B-124074, AUG 17, 1970, 50 COMP GEN 86

B-124074: Aug 17, 1970

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IS PURSUANT TO TITLE V OF THE ACT. DETERMINABLE BY THE RATE IN FORCE AT THE TIME A SHIP CONSTRUCTION CONTRACT IS AWARDED AND NOT AT THE RATE IN EFFECT AT THE TIME ADMINISTRATIVE ACTION IS TAKEN TO EFFECTUATE THE GRANT AND. THE APPLICABLE CONSTRUCTION-DIFFERENTIAL SUBSIDY RATE IS THE HIGHER RATE. EVEN THOUGH FINAL ADMINISTRATIVE ACTION WAS NOT TAKEN BEFORE THE SUBSIDY RATE REVISION DOWNWARD. 1970: REFERENCE IS MADE TO YOUR LETTER DATED MAY 28. IS THE 55 PERCENT RATE IN EFFECT AT THE TIME EACH OF THE CONTRACTS WAS AWARDED. THE GENERAL COUNSEL STATES THAT THE REASON FOR HIS OPINION IS THAT TITLE V OF THE MERCHANT MARINE ACT CONTAINS CONTRACTING AUTHORITY WHICH ESSENTIALLY AUTHORIZES THE GRANTING OF SUBSIDY UNDER STATUTORY TERMS IN FORCE AT THE TIME OF CONTRACTING.

B-124074, AUG 17, 1970, 50 COMP GEN 86

MARITIME MATTERS - SUBSIDIES - CONSTRUCTION-DIFFERENTIAL - RATE APPLICABLE THE CONSTRUCTION-DIFFERENTIAL SUBSIDY RATE CEILING APPLICABLE TO SUBSIDY GRANTS MADE PURSUANT TO THE MERCHANT MARINE ACT OF 1936, AS AMENDED, IS PURSUANT TO TITLE V OF THE ACT, AND ITS LEGISLATIVE HISTORY, DETERMINABLE BY THE RATE IN FORCE AT THE TIME A SHIP CONSTRUCTION CONTRACT IS AWARDED AND NOT AT THE RATE IN EFFECT AT THE TIME ADMINISTRATIVE ACTION IS TAKEN TO EFFECTUATE THE GRANT AND, THEREFORE, FOR CONTRACTS ENTERED INTO PRIOR TO THE REVERSION OF THE TEMPORARY SUBSIDY RATE OF 55 PERCENT OF DOMESTIC BID PRICES TO 50 PERCENT, THE APPLICABLE CONSTRUCTION-DIFFERENTIAL SUBSIDY RATE IS THE HIGHER RATE, EVEN THOUGH FINAL ADMINISTRATIVE ACTION WAS NOT TAKEN BEFORE THE SUBSIDY RATE REVISION DOWNWARD.

TO THE SECRETARY OF COMMERCE, AUGUST 17, 1970:

REFERENCE IS MADE TO YOUR LETTER DATED MAY 28, 1970, REQUESTING A DECISION WHETHER WE CONCUR IN AN OPINION OF THE GENERAL COUNSEL OF THE MARITIME ADMINISTRATION WHICH CONCLUDED THAT THE STATUTORY CONSTRUCTION DIFFERENTIAL SUBSIDY RATE CEILING APPLICABLE TO SUBSIDY GRANTS UNDER EIGHT CONTRACTS ALREADY ENTERED INTO, BUT WHERE FINAL ADMINISTRATIVE ACTION HAS NOT YET BEEN TAKEN, IS THE 55 PERCENT RATE IN EFFECT AT THE TIME EACH OF THE CONTRACTS WAS AWARDED. SECTION 502(B) OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, 46 U.S.C. 1152(B), HAS PROVIDED FOR THE PAST SEVERAL YEARS A TEMPORARY SUBSIDY RATE CEILING OF 55 PERCENT OF THE DOMESTIC BID PRICES. AFTER JUNE 30, 1970, THIS CEILING REVERTED TO 50 PERCENT OF THE DOMESTIC PRICE.

THE GENERAL COUNSEL STATES THAT THE REASON FOR HIS OPINION IS THAT TITLE V OF THE MERCHANT MARINE ACT CONTAINS CONTRACTING AUTHORITY WHICH ESSENTIALLY AUTHORIZES THE GRANTING OF SUBSIDY UNDER STATUTORY TERMS IN FORCE AT THE TIME OF CONTRACTING. IT IS STATED THAT ALL EIGHT CONTRACTS INVOLVE SUBSIDY GRANTED UNDER SECTION 504 OF TITLE V, 46 U.S.C. 1154, WHICH READS, IN PART, AS FOLLOWS:

(THE SECRETARY) MAY APPROVE SUCH BID AND BECOME A PARTY TO THE CONTRACT OR CONTRACTS OR OTHER ARRANGEMENTS FOR THE CONSTRUCTION OF SUCH PROPOSED VESSEL AND MAY AGREE TO PAY A CONSTRUCTION-DIFFERENTIAL SUBSIDY IN AN AMOUNT DETERMINED BY THE (SECRETARY) IN ACCORDANCE WITH SECTION 502 OF THIS TITLE ...

IT IS STATED THAT THE FOREGOING LANGUAGE AUTHORIZING THE GRANTING OF SUBSIDY HAS AS ITS FOCAL POINT THE CONTRACTING AUTHORITY FOR THE GRANTING OF SUBSIDY, INCLUDING THE PROVISION FOR AN AGREEMENT TO PAY SUBSIDY IN AN AMOUNT DETERMINED IN ACCORDANCE WITH SECTION 502. IN ORDER TO HAVE DEFINITIVE AGREEMENT WHICH REPRESENTS THE FULL UNDERSTANDING OF THE PARTIES, THE STATUTORY PROVISIONS FOR DETERMINING THE AMOUNT OF SUBSIDY MUST BE THOSE PROVISIONS IN FORCE AT THE TIME THE CONTRACT IS AWARDED. APPLYING THE STATUTE IN FORCE AT THE TIME OF AWARD CLEARLY IS THE ONLY WAY THE CONTRACTING PARTIES WILL KNOW THE LEGISLATIVE TERMS WHICH WILL GOVERN THE PARTICULAR CONTRACT.

WHETHER SUBSIDY IS GRANTED UNDER SECTION 502, 46 U.S.C. 1152, WITH GOVERNMENT CONSTRUCTION AND SALE OF THE VESSEL TO THE OWNER AT THE ESTIMATED FOREIGN COST, OR UNDER SECTION 504 WITH THE OWNER FINANCING ITS SHARE, AN ESSENTIAL FEATURE OF THE AUTHORITY TO GRANT THE SUBSIDY IS THIS POWER GIVEN TO CONTRACT. THIS POWER TO CONTRACT IS THE VEHICLE BY WHICH THE GRANT IS EXPRESSED. THE STATUTE IN FORCE AT THE TIME OF CONTRACTING PROVIDES THE LEGISLATIVE BASIS FOR THE AGREEMENT BETWEEN THE GOVERNMENT AND THE OWNER.

THE SIGNIFICANCE ASSIGNED BY CONGRESS TO THE MOMENT OF CONTRACTING IS DEMONSTRATED BY THE LANGUAGE WHICH WAS CHOSEN TO AMEND SECTION 502 TO INCREASE THE CDS CEILING TO 55 PERCENT OF THE DOMESTIC PRICE, AND TO PROVIDE THAT THE INCREASE WOULD HAVE RETROACTIVE APPLICATION. THIS AMENDING LANGUAGE WAS ENACTED AS PUBLIC LAW 86-607, APPROVED JULY 7, 1960.

SECTION 2, 46 U.S.C. 1152 NOTE, THEREOF READ AS FOLLOWS:

THE AMENDMENT MADE BY THIS ACT SHALL BE EFFECTIVE ONLY WITH RESPECT TO ANY CONTRACT ENTERED INTO NOT LATER THAN TWO YEARS AFTER THE DATE OF ENACTMENT OF THIS ACT UNDER THE PROVISIONS OF SECTION 502 OF THE MERCHANT MARINE ACT, 1936, WITH RESPECT TO THE CONSTRUCTION OF THE VESSEL, THE KEEL OF WHICH WAS LAID AFTER JUNE 30, 1959, AND THE FEDERAL MARITIME BOARD MAY, WITH THE CONSENT OF THE PARTIES THERETO, MODIFY ANY SUCH CONTRACT ENTERED INTO PRIOR TO THE DATE OF ENACTMENT OF THIS ACT TO THE EXTENT AUTHORIZED BY THE AMENDMENT MADE BY THIS ACT.

THE FOREGOING LANGUAGE MAKES THE APPLICATION OF THE AMENDMENT DEPEND UPON THE DATE THE CONTRACT IS SIGNED. THIS IS SHOWN IN TWO WAYS. IN THE FIRST PLACE, IT IS PROVIDED THAT THE AMENDMENT IS EFFECTIVE AS TO ANY CONTRACT ENTERED INTO NOT LATER THAN 2 YEARS AFTER THE DATE OF ENACTMENT. IN THE SECOND PLACE, IT IS PROVIDED THAT, TO THE EXTENT AUTHORIZED BY THE AMENDMENT, THE FEDERAL MARITIME BOARD COULD MODIFY A CONTRACT ENTERED INTO PRIOR TO THE DATE OF ENACTMENT. IN BOTH CASES, THE DATE OF CONTRACTING IS THE CIRCUMSTANCE UPON WHICH THE APPLICATION OF THE AMENDMENT TURNS. THIS LEGISLATIVE ACTION INCREASING THE CDS CEILING TO 55 PERCENT REFLECTS A CONGRESSIONAL INTENT IN THE CONSTRUCTION SUBSIDY PROGRAM TO ESTABLISH THE DATE OF CONTRACTING AS THE EVENT WHICH FIXES THE STATUTORY FORMULA FOR DETERMINING THE AMOUNT OF THE SUBSIDY GRANT.

THIS CONGRESSIONAL INTENT IS FURTHER REFLECTED IN PUBLIC LAW 87-877, APPROVED OCTOBER 24, 1962, WHICH, AMONG OTHER THINGS, CONTINUED, BY SECTION 1 THEREOF, THE 55 PERCENT CDS CEILING TO JUNE 30, 1964. SECTION 5 OF PUBLIC LAW 87-877 ESTABLISHED THE BASIS FOR THE APPLICATION OF THE CONTINUED 55 PERCENT CEILING. SECTION 5 READ AS FOLLOWS:

THE AMENDMENT MADE BY THE FIRST SECTION OF THIS ACT SHALL BE EFFECTIVE ONLY WITH RESPECT TO CONTRACTS ENTERED INTO WITH RESPECT TO (A) CONSTRUCTION OF A VESSEL, THE KEEL OF WHICH WAS LAID AFTER JUNE 30, 1959, OR (B) THE RECONSTRUCTION OR RECONDITIONING OF A VESSEL, THE SHIPYARD CONTRACT FOR WHICH WAS ENTERED INTO AFTER JUNE 30, 1959, AND THE SECRETARY MAY, WITH THE CONSENT OF THE PARTIES THERETO, MODIFY ANY SUCH CONTRACT ENTERED INTO PRIOR TO THE DATE OF ENACTMENT OF THIS ACT TO THE EXTENT AUTHORIZED BY THE AMENDMENT MADE BY THIS ACT.

HERE TOO, CONGRESS, IN CONTINUING THE 55 PERCENT CDS CEILING, SET LIMITS ON THE APPLICATION OF THE CEILING IN TERMS OF THE DATE OF CONTRACT SIGNING, JUST AS HAD BEEN DONE IN PUBLIC LAW 86-607 WHICH INITIALLY INCREASED THE CEILING FROM 50 PERCENT TO 55 PERCENT. THE SIGNIFICANCE ASSIGNED TO THE DATE OF CONTRACTING IS SHOWN BY A COMMENT IN CONFERENCE REPORT NO. 2556 DATED OCTOBER 12, 1962 TO ACCOMPANY H.R. 11586. THE COMMENT IS AS FOLLOWS:

SECTION 5 OF THE CONFERENCE SUBSTITUTE CONFORMS IN SUBSTANCE TO SECTION 3 OF THE BILL AS PASSED THE HOUSE, WHICH SIMPLY PROVIDED THAT THE CEILINGS ON THE CONSTRUCTION DIFFERENTIAL CONTAINED THEREIN WOULD BE APPLICABLE WITH RESPECT TO BOTH NEW CONSTRUCTION AND RECONSTRUCTION AND RECONDITIONING CONTRACTS, IN ALL CASES WHERE KEELS WERE LAID OR CONTRACTS SIGNED SUBSEQUENT TO JUNE 30, 1959. U.S. CONG. AND ADMIN. NEWS, 87TH CONG., 2D SESS., 1962, PAGE 4023.

THE NEW MARITIME LEGISLATIVE PROGRAM EMBRACED IN H.R. 15424 WILL NOT AFFECT THE CDS CEILING WHICH, UNDER EXISTING PROVISIONS OF SECTION 502(B) OF THE ACT, AUTOMATICALLY REVERTED TO 50 PERCENT AFTER JUNE 30, 1970. HOWEVER, THE BILL DOES CONTAIN DECLINING CDS PERCENTAGES, E.G., 45 PERCENT FOR FISCAL YEAR 1971 AND 43 PERCENT FOR FISCAL YEAR 1972, WHICH ARE GOALS TO BE ACHIEVED IN THE IMPLEMENTATION OF THE NEW PROGRAM. ALTHOUGH THE PROPOSED LEGISLATION WILL NOT CHANGE THE EXISTING MANDATORY CEILING PROVISIONS, SECTION 34(A) OF H.R. 15424 AS PASSED BY THE HOUSE OF REPRESENTATIVES ON MAY 21, 1970, HIGHLIGHTS THE APPROACH WHICH CONGRESS HAS FOLLOWED TO ESTABLISH THE DATE OF CONTRACTING AS DETERMINATIVE OF WHETHER OR NOT AMENDING LEGISLATION WILL APPLY TO ANY PARTICULAR CONTRACT. SECTION 34(A) READS AS FOLLOWS:

THE AMENDMENTS MADE BY THIS ACT SHALL NOT AFFECT ANY CONTRACT WITH THE SECRETARY OF COMMERCE OR HIS DELEGATE THAT IS IN EFFECT ON THE DATE OF ENACTMENT OF THIS ACT.

THIS LANGUAGE WILL MAKE IT CLEAR THAT THE PROPOSED LEGISLATION WILL NOT APPLY TO ANY CONTRACT SIGNED BEFORE THE ENACTMENT OF SUCH LEGISLATION.

WE CONCUR WITH THE OPINION OF THE GENERAL COUNSEL OF THE MARITIME ADMINISTRATION THAT THE CONSTRUCTION-DIFFERENTIAL RATE CEILING APPLICABLE TO SUBSIDY GRANTS UNDER CONTRACTS ENTERED INTO PRIOR TO JULY 1, 1970, BUT WHERE FINAL ADMINISTRATIVE ACTION HAS NOT YET BEEN TAKEN, IS THE 55 ..END