B-119951, FEBRUARY 1, 1955, 34 COMP. GEN. 357

B-119951: Feb 1, 1955

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CONTRACTS - COST-PLUS - OVERHEAD EXPENSES OVERHEAD EXPENSES WHICH ARE REIMBURSABLE UNDER A COST-PLUS-A-FIXED FEE CONTRACT FOR THE MANUFACTURE OF AIRPLANES INCLUDE MEDICAL PLAN EXPENSES. EXPENSES INCURRED IN CONNECTION WITH THE PROSECUTION OF INCOME TAX CLAIMS AGAINST THE UNITED STATES ARE NOT REIMBURSABLE ITEMS OF EXPENSE. ARE REIMBURSABLE ITEMS OF OVERHEAD EXPENSE. CORPORATE EXPENSES WHICH ARE REIMBURSABLE UNDER COST-PLUS-A-FIXED FEE CONTRACTS AS ALLOWABLE ITEMS OF OVERHEAD INCLUDE DIRECTORS' FEES AND STATUTORY REPRESENTATION EXPENSES. ADMINISTRATIVE APPROVAL OF ITEMS OF EXPENSE FOR REIMBURSEMENT UNDER A COST-PLUS-A-FIXED-FEE CONTRACT WHICH DOES NOT PROVIDE REIMBURSEMENT FOR SUCH ITEMS IS NOT FINAL AND CONCLUSIVE.

B-119951, FEBRUARY 1, 1955, 34 COMP. GEN. 357

CONTRACTS - COST-PLUS - OVERHEAD EXPENSES OVERHEAD EXPENSES WHICH ARE REIMBURSABLE UNDER A COST-PLUS-A-FIXED FEE CONTRACT FOR THE MANUFACTURE OF AIRPLANES INCLUDE MEDICAL PLAN EXPENSES, REPLACED ASSETS NOT CAPITALIZED, DEPRECIATION, EXPENSE OF PUBLISHING AIRPLANE PARTS CATALOG, AND THOSE INCIDENT TO RESEARCH, INFORMATION AND PRESS CLIPPING SERVICES FURNISHED BY CERTAIN ORGANIZATIONS; HOWEVER, EXPENSES INCURRED IN CONNECTION WITH THE PROSECUTION OF INCOME TAX CLAIMS AGAINST THE UNITED STATES ARE NOT REIMBURSABLE ITEMS OF EXPENSE. UNDER A COST-PLUS-A-FIXED-FEE CONTRACT FOR THE MANUFACTURE OF AIRPLANES, DUES FOR MEMBERSHIPS IN REGULAR TRADE ASSOCIATIONS, AND THE AMERICAN ARBITRATION ASSOCIATION, BUT NOT DUES FOR MEMBERSHIPS IN CHAMBERS OF COMMERCE, ARE REIMBURSABLE ITEMS OF OVERHEAD EXPENSE. CORPORATE EXPENSES WHICH ARE REIMBURSABLE UNDER COST-PLUS-A-FIXED FEE CONTRACTS AS ALLOWABLE ITEMS OF OVERHEAD INCLUDE DIRECTORS' FEES AND STATUTORY REPRESENTATION EXPENSES; HOWEVER, EXPENSES INCURRED IN CONNECTION WITH STOCKHOLDERS' MEETINGS, THE PAYMENT OF DIVIDENDS, THE FURNISHING OF CIRCULARS TO MEMBERS OF THE NEW YORK STOCK EXCHANGE, THE PRINTING OF BY-LAWS AND THE ISSUANCE OF SECURITY OR CAPITAL STOCK, EXPENSES WHICH DO NOT RELATE IN ANY RESPECT TO DOING BUSINESS WITH THE GOVERNMENT, MAY NOT BE REGARDED AS REIMBURSABLE ITEMS OF OVERHEAD. ADMINISTRATIVE APPROVAL OF ITEMS OF EXPENSE FOR REIMBURSEMENT UNDER A COST-PLUS-A-FIXED-FEE CONTRACT WHICH DOES NOT PROVIDE REIMBURSEMENT FOR SUCH ITEMS IS NOT FINAL AND CONCLUSIVE, EVEN IN ABSENCE OF SHOWING OF FRAUD.

ASSISTANT COMPTROLLER GENERAL WEITZEL TO LIEUTENANT L. SPRATLING, DEPARTMENT OF THE NAVY, FEBRUARY 1, 1955:

THERE HAS BEEN RECEIVED BY REFERENCE FROM THE OFFICE OF THE COMPTROLLER (FILE: NCT 1322), YOUR REQUEST FOR A DECISION RELATIVE TO THE PROPRIETY OF MAKING PAYMENT ON BUREAU VOUCHER NO. 393, IN THE AMOUNT OF $177.49, COVERING A RECLAIM BY DOUGLAS AIRCRAFT COMPANY, INC., FOR CERTAIN PORTIONS OF OVERHEAD EXPENSES FOR THE COMPANY'S FISCAL YEAR 1945, WHICH WERE ALLOCATED TO THE COST OF PERFORMING COST PLUS-A-FIXED-FEE CONTRACT NO. NOA (S) 6850, DATED JUNE 22, 1945.

UNDER THE TERMS OF THE CONTRACT, IT WAS AGREED THAT THE CONTRACTOR WOULD MANUFACTURE AND DELIVER TO THE GOVERNMENT CERTAIN AIRPLANES, DESIGN DATA, DRAWINGS, ETC., IN CONSIDERATION OF PAYMENT OF THE FIXED FEE PROVIDED FOR THEREIN AND REIMBURSEMENT FOR THE COST OF THE WORK. WITH RESPECT TO REIMBURSABLE COSTS, SECTION 5 (A) OF THE CONTRACT PROVIDED THAT THE GOVERNMENT WOULD PAY TO THE CONTRACTOR "THE ALLOWABLE COST, AS DEFINED IN PARAGRAPH (B).' THIS PARAGRAPH OF SECTION 5 PROVIDED THAT ALLOWABLE COST "SHALL CONSTITUTE THE COST INCURRED BY THE CONTRACTOR IN THE PERFORMANCE OF THIS CONTRACT AND ACCEPTED BY THE BUREAU OF SUPPLIES AND ACCOUNTS, NAVY DEPARTMENT * * * AS CHARGEABLE IN ACCORDANCE WITH "1EXPLANATION OF PRINCIPLES FOR DETERMINATION OF COSTS UNDER GOVERNMENT CONTRACTS, WAR DEPARTMENT - NAVY DEPARTMENT.'" THIS DOCUMENT PROVIDES GENERALLY AS FOLLOWS:

OUTLINE OF THE ITEMS OF COST

4. THE TOTAL COST UNDER A CONTRACT IS THE SUM OF ALL COSTS INCURRED BY THE CONTRACTOR INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT AND PROPERLY CHARGEABLE THERETO. * * *.

ADMINISTRATION AND DISTRIBUTION EXPENSE

39. THIS TITLE COMPREHENDS ALL EXPENSES OTHER THAN THOSE INCLUDED UNDER " MANUFACTURING COSTS" AND " OTHER CONTRACT PERFORMANCE COSTS.' THESE OTHER EXPENSES ARE INCURRED IN CONNECTION WITH THE GENERAL ADMINISTRATION OF THE CONTRACTOR'S BUSINESS AND THE DISTRIBUTION OF THE CONTRACTOR'S PRODUCTS, A RATABLE PART OF WHICH, BY REFERENCE TO ALL THE PERTINENT FACTS AND CIRCUMSTANCES, MAY REASONABLY BE HELD TO CONSTITUTE PROPER ITEMS OF COST INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT. AS TO WHAT MAY CONSTITUTE A PROPER RATABLE PART, THE COMMENTS IN THE ENSUING PAGES SHOULD BE TAKEN INTO CONSIDERATION. ADMINISTRATION AND GENERAL CORPORATE EXPENSES

40. THE EXPENSES HERE CONTEMPLATED ARE THOSE RELATED TO THE GENERAL MANAGEMENT OF THE BUSINESS AND, SUBJECT TO THE LIMITATIONS ELSEWHERE HEREIN DESCRIBED AND TO THE APPROPRIATENESS OF THE APPORTIONMENT USED, COMPRISE ITEMS OF THE FOLLOWING NATURE:

(A) COMPENSATION FOR PERSONAL SERVICE, INCLUDING (1) SALARIES OF CORPORATE OFFICERS, EXECUTIVES AND DEPARTMENT HEADS * * *.

(B) ALL ORDINARY AND MISCELLANEOUS OFFICE AND ADMINISTRATIVE EXPENSES, SUCH AS STATIONERY AND OFFICE SUPPLIES, POSTAGE * * *.( ITALICS SUPPLIED.)

BASIS OF APPORTIONMENT OF ITEMS OF COST ADMINISTRATION AND DISTRIBUTION EXPENSES

66. THESE EXPENSES SHOULD BE ANALYZED IN CONSIDERABLE DETAIL IN THE ACCOUNTS OF THE CONTRACTOR SO THAT THEIR NATURE AND PURPOSE MAY BE CLEARLY DISCLOSED. SUCH OF THE ITEMS AS CAN BE RELATED DIRECTLY TO A SPECIFIC CONTRACT OR GOVERNMENT CONTRACTS IN GENERAL, SHOULD BE CORRESPONDINGLY APPORTIONED. ON THE OTHER HAND, THOSE ITEMS WHICH CLEARLY DO NOT RELATE IN ANY RESPECT TO DOING BUSINESS WITH THE GOVERNMENT (SEE INADMISSIBLE COSTS PAR. 54) SHOULD BE EXCLUDED FROM APPORTIONMENT TO GOVERNMENT CONTRACTS. (ITALICS SUPPLIED.)

THE ITEMS OF RECLAIM--- PREVIOUSLY REIMBURSED TO THE CONTRACTOR BUT SUBSEQUENTLY REFUNDED AS THE RESULT OF A NOTICE OF EXCEPTION ISSUED BY THE DIVISION OF AUDITS, GENERAL ACCOUNTING OFFICE--- HAVE BEEN IDENTIFIED AS FOLLOWS:

CHART (1) MEDICAL PLAN EXPENSE ----------------------------------- -- $11.67 (2) REPLACED ASSETS NOT CAPITALIZED ----------------------- --- 17.61 (3) DEPRECIATION ----------------------------------------- ---- 21.92 (4) PARTS CATALOG EXPENSE ------------------------------- ----- 22.81 (5) DIRECTORS' FEES ------------------------------------ ------ 7.60 (6) CORPORATE EXPENSE --------------------------------- ------- 17.51 (7) DUES AND SUBSCRIPTIONS --------------------------- -------- 78.37

THE FIRST THREE ITEMS ENUMERATED ABOVE ARE SIMILAR TO ITEMS WHICH WERE HELD TO BE REIMBURSABLE TO THE CONTRACTOR IN A DECISION RENDERED TO CAPTAIN E. F. SPARKS, SC, U.S. NAVY, B-106305, FEBRUARY 26, 1952, WHICH INVOLVED A CONTRACT CONTAINING REIMBURSEMENT PROVISIONS SIMILAR IN MATERIAL PART, TO THOSE CONTAINED IN THE PRESENT CONTRACT. FOR THE REASONS STATED IN THAT DECISION, SUCH ITEMS MAY BE CONSIDERED REIMBURSABLE TO THE CONTRACTOR UNDER THE CONTRACT.

ALTHOUGH THE CONTRACTOR WAS NOT REQUIRED TO FURNISH SPARE PARTS UNDER THE CONTRACT, THE GOVERNMENT PRESUMABLY WOULD HAVE BEEN UNWILLING TO PROCURE THE AIRPLANES FROM THE CONTRACTOR IF THERE HAD BEEN ANY DOUBT THAT SPARE PARTS THEREFOR WOULD BE READILY AVAILABLE. HENCE, ITEM 4, INVOLVING THE EXPENSES OF PUBLISHING "1DOUGLAS PARTS CATALOG," MAY BE CONSIDERED AS PROPER FOR REIMBURSEMENT UNDER THE CONTRACT.

RELATIVE TO ITEM 5, IT HAS BEEN HELD IN SOME OF THE PAST DECISIONS OF THIS OFFICE, INCLUDING THE DECISION TO CAPTAIN SPARKS, THAT THE SERVICES ORDINARILY PERFORMED BY THE DIRECTORS OF A CORPORATION ARE SO INDIRECTLY ASSOCIATED WITH THE CONTRACT WORK THAT THE EXPENSE THEREOF COULD NOT PROPERLY BE REGARDED AS A REIMBURSABLE COST UNDER THE TYPE OF CONTRACT HERE INVOLVED. HOWEVER, IN CRAMP SHIPBUILDING COMPANY V. UNITED STATES, 122 C.1CLS. 72, THE COURT OF CLAIMS HELD THAT DIRECTORS' FEES CONSTITUTED AN ALLOWABLE ITEM OF COST UNDER THE CONTRACT THERE INVOLVED, THE REIMBURSEMENT PROVISIONS OF WHICH WERE SIMILAR, INSOFAR AS MATERIAL, TO THOSE CONTAINED IN THE PRESENT CONTRACT. IT IS RECOGNIZED THAT A REASONABLE ARGUMENT CAN BE MADE IN SUPPORT OF THE PROPOSITION THAT A CONTRACTOR IS ENTITLED TO BE REIMBURSED FOR DIRECTORS' FEES UNDER A CONTRACT OF THE TYPE INVOLVED. ACCORDINGLY, THIS OFFICE ACCEPTS THE INTERPRETATION PLACED UPON THE CONTRACT TERMS BY THE COURT OF CLAIMS TO THE EFFECT THAT SUCH AN ITEM OF EXPENSE IS PROPERLY REIMBURSABLE UNDER THE CONTRACT.

ITEM 6 APPEARS TO REPRESENT A PRO RATA PART OF OVERHEAD EXPENSE APPLICABLE TO THE PERIODS SHOWN, WHICH IS SET FORTH IN THE GENERAL ACCOUNTING OFFICE NOTICE OF EXCEPTION AS FOLLOWS:

CHART

PERIOD: DEC. 1, 1944 TO AUG. 31, 1945:

2. CORPORATE EXPENSE

6049 O.D.S. PRINTING CO., PRINTING TAX APPEAL

FORM ------------------------------------- $335.17

6074 CORPORATE TRUST CO.; STATUTORY

REPRESENTATION; CHASE NATIONAL BANK

DIVIDEND INFORMATION; DIVIDEND CHECKS;

ENVELOPES FOR ANNUAL MEETING; NEW

YORK STOCK EXCHANGE CIRCULARS TO

MEMBERS; O.D.S. PRINTING CO.,

PRINTING PROXIES; CHASE NATIONAL

BANK, HANDLING STOCKHOLDERS' LISTS,

PROXIES, ETC. ---------------------------- 6,946.04

6082 COMMISSIONER OF CORPORATIONS, FILING FEE----428.54

PERIOD: SEPT. 1 TO NOV. 30, 1945:

2. CORPORATE EXPENSE

6074 CORPORATE TRUST COMPANY--- STATUTORY

REPRESENTATION --------------------------- 129.39

O.D.S. PRINTING COMPANY--- PRINTING

BYLAWS ----------------------------------- 81.00

CHASE NATIONAL BANK--- DISBURSING DIVIDEND

CHECKS ----------------------------------- 1,700.65

RELATIVE TO THE ITEMS OF EXPENSE SET FORTH FOR THE FIRST PERIOD, THE EXPENDITURE SHOWN UNDER ACCOUNT NO. 6049 CANNOT, IN THE ABSENCE OF EVIDENCE THAT IT WAS IN SOME WAY RELATED TO THE PERFORMANCE OF THE CONTRACT, BE CONSIDERED AS QUALIFYING FOR REIMBURSEMENT THEREUNDER. CONNECTION WITH THE ITEM, SEE PARAGRAPH 54 OF THE "1EXPLANATION OF PRINCIPLES" WHICH LISTS, AMONG THE ITEMS WHICH ARE NOT ADMISSIBLE FOR THE PURPOSE OF COMPUTING THE COSTS OF PERFORMING A GOVERNMENT CONTRACT, SPECIAL LEGAL AND ACCOUNTING FEES INCURRED IN CONNECTION WITH THE PROSECUTION OF CLAIMS OF ANY KIND (INCLUDING INCOME TAX MATTERS) AGAINST THE UNITED STATES.

RELATIVE TO THE EXPENDITURES SHOWN IN ACCOUNT NO. 6074, IT IS TO BE NOTED THAT PARAGRAPH 40 OF THE "1EXPLANATION OF PRINCIPLES" EXPLAINS THAT THE ADMINISTRATIVE AND GENERAL CORPORATE EXPENSES DEALT WITH THEREIN CONTEMPLATE EXPENSES RELATED TO THE GENERAL MANAGEMENT OF THE BUSINESS, BUT ,SUBJECT TO THE LIMITATIONS ELSEWHERE HEREIN DESCRIBED.' THESE LIMITATION ARE, INSOFAR AS MATERIAL, CONTAINED IN PARAGRAPHS 4 AND 66, QUOTED ABOVE.

IT IS WELL KNOWN THAT THE MANAGEMENT OF A CORPORATION SUCH AS THE CONTRACTOR IS VESTED IN ITS BOARD OF DIRECTORS, AND NOT IN THE BODY OF STOCKHOLDERS. SEE FLETCHER CYCLOPEDIA CORPORATIONS, PERMANENT. USED., VOL. 5, SECTION 2097. HENCE, IT IS NOT PERCEIVED HOW THE EXPENSES OF PRINTING PROXIES, FURNISHING ENVELOPES FOR ANNUAL MEETING, HANDLING STOCKHOLDERS LISTS, PROXIES, ETC., REASONABLY MAY BE HELD TO HAVE BEEN "INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT" WITHIN THE MEANING OF THOSE TERMS AS USED IN THE CONTRACT. THIS IS ESPECIALLY TRUE IN VIEW OF THE INSTRUCTIONS CONTAINED IN PARAGRAPH 66, WHICH REQUIRE THAT THOSE ITEMS WHICH CLEARLY DO NOT RELATE IN ANY RESPECT TO DOING BUSINESS WITH THE GOVERNMENT BE EXCLUDED FROM APPORTIONMENT TO GOVERNMENT CONTRACTS. THAT "GENERAL CORPORATE EXPENSES" WERE NOT INTENDED TO BE PLACED IN ANY DIFFERENT CATEGORY FROM OTHER CONTRACT COSTS WITH RESPECT TO FULFILLING THESE REQUIREMENTS IS EVIDENT FROM THE REFERRED-TO QUALIFICATION CONTAINED IN PARAGRAPH 40. ACCORDINGLY, SUCH EXPENSE MAY NOT BE CONSIDERED REIMBURSABLE UNDER THE CONTRACT.

SINCE ANY EXPENSE RELATED TO THE PAYMENT OF DIVIDENDS OBVIOUSLY CANNOT BE SAID TO HAVE BORNE ANY RELATION TO THE PERFORMANCE OF GOVERNMENT CONTRACTS WITHIN THE MEANING OF THE CONTRACT TERMS, THAT PART OF THE EXPENSE INCLUDED IN ACCOUNT NO. 6074 MAY NOT BE CONSIDERED AN ALLOWABLE COST. THE SAME IS TRUE AS TO THE COST OF FURNISHING CIRCULARS TO MEMBERS OF THE NEW YORK STOCK EXCHANGE. ALSO, IN THE ABSENCE OF INFORMATION RELATIVE TO THE PURPOSE OF PRINTING THE BY-LAWS, THERE IS NO BASIS UPON WHICH THIS OFFICE CAN HOLD THE EXPENSE THEREOF REIMBURSABLE. HOWEVER, ANY AMOUNTS REQUIRED TO BE PAID BY THE CONTRACTOR IN ORDER TO SECURE THE SERVICES OF A STATUTORY REPRESENTATIVE MAY, ON A PRO RATA BASIS, BE CONSIDERED A REIMBURSABLE COST.

IN THE ABSENCE OF MORE DETAILS RELATIVE TO THE NATURE OF THE ITEM OF COST SHOWN UNDER ACCOUNT NO. 6082, THE RECORD MAY NOT BE SAID TO FURNISH ANY BASIS FOR THE CONCLUSION THAT SUCH ITEM CONSTITUTES A REIMBURSABLE EXPENSE. IF THE EXPENSE WAS INCURRED IN CONNECTION WITH SECURITY ISSUES, OR CAPITAL STOCK ISSUES, REIMBURSEMENT UNDER THE CONTRACT IS EXPRESSLY PROHIBITED BY PARAGRAPH 54 (P) OF THE " EXPLANATION OF PRINCIPLES.'

ITEM 7 REPRESENTS A PRO RATA PART OF THE DUES PAID FOR MEMBERSHIP IN THE SOUTHERN CALIFORNIA AIRCRAFT INDUSTRY COMMITTEE, THE UNITED STATES CHAMBER OF COMMERCE, THE LOS ANGELES CHAMBER OF COMMERCE, THE LOS ANGELES JUNIOR CHAMBER OF COMMERCE, THE OCEAN PARK CHAMBER OF COMMERCE, THE RESEARCH INSTITUTE OF AMERICA, THE AMERICAN ARBITRATION ASSOCIATION, AND OF AMOUNTS PAID FOR SERVICES, OR SUBSCRIPTIONS, TO THE WALL STREET JOURNAL, STANDARD AND POOR'S "1TRADE AND SECURITY," BUREAU OF NATIONAL AFFAIRS, INC., AND CERTAIN PRESS-CLIPPING BUREAUS. IN THE REPLY MADE TO THE EXCEPTIONS TAKEN TO REIMBURSEMENT TO THE CONTRACTOR FOR THE ABOVE ITEMS, THE NAVY COST INSPECTOR STATES THAT THE MEMBERSHIPS IN THE CHAMBERS OF COMMERCE WERE OF CONSIDERABLE VALUE TO THE CONTRACTOR IN OBTAINING THE COOPERATION OF OTHER INDUSTRIES IN THE AREA; THAT SUCH ORGANIZATIONS AIDED IN THE RECRUITMENT OF LABOR BY INDUCING POTENTIAL EMPLOYEES TO COME TO THE AREA WHERE THE WORK WAS BEING PERFORMED; AND THAT THEY ENCOURAGED THE CONSTRUCTION OF ADEQUATE HOUSING FOR THE EMPLOYEES. ALSO, HE STATES THAT MEMBERSHIP IN THE AMERICAN ARBITRATION ASSOCIATION WAS NECESSITATED BY THE CONTRACTOR'S LABOR AGREEMENTS, WHICH PROVIDED THAT ARBITRATION OF DIFFERENCES SHOULD BE CONDUCTED UNDER THE RULES AND BY ARBITERS PROVIDED BY THE ASSOCIATION; THAT THE SOUTHERN CALIFORNIA AIRCRAFT INDUSTRY COMMITTEE IS A REGULAR TRADE ASSOCIATION WHICH COMPLIES INFORMATION REGARDING WAGES PAID TO VARIOUS CLASSIFICATIONS OF LABOR, AND ATTEMPTS TO SECURE UNIFORMITY IN CLASSIFICATIONS AND WAGES; AND THAT THE OTHER "SERVICES" FURNISHED TECHNICAL INFORMATION WHICH WAS USEFUL TO THE CONTRACTOR IN THE GENERAL CONDUCT OF ITS BUSINESS.

IN VIEW OF THE SERVICES PERFORMED BY THE AMERICAN ARBITRATION ASSOCIATION, AND OF THE FACT THAT THE CALIFORNIA AIRCRAFT INDUSTRY COMMITTEE IS SHOWN TO BE A REGULAR TRADE ASSOCIATION, A PRO RATA PART OF THE DUES FOR MEMBERSHIP THEREIN MAY BE CONSIDERED AS A REIMBURSABLE EXPENSE UNDER THE CONTRACT. ALSO, IN VIEW OF THE DETERMINATION AND APPROVAL OF THE NAVY COST INSPECTOR, THE EXPENSE INCIDENT TO THE INFORMATIONAL SERVICES FURNISHED BY THE REMAINING ORGANIZATIONS, WITH THE EXCEPTION OF THE CHAMBERS OF COMMERCE, MAY BE CONSIDERED AS PROPER FOR REIMBURSEMENT. HOWEVER, WITH RESPECT TO THE DUES PAID FOR MEMBERSHIP IN THE CHAMBERS OF COMMERCE, PARAGRAPH 54 (D) OF THE "1EXPLANATION OF PRINCIPLES" PROVIDES EXPRESSLY THAT DUES AND MEMBERSHIPS OTHER THAN IN REGULAR TRADE ASSOCIATIONS ARE NOT ADMISSIBLE FOR THE PURPOSE OF COMPUTING COSTS UNDER THE CONTRACT. THE CONTRACTOR CONTENDS IN ITS LETTER OF OCTOBER 29, 1953, SUBMITTED IN SUPPORT OF THE RECLAIM, THAT THE TERM "TRADE ASSOCIATION" IS BROAD ENOUGH TO INCLUDE CHAMBERS OF COMMERCE. SUPPORT OF SUCH CONTENTION, THE CONTRACTOR QUOTES THE DEFINITIONS FOR THE WORD "TRADE" AND FOR THE WORD ,ASSOCIATION" AS CONTAINED IN WEBSTER'S COLLEGIATE DICTIONARY, FIFTH EDITION, PUBLISHED BY G AND C MERRIAM COMPANY, 1943.

THE TERM "TRADE ASSOCIATION" IS DEFINED IN WEBSTER'S NEW INTERNATIONAL DICTIONARY, 2D USED., PUBLISHED BY G AND C MERRIAM COMPANY, 1936, AS "1AN ASSOCIATION OF TRADESMEN, BUSINESS MEN, OR MANUFACTURERS FOR THE PROTECTION AND ADVANCEMENT OF THEIR COMMON INTERESTS.' THE SAME DICTIONARY DEFINES THE TERM "CHAMBER OF COMMERCE" AS "A BROAD OR ASSOCIATION TO PROMOTE THE COMMERCIAL INTERESTS OF A LOCALITY, COUNTRY, OR THE LIKE. CF. BOARD OF TRADE.' THE LATTER TERM IS DEFINED THEREIN AS FOLLOWS:

2. IN THE UNITED STATES, A BODY OF MEN ORGANIZED FOR THE ADVANCEMENT AND PROTECTION OF BUSINESS INTERESTS. CF. CHAMBER OF COMMERCE.

IN A COMPREHENSIVE TREATISE AND DIRECTORY ENTITLED " TRADE AND PROFESSIONAL ASSOCIATIONS OF THE UNITED STATES," PUBLISHED BY THE UNITED STATES DEPARTMENT OF COMMERCE, 1942, CHAMBERS OF COMMERCE ARE PLACED IN THE CATEGORY OF ORGANIZATIONS "OTHER THAN TRADE ASSOCIATIONS.' THE LATTER TERM IS DEFINED ON PAGE 2 OF THE TREATISE AS FOLLOWS:

A TRADE ASSOCIATION IS A VOLUNTARY NON-PROFIT ORGANIZATION OF BUSINESS COMPETITORS (USUALLY IN ONE BRANCH OF THE MANUFACTURING, DISTRIBUTING, OR SERVICE FIELDS), THE OBJECTIVE OF WHICH IS TO ASSIST ITS MEMBERS AND ITS INDUSTRY IN DEALING WITH MUTUAL BUSINESS PROBLEMS IN SEVERAL OF THE FOLLOWING AREAS: ACCOUNTING PRACTICES, BUSINESS ETHICS, COMMERCIAL RESEARCH, INDUSTRIAL RESEARCH, STANDARDIZATION, STATISTICS, TRADE PROMOTION, AND RELATIONS WITH THE GOVERNMENT, WITH LABOR, AND WITH THE GENERAL PUBLIC. (ITALICS SUPPLIED.)

IN ATTEMPTING TO POINT OUT THE DIFFERENCE BETWEEN TRADE ASSOCIATIONS AND CERTAIN OTHER TYPES OF VOLUNTARY NON-PROFIT ORGANIZATIONS, THE DEPARTMENT QUOTES FROM THE TREATISE "1TRADE ASSOCIATIONS: THEIR ECONOMIC SIGNIFICANCE AND LEGAL STATUS," PUBLISHED BY THE NATIONAL INDUSTRIAL CONFERENCE BOARD, 1929, IN MATERIAL PART, AS FOLLOWS:

* * * ONE OF THE DISTINGUISHING CHARACTERISTICS OF A TRADE ASSOCIATION IS TO BE FOUND IN THE FACT THAT ITS MEMBERSHIP IS ORDINARILY LIMITED TO PERSONS OR FIRMS ENGAGED IN A PARTICULAR TRADE OR INDUSTRY--- TO THE PRODUCERS, OR DISTRIBUTORS, OR BOTH, OF A PARTICULAR PRODUCT OR GENERIC CLASS OF PRODUCTS.

ON THIS BASIS, SUCH "GENERAL BUSINESS ORGANIZATIONS" AS THE CHAMBER OF COMMERCE OF THE UNITED STATES OR THE NATIONAL ASSOCIATION OF MANUFACTURERS, OR CORRESPONDING LOCAL ORGANIZATIONS, CAN NOT BE CLASSIFIED AS TRADE ASSOCIATIONS. * * * (ITALICS SUPPLIED.)

IN THE ENCYCLOPAEDIA BRITANNICA (1952), VOL. 22, UNDER THE GENERAL TITLE TRADE ORGANIZATIONS, THE DISTINCTION BETWEEN TRADE ASSOCIATIONS AND CHAMBERS OF COMMERCE IS SET FORTH IN CONSIDERABLE DETAIL, BUT IT SEEMS SUFFICIENT FOR PRESENT PURPOSES, AS INDICATING THAT THE EDITORS DO NOT CONSIDER THAT CHAMBERS OF COMMERCE COME WITHIN THE CATEGORY OF TRADE ASSOCIATIONS, TO QUOTE FROM PAGE 362, WHERE IT IS STATED:

IN THE UNITED STATES, WHERE TRADE ASSOCIATIONS ARE GREATLY DEVELOPED, THE CENTRAL COMMERCIAL ORGANIZATION, THE UNITED STATES CHAMBER OF COMMERCE, CORRESPONDS WITH BOTH THE ASSOCIATION OF BRITISH CHAMBERS OF COMMERCE AND THE FEDERATION OF BRITISH INDUSTRIES, SINCE IT IS A FEDERATION NOT ONLY OF LOCAL CHAMBERS OF COMMERCE, BUT ALSO OF OTHER BODIES INCLUDED AMONG WHICH ARE MANY NATIONAL TRADE ASSOCIATIONS. (ITALICS SUPPLIED.)

AND FROM PAGE 365, WHERE IT IS STATED:

* * * THE COMMERCIAL INTERESTS OF THE UNITED STATES AS A WHOLE ARE REPRESENTED BY THE IMPORTANT VOLUNTARY ORGANIZATION KNOWN AS THE UNITED STATES CHAMBER OF COMMERCE WHICH IS A FEDERATION OF LOCAL CHAMBERS OF COMMERCE, BOARDS OF TRADE AND SIMILAR BODIES, INCLUDING A CONSIDERABLE NUMBER OF NATIONAL TRADE ASSOCIATIONS. * * * (ITALICS SUPPLIED.)

AN EXAMINATION OF THE FOREGOING AUTHORITIES LEAVES NO ALTERNATIVE TO THE CONCLUSION THAT CHAMBERS OF COMMERCE MAY NOT BE CONSIDERED AS TRADE ASSOCIATIONS WITHIN THE GENERALLY ACCEPTED USE OF THE TERM. AS INDICATED ABOVE, AND AS POINTED OUT IN PREVIOUS DECISIONS OF THIS OFFICE, CHAMBERS OF COMMERCE ARE ORGANIZATIONS FORMED BY MERCHANTS, MANUFACTURERS AND PROFESSIONAL PEOPLE IN VARIOUS ENTERPRISES AND UNDERTAKINGS FOR THE PRIMARY PURPOSE OF PROMOTING THE COMMERCIAL INTERESTS OF A GIVEN LOCALITY. ON THE OTHER HAND, A TRADE ASSOCIATION IS COMPOSED OF "BUSINESS COMPETITORS," AND ITS PRIMARY PURPOSE IS TO ASSIST ITS MEMBERS IN DEALING WITH MUTUAL BUSINESS PROBLEMS PECULIAR TO THE PARTICULAR INDUSTRY INVOLVED. THAT THE TERM "TRADE ASSOCIATION" HAS A RESTRICTED MEANING WAS RECOGNIZED BY THE APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIST DIVISION, IN PEOPLES V. HUGHES (1938) 16 N.E.2D 922. IN THE COURSE OF ITS OPINION, THE COURT STATED:

IN GENERAL USE THE WORDS "TRADE ASSOCIATION" CONVEY THE MEANING OF AN ASSOCIATION OF EMPLOYERS IN THE SAME TRADE.

IN VIEW THEREOF, DUES FOR MEMBERSHIP IN CHAMBERS OF COMMERCE MAY NOT BE REGARDED AS AN ALLOWABLE COST UNDER THE CONTRACT.

UNDER EXISTING LAW, THERE IS NO BASIS FOR THE GENERAL CONTENTION MADE IN THE CONTRACTOR'S LETTER OF OCTOBER 29, 1953, THAT ADMINISTRATIVE APPROVAL WITHIN THE NAVY DEPARTMENT OF ITEMS OF EXPENSE FOR REIMBURSEMENT UNDER A CONTRACT SUCH AS HERE INVOLVED IS FINAL IN THE ABSENCE OF A SHOWING OF FRAUD. SEE PUBLIC LAW 356, APPROVED MAY 11, 1954, 68 STAT. 81, WHICH IS SET FORTH AND CONSTRUED IN WAGNER WHIRLER AND DERRICK CORPORATION V. UNITED STATES (1954), 128 C.1CLS. 382, 385; RUSSELL H. WILLIAMS, D/B/A WILLIAMS EQUIPMENT COMPANY, AND REED AND MARTIN, INC. V. UNITED STATES, NO. 50403, DECIDED BY THE COURT OF CLAIMS ON JANUARY 11, 1955.

ACCORDINGLY, THE VOUCHER, TOGETHER WITH SUPPORTING PAPERS, IS RETURNED HEREWITH, AND YOU ARE ADVISED THAT PAYMENT THEREON WITH RESPECT TO ITEMS NOS. 1 THROUGH 5 IS AUTHORIZED, IF OTHERWISE CORRECT, BUT THAT PAYMENT WITH RESPECT TO ITEMS NOS. 6 AND 7 IS NOT AUTHORIZED EXCEPT TO THE EXTENT THAT THE EXPENDITURES HELD TO BE REIMBURSABLE CAN BE SEGREGATED ON A PRO RATA BASIS FROM THOSE HELD NOT TO BE REIMBURSABLE UNDER THE CONTRACT.