B-117622, JUL. 13, 1955

B-117622, JUL. 13, 1955

TO THE HONORABLE SECRETARY OF COMMERCE:

YOUR LETTER OF NOVEMBER 16, 1954, REQUESTS CONSIDERATION OF AN ENCLOSED MEMORANDUM PREPARED BY THE NATIONAL BUREAU OF STANDARDS CONCERNING THE ACCOUNTING PRACTICE OF ALLOCATING NO INDIRECT COSTS TO PROJECTS FOR CONSTRUCTION AND IMPROVEMENTS AUTHORIZED UNDER THE ACT OF JULY 21, 1950, PUBLIC LAW 618, 64 STAT. 371. SECTION 2 OF THE ACT PROVIDES AS FOLLOWS:

"WITHIN THE LIMITS OF FUNDS WHICH MAY BE APPROPRIATED THEREFOR, THE SECRETARY OF COMMERCE IS AUTHORIZED TO MAKE IMPROVEMENTS TO EXISTING BUILDINGS, GROUNDS, AND OTHER PLANT FACILITIES, INCLUDING CONSTRUCTION OF MINOR BUILDINGS AND OTHER FACILITIES OF THE NATIONAL BUREAU OF STANDARDS IN THE DISTRICT OF COLUMBIA AND IN THE FIELD TO HOUSE SPECIAL APPARATUS OR MATERIAL WHICH MUST BE ISOLATED FROM OTHER ACTIVITIES: PROVIDED, THAT NO IMPROVEMENT SHALL BE MADE NOR SHALL ANY BUILDING BE CONSTRUCTED UNDER THIS AUTHORITY AT A COST IN EXCESS OF $25,000, UNLESS SPECIFIC PROVISION IS MADE THEREFOR IN THE APPROPRIATION CONCERNED.'

THE BUREAU STATES THAT AT THE TIME THIS LEGISLATION WAS PREPARED AND CONSIDERED IT DID NOT HAVE A COST ACCOUNTING SYSTEM AND THAT THE LIMITATION OF $25,000 ON IMPROVEMENTS WAS THUS PRESUMABLY APPLICABLE ONLY TO THE COSTS WHICH WOULD BE READILY AND DIRECTLY IDENTIFIED. THE BUREAU FURTHER POINTS OUT THAT WHEN THE $25,000 LIMITATION WAS PROPOSED IT WAS INTENDED TO PROVIDE FLEXIBILITY AND THAT, WHILE ITS PURPOSES ARE WELL DESCRIBED IN SENATE REPORT NO. 676 OF JULY 14, 1949, ON S. 2046, 81ST CONGRESS, NO REFERENCE IS MADE TO THE METHOD BY WHICH COSTS WERE TO BE CALCULATED. THE BUREAU AGREES THAT THE ADVOCATES OF THE LEGISLATION WHICH ESTABLISHED THE BUREAU'S WORKING CAPITAL FUND, INCLUDING THE SPOKESMEN FOR THE BUREAU, DID DESCRIBE THE DISTRIBUTION OF INDIRECT COSTS TO PROJECTS, BUT STATES THAT THE PROPOSAL HAD NOT BEEN PLANNED IN DETAIL AT THAT TIME AND THAT THERE IS NO EVIDENCE THAT SERIOUS THOUGHT HAD BEEN GIVEN TO PROCEDURES FOR ACCUMULATING CONSTRUCTION OR IMPROVEMENT COSTS.

THE LEGISLATIVE HISTORY OF THE ACT OF JULY 21, 1950, AUTHORIZING THE CONSTRUCTION OF IMPROVEMENTS AT A COST NOT IN EXCESS OF $25,000, CONTAINS NOTHING RELATING TO THE INCLUSION OR EXCLUSION OF INDIRECT COSTS IN DETERMINING THE COST OF THE IMPROVEMENT OR BUILDING. NEVERTHELESS, WHEN THE WORK IS PERFORMED BY FORCE ACCOUNT THROUGH THE WORKING CAPITAL FUND OF THE BUREAU UNDER A COST ACCOUNTING SYSTEM, SOUND ACCOUNTING PRINCIPLES AND STANDARDS REQUIRE THAT THE INDIRECT COSTS OF SUCH WORK BE INCLUDED IN THE TOTAL COSTS OF THE PROJECTS. THIS IS EMPHASIZED BY THE FACT THAT ONE OF THE VERY PURPOSES OF THE WORKING CAPTIAL FUND FOR THE BUREAU WAS TO DISCLOSE ACTUAL COST OF EACH PROJECT AND THE LEGISLATIVE HISTORY OF THAT FUND DISCLOSES THAT EACH PROJECT WOULD BE CHARGED WITH ITS TOTAL COST, NOT MERELY THE IMMEDIATE, DIRECT OPERATING COST ON THE JOB ITSELF, BUT ALSO THE INDIRECT CHARGES. IT WOULD BE INCONSISTENT TO REQUIRE THE ALLOCATION OF SUCH INDIRECT COSTS FOR ACCOUNTING AND BUDGETARY PURPOSES, BUT NOT FOR THE PURPOSE OF DETERMINING COMPLIANCE WITH THE $25,000 COST LIMITATION.

WHILE INDIRECT COSTS SHOULD BE INCLUDED IN DETERMINING THE COST OF THE PROJECTS PERFORMED BY FORCE ACCOUNT, THE CHANGE IN PROCEDURE NEED NOT BE MADE EFFECTIVE UNTIL JULY 1, 1956, IN VIEW OF THE STATEMENT OF THE BUREAU THAT CONSIDERABLE CLERICAL EFFORT WOULD BE REQUIRED TO ADJUST THE ..END :