B-124206, NOV. 4, 1955

B-124206: Nov 4, 1955

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REQUESTS THAT AN ADVANCE DECISION BE RENDERED AS TO WHETHER PAYMENT THEREON IS AUTHORIZED. IT WAS AGREED THAT THE CONTRACTOR WOULD FURNISH AND INSTALL CERTAIN EQUIPMENT FOR USE ON. THE CONTRACT PROVIDED IN MATERIAL PART THAT ALLOWABLE ITEMS OF COST WERE TO BE DETERMINED BY THE CONTRACTING OFFICER IN ACCORDANCE WITH PART 2 OF SECTION XV OF THE ARMED SERVICES PROCUREMENT REGULATION. THE AMOUNT OF THE VOUCHER REPRESENTS THE PRO RATA SHARE OF THE FOLLOWING ITEMS OF OVERHEAD APPLICABLE TO THE CONTRACTOR'S SANTA MONICA DIVISION FOR THE FISCAL YEAR 1951 WHICH WERE REIMBURSED UNDER THE CONTRACT. SUBSEQUENTLY WERE COLLECTED FROM THE CONTRACTOR BECAUSE OF GAO NOTICE OF EXCEPTION NO. 300040 TO THE PAYMENTS: CHART ITEMS PRO RATA AMOUNTS RECLAIMED 1.

B-124206, NOV. 4, 1955

TO MAJOR S. J. BENKOSKI, USAF, FINANCE OFFICER, DEPARTMENT OF THE AIR FORCE:

YOUR LETTER OF MAY 5, 1955, TRANSMITS BUREAU VOUCHER NO. R-66 IN THE AMOUNT OF $21.23, STATED IN FAVOR OF DOUGLAS AIRCRAFT COMPANY, INC., UNDER COST-PLUS-A-FIXED-FEE CONTRACT NO. AF 33/600/5086, DATED JUNE 19, 1951, AND REQUESTS THAT AN ADVANCE DECISION BE RENDERED AS TO WHETHER PAYMENT THEREON IS AUTHORIZED.

UNDER THE CONTRACT, IT WAS AGREED THAT THE CONTRACTOR WOULD FURNISH AND INSTALL CERTAIN EQUIPMENT FOR USE ON, OR IN CONNECTION WITH, AIRCRAFT AND THAT IT WOULD CONDUCT CERTAIN TESTS RELATING THERETO. WITH RESPECT TO COMPENSATION, THE CONTRACT PROVIDED IN MATERIAL PART THAT ALLOWABLE ITEMS OF COST WERE TO BE DETERMINED BY THE CONTRACTING OFFICER IN ACCORDANCE WITH PART 2 OF SECTION XV OF THE ARMED SERVICES PROCUREMENT REGULATION.

THE AMOUNT OF THE VOUCHER REPRESENTS THE PRO RATA SHARE OF THE FOLLOWING ITEMS OF OVERHEAD APPLICABLE TO THE CONTRACTOR'S SANTA MONICA DIVISION FOR THE FISCAL YEAR 1951 WHICH WERE REIMBURSED UNDER THE CONTRACT, BUT SUBSEQUENTLY WERE COLLECTED FROM THE CONTRACTOR BECAUSE OF GAO NOTICE OF EXCEPTION NO. 300040 TO THE PAYMENTS:

CHART

ITEMS PRO RATA AMOUNTS

RECLAIMED

1. ADVERTISING $ 7.90

2. AIRPLANE CRASH EXPENSE 7.48

3. MISCELLANEOUS EXPENSE

(A) (B) E. T. STERN, NEW YORK OFFICE 5.42

(C) JAMES HARPER, SALES OBSERVER .43

TOTAL: $21.23

SECTION XV OF THE ARMED SERVICES PROCUREMENT REGULATION PROVIDES IN PARAGRAPH 15-201 THAT THE TOTAL COST UNDER A CONTRACT OF THE TYPE INVOLVED IS THE SUM OF THE ALLOWABLE DIRECT COSTS ,INCIDENT TO THE PERFORMANCE OF THE CONTRACT," PLUS "THE PROPERLY ALLOCABLE PORTION OF ALLOWABLE INDIRECT COSTS," SUBJECT TO ANY LIMITATIONS AS TO TYPES OR AMOUNTS OF COST ITEMS SET FORTH IN PART 2 OF SECTION XV OR OTHERWISE INCLUDED IN THE CONTRACT. ALSO, IT IS STATED IN PARAGRAPH 15-203 OF SECTION XV THAT ALLOWABLE INDIRECT COSTS MAY FALL INTO ONE OR MORE CATEGORIES: (A) MANUFACTURING AND PRODUCTION EXPENSES, WHICH ARE THE INDIRECT COSTS INCURRED IN THE OPERATION OF PRODUCTION DEPARTMENTS; (B) SELLING AND DISTRIBUTION EXPENSES, WHICH ARE COSTS INCURRED IN CONNECTION WITH THE MARKETING OF THE CONTRACTOR'S PRODUCTS; AND (C) GENERAL AND ADMINISTRATIVE EXPENSES, WHICH ARE COSTS INCURRED IN THE GENERAL MANAGEMENT, SUPERVISION AND CONDUCT OF THE BUSINESS AS A WHOLE.

UNDER PARAGRAPH 15-205 (A) OF SECTION XV "ADVERTISING, EXCEPT "HELP WANTED" ADVERTISING, AND ADVERTISING IN TRADE AND TECHNICAL JOURNALS (SEE PARAGRAPH 15-204 (A) AND (R)," IS LISTED AS AN EXAMPLE OF UNALLOWABLE COST.

THE VOUCHER IS SUBMITTED AS A RESULT OF THE ERRONEOUS PAYMENT OF RECLAIM VOUCHER R-65, IN THE AMOUNT OF $21.23, ON D.O. VOUCHER NO. 1930 IN THE JULY 1954 ACCOUNTS OF G. F. WANDRES, SYM. 144. COLLECTION FOR ERRONEOUS PAYMENT WAS MADE ON COLLECTION VOUCHER NO. 569, DATED OCTOBER 21, 1954, IN THE ACCOUNTS OF COLONEL WANDRES.

TRANSMITTED IN SUPPORT OF THE VOUCHER IS A COPY OF THE CONTRACTOR'S LETTER OF JUNE 25, 1954, 4G-10-307, SUBMITTED IN SUPPORT OF ITS RECLAIM VOUCHER R-227, WHEREIN REIMBURSEMENT IS CLAIMED FOR A PRO RATA SHARE OF THE ABOVE ITEMS OF EXPENSE UNDER ANOTHER CONTRACT CONTAINING REIMBURSEMENT PROVISIONS SIMILAR TO THOSE HERE INVOLVED. SUCH VOUCHER IS NOW UNDER CONSTRUCTION BY OUR CLAIMS DIVISION AS CLAIM NO. Z-196 (62).

IN ITS LETTER OF JUNE 25, 1954, THE CONTRACTOR CONTENDS WITH RESPECT TO ITEM 1 THAT IT IS ERRONEOUS FOR THE GENERAL ACCOUNTING OFFICE TO ASSUME THAT THIS INDIRECT EXPENSE RELATES SOLELY TO ADVERTISING EXPENSE RECORDED IN ACCOUNT NO. 6562; THAT THIS IS NOT THE CASE SINCE EXPENSES OF DEPARTMENT 122/233 REPRESENT INDIRECT COSTS INCURRED IN CONNECTION WITH THE MARKETING OF THE CONTRACTOR'S PRODUCTS AND, AS SUCH, THEY WERE PROPERLY TREATED AS OVERHEAD FOR ALLOCATION TO ALL CONTRACTS; AND THAT THE CONTRACTING OFFICER DETERMINED THAT THE INDIRECT EXPENSE RESULTED FROM ACTIVITIES WHICH WERE RELATED BOTH TO THE CONTRACTOR'S GOVERNMENT CONTRACT PRODUCTS AND TO ITS COMMERCIAL CONTRACT PRODUCTS.

RELATIVE TO THE REASON FOR MAINTAINING DEPARTMENT 122/233, THE FOLLOWING STATEMENT IS MADE IN THE LETTER OF JUNE 25, 1954:

"* * * IT WOULD, INDEED, BE AN UNUSUAL TYPE OF BUSINESS WHICH, HAVING A PRODUCT TO SELL (WHETHER TO THE GOVERNMENT OR TO THE GENERAL PUBLIC) DID NOT PUBLICIZE: (I) THE OUTSTANDING AND COMPETITIVE MERITS OF ITS PRODUCT, (II) ITS ABILITY TO FOLLOW-THROUGH WITH PROMPT AND EFFICIENT SERVICING OF THOSE PRODUCTS, (III) THE AREA IN WHICH SUCH DISTRIBUTION CAN BE ACCOMPLISHED, AND (IV) THE ADVANTAGES AND BENEFITS OF EMPLOYMENT BY SAID BUSINESS. IT IS A TOP MANAGEMENT FUNCTION TO PLAN AND DIRECT THIS TYPE OF IMPORTANT EFFORT AND THE FUNCTION OF DEPARTMENT 122/233 PERSONNEL TO ACT AS THE INSTRUMENT FOR CARRYING THROUGH SUCH PLANNING.'

THUS, THE CONTRACTOR HAS ESTABLISHED THAT DEPARTMENT 122/233 IS OPERATED MAINLY FOR THE PURPOSE OF PUBLICIZING, OR ADVERTISING, THE CONTRACTOR'S PRODUCTS. SINCE ADVERTISING PLACED IN NONTECHNICAL MEDIA AND EITHER NOT CLAIMED BY THE CONTRACTOR OR DELETED BY THE ADMINISTRATIVE AGENCY REPRESENTS 97.42 PERCENT OF THE ADVERTISING EXPENSE RECORDED IN ACCOUNT 6562, A LIKE PROPORTION OF THE EXPENSE OF OPERATING DEPARTMENT 122/233 PROPERLY MUST BE HELD NOT REIMBURSABLE UNDER THE CONTRACT,PURSUANT TO THE ABOVE-CITED PROVISION OF ASPR 15 205 (A).

EXCEPTION WAS TAKEN TO REIMBURSEMENT TO THE CONTRACTOR FOR THE REMAINING ITEMS OF EXPENSE ON THE BASIS THAT IT HAD NOT SHOWN THAT THEY BORE ANY RELATION TO THE PERFORMANCE OF THE WORK UNDER THE CONTRACT. HOWEVER, AS INDICATED ABOVE, PART 2 OF SECTION XV OF THE ARMED SERVICES PROCUREMENT REGULATION CONTAINS NO GENERAL PROVISIONS REQUIRING THAT ITEMS OF OVERHEAD, AS DISTINGUISHED FROM DIRECT COSTS, BE RELATED TO THE PARTICULAR CONTRACT IN ORDER TO BE REIMBURSABLE. THE CONTRACTING OFFICER HAS DETERMINED THAT THE EXPENSE WAS RELATED TO CONTRACT PRODUCTS AND, THEREFORE, NOT PROHIBITED BY ASPR 15-205 (Q), AND THAT IT IS OF THE TYPE WHICH WARRANTS INCLUSION IN A COMMON OVERHEAD POOL FOR PRORATION TO ALL CONTRACTS. HENCE, THE AMOUNTS RECLAIMED FOR THESE ITEMS ARE PROPER FOR REIMBURSEMENT UNDER THE CONTRACT IF OTHERWISE CORRECT.

ACCORDINGLY, THE VOUCHER, TOGETHER WITH SUPPORTING PAPERS, IS RETURNED HEREWITH, AND YOU ARE ADVISED THAT PAYMENT THEREON IS AUTHORIZED TO THE EXTENT INDICATED.