THAT THE AMOUNT OF $14,298.34 BE SUBSTITUTED THEREFOR AS THE EXACT AMOUNT WHICH REMAINED UNPAID ON 10 OCTOBER 1951.

UPON THESE REPRESENTATIONS THE CONTRACTING OFFICER STATES HIS FINDING OF FACT, DATED JUNE 1, 1953, WHICH RAISED NO QUESTION AS TO THE CORRECTNESS OF THE FACTS RECITED BY THE CONTRACTOR, AND CONTAINED THE FOLLOWING STATEMENTS:

6. AFTER APPROVAL OF THE CONTRACTOR'S ACCOUNTING POLICIES AND PROCEDURES ON 20 JUNE 1952 AND AFTER RECEIPT OF THE CONTRACTOR'S LETTER OF 3 JULY 1952 THE ADMINISTRATIVE CONTRACTING OFFICER REVIEWED THE COSTS SUBMITTED BY THE CONTRACTOR AND FOUND THAT, EXCEPT FOR THE FACT THE CONTRACTOR HAD EXECUTED A RELEASE, THEY WOULD BE REIMBURSABLE UNDER THE CONTRACT.

7. BASED UPON A REVIEW OF THE ABOVE STATED FACTS, IT IS THE FINDING OF THE UNDERSIGNED CONTRACTING OFFICER THAT THE CONTRACTOR DID NOT FULLY UNDERSTAND THE FINALITY OF THE RELEASE WHICH HE FURNISHED THE ADMINISTRATIVE CONTRACTING OFFICER ON 10 OCTOBER 1951 AND THAT THE COSTS SUBMITTED IN VOUCHERS B-63, B-64, B-65 AND B-66, AS WELL AS FINAL FEE VOUCHER NUMBER B-67, SHOULD BE REIMBURSED AS BEING NECESSARY AND INCIDENTAL TO PERFORMANCE OF THE CONTRACT. THESE VOUCHERS HAVE BEEN DULY CERTIFIED AND ARE SUBMITTED HEREWITH.

IT IS ALSO NOTED THAT THE ESTIMATED COST OF PERFORMANCE OF THE CONTRACT AS AMENDED IS STATED BY THE CONTRACTING OFFICER AS $175,126.26, AND THE CONTRACTOR'S CUMULATIVE CLAIM AND RECONCILIATION SHOWS ACTUAL FINAL ADJUSTED COST, INCLUDING THE SUBJECT OVERHEAD ITEMS, AS $175,116.01. THE CONTRACTOR'S FIXED FEE WAS $9,991.65.

ON THE RECORD SUBMITTED IT SEEMS ABUNDANTLY CLEAR THAT THE RELEASE EXECUTED BY THE CONTRACTOR, DID NOT, AND HAS NOT BEEN CONSIDERED BY EITHER OF THE PARTIES TO, ACCOMPLISH THE PURPOSE USUALLY SERVED BY A RELEASE--- VIZ., A FINAL SETTLEMENT OF THE FINANCIAL RIGHTS OF THE PARTIES, ELIMINATING ANY NECESSITY FOR FURTHER ACCOUNTING, NEGOTIATIONS, OR DISPUTES, EXCEPT WITH RESPECT TO MATTERS EXCEPTED FROM THE RELEASE. HERE THERE HAD ARISEN NO DISPUTE; THE CONTRACTOR WAS ENTITLED UNDER THE TERMS OF THE CONTRACT TO REIMBURSEMENT OF ITS COSTS, INCLUDING INDIRECT OR OVERHEAD COSTS AS DETERMINED AND APPROVED BY THE AUDITING AND CONTRACTING AUTHORITIES, AND IT DOES NOT APPEAR TO HAVE BEEN INTENDED TO ELIMINATE THE AUDIT ALLOCATION OF OVERHEAD COSTS, WHICH AT THAT TIME HAD NOT BEEN, AND APPARENTLY COULD NOT HAVE BEEN, DETERMINED EVEN BY THE CONTRACTOR, SINCE ITS ACCOUNTING POLICIES AND PROCEDURES WERE NOT PASSED UPON BY THE GOVERNMENT'S REPRESENTATIVES UNTIL 8 MONTHS LATER.

FURTHERMORE, IT IS QUESTIONABLE WHETHER THERE CAN BE FOUND ANY VALID CONSIDERATION FOR RELEASE BY THE CONTRACTOR OF ITS RIGHTS TO REIMBURSEMENT OF OVERHEAD COSTS IN EXCESS OF THE AMOUNT STATED IN THE RELEASE. ON ITS FACE, THE RELEASE RECITES THAT IT WAS IN CONSIDERATION OF PAYMENTS THERETOFORE MADE, AND "PAYMENT OF THE FINAL SUM OF THE STATED AMOUNT OF $9,991.65 NOW DUE.' NOT ONLY DOES IT NOT APPEAR THAT THERE WAS OR HAD EVER BEEN ANY QUESTION AS TO THE RIGHT OF THE CONTRACTOR TO THE PAYMENT OF ANY PART OF SUCH SUMS, BUT THE "FINAL SUM" OF $9,991.65--- THE FIXED FEE PROVIDED BY THE CONTRACT--- WAS NOT IN FACT PAID IN FULL AT THAT TIME, TEN PERCENT OF THAT AMOUNT HAVING BEEN WITHHELD AND BEING STILL UNPAID UP TO THE PRESENT TIME. IT HAS BEEN HELD IN A NUMBER OF CASES THAT THE PAYMENT OF A LIQUIDATED, UNDISPUTED, MATURED OBLIGATION DOES NOT FURNISH CONSIDERATION FOR A RELEASE OF ANY ADDITIONAL OBLIGATION. FIRE INSURANCE ASSOCIATION V. WICKHAM, 141 U.S. 564; MOORE V. MARYLAND CASUALTY COMPANY, 150 N.C. 153, 63 S.E. 675, 24 L.R.A. ( NS) 211; BUEL V. KANSAS CITY LIFE INSURANCE CO., 32 N.M. 34, 250 P. 635, 52 A.L.R. 367; NOTE 24 A.L.R. 1475.

UNDER THE CIRCUMSTANCES, THE FOLLOWING LANGUAGE OF THE COURT OF CLAIMS IN HARRISON ENGINEERING AND CONSTRUCTION COMPANY V. UNITED STATES, 107 C.1CLS. 205, 68 F.1SUPP. 350, IS FULLY APPLICABLE:

WHEN THE PARTIES MADE THEIR SETTLEMENT, BY PAYMENT AND RELEASE, IT WAS THEIR INTENTION THAT THE PLAINTIFF SHOULD BE PAID ALL THAT WAS AGREED TO BE PAID THEM UNDER THE CONTRACT. THERE WAS NO DISAGREEMENT OR DISPUTE OR OCCASION FOR OR THOUGHT OF COMPROMISE. * * * WE THINK THAT, IN THE CIRCUMSTANCES, THE INTENTION OF THE PARTIES THAT THE PLAINTIFFS SHOULD BE PAID WHAT WAS DUE THEM UNDER THE CONTRACT WAS THE DOMINANT INTENTION OF THE SETTLEMENT, AND THAT THE ACQUISITION OF THE RELEASE, WHICH WOULD ENABLE THE AGENTS OF THE GOVERNMENT TO MARK THE TRANSACTION CLOSED WAS, WHILE CONVENTIONAL AND DESIRABLE, NOT NEARLY SO IMPORTANT.

YOU ARE ACCORDINGLY ADVISED THAT THIS OFFICE DOES NOT CONSTRUE THE RELEASE IN QUESTION AS BARRING PAYMENT TO THE CONTRACTOR OF THE AMOUNTS OF THE SUBJECT VOUCHERS, WHICH ARE RETURNED HEREWITH.