B-124329, OCT. 7, 1955

B-124329: Oct 7, 1955

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TO THE HONORABLE SECRETARY OF THE ARMY: REFERENCE IS MADE TO LETTER DATED JUNE 10. WITH REQUEST FOR A DECISION AS TO WHETHER A QUANTUM MERUIT SETTLEMENT IS AUTHORIZED. THE CONTRACTING OFFICER STATES THAT WHILE THE PRIME CONTRACTOR WAS ENGAGED IN THE PERFORMANCE OF ITS CONTRACT FOR THE CONSTRUCTION OF SELF-ELEVATING BARGES IT BECAME NECESSARY. THE SERVICES REQUIRED WERE PERFORMED BY CONSOLIDATED WESTERN WORKMEN. THE CONTRACTING OFFICER ALSO STATES THAT ON EACH OCCASION A SEPARATE WORK ORDER WAS ISSUED DETAILING THE WORK TO BE PERFORMED AND GIVING AN ESTIMATED AMOUNT OF THE COST TO BE INCURRED. THAT THE SERVICES WERE BILLED AT COST TO WHICH A PROFIT OF FIVE PERCENT WAS ADDED. THAT CONFIRMING PURCHASE ORDERS WERE ISSUED BY THE PRIME CONTRACTOR AT A LATER DATE.

B-124329, OCT. 7, 1955

TO THE HONORABLE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO LETTER DATED JUNE 10, 1955, FROM YOUR PREDECESSOR, TRANSMITTING A CLAIM IN THE AMOUNT OF $4,083.64 SUBMITTED BY DELONG ENGINEERING AND CONSTRUCTION COMPANY, PRIME CONTRACTOR UNDER COST REIMBURSABLE CONTRACT NO. DA-44-177-TC-96 DATED FEBRUARY 1, 1952, FOR WORK BILLED BY ITS SUBCONTRACTOR, CONSOLIDATED WESTERN STEEL DIVISION, UNITED STATES STEEL CORPORATION, HOUSTON, TEXAS, ON A COST PLUS-A-PERCENTAGE-OF- COST BASIS, WITH REQUEST FOR A DECISION AS TO WHETHER A QUANTUM MERUIT SETTLEMENT IS AUTHORIZED.

IN HIS LETTER DATED FEBRUARY 10, 1955, THE CONTRACTING OFFICER STATES THAT WHILE THE PRIME CONTRACTOR WAS ENGAGED IN THE PERFORMANCE OF ITS CONTRACT FOR THE CONSTRUCTION OF SELF-ELEVATING BARGES IT BECAME NECESSARY, DURING THE PERIOD OCTOBER 1952 THROUGH MAY 1953, THAT CERTAIN WORK BE PERFORMED WITHIN THE BOUNDARIES OF CONSOLIDATED WESTERN STEEL DIVISION YARD AT ORANGE, TEXAS; THAT MUCH OF THE WORK INVOLVED THE USE OF HEAVY EQUIPMENT, AND THAT IN THE INTEREST OF ECONOMY AND EFFICIENCY, AND WITH THE CONCURRENCE AND APPROVAL OF THE CHIEF SHIPBUILDING INSPECTOR, TRADCOM, THE SERVICES REQUIRED WERE PERFORMED BY CONSOLIDATED WESTERN WORKMEN. THE CONTRACTING OFFICER ALSO STATES THAT ON EACH OCCASION A SEPARATE WORK ORDER WAS ISSUED DETAILING THE WORK TO BE PERFORMED AND GIVING AN ESTIMATED AMOUNT OF THE COST TO BE INCURRED; THAT THE SERVICES WERE BILLED AT COST TO WHICH A PROFIT OF FIVE PERCENT WAS ADDED, SUPPORTED BY DETAILED TIME SHEETS, AND THAT CONFIRMING PURCHASE ORDERS WERE ISSUED BY THE PRIME CONTRACTOR AT A LATER DATE. THE CONTRACTING OFFICER STATES FURTHER THAT FOLLOWING A THOROUGH REVIEW OF THE MATTER HE CONCURRED IN THE DETERMINATIONS OF THE AUDITOR THAT THE PURCHASE ORDERS WERE IN VIOLATION OF THE STATUTORY PROHIBITION AGAINST THE USE OF THE COST PLUS-A-PERCENTAGE -OF-COST SYSTEM OF CONTRACTING, AND PAYMENT THEREFORE WAS DENIED ON AUGUST 10, 1953. SEE 50 U.S.C. 611 AND 41 U.S.C. 254 (B).

THE RECORD SHOWS THAT SUBCONTRACT NO. C-105 WAS ENTERED INTO DECEMBER 9, 1953, WITH THE APPROVAL OF THE CONTRACTING OFFICER, BETWEEN THE PRIME CONTRACTOR AND CONSOLIDATED WESTERN EFFECTIVE MAY 15, 1953, PROVIDING FOR PERFORMANCE OF THE SAME TYPE OF WORK AS THAT COVERED BY THE CLAIM. BASIC RATES ARE STIPULATED IN THE SUBCONTRACT WHICH INCLUDE COMPENSATION FOR WAGES PAID, INSURANCE, USE OF SHOP TOOLS AND EQUIPMENT, ITEMS OF GENERAL OVERHEAD AND PROFIT, AND PROVISION IS MADE FOR PAYMENT FOR MATERIALS USED AND FOR EQUIPMENT RENTED. IN FACT, THE CONTRACTING OFFICER STATES IN HIS LETTER OF FEBRUARY 10, 1955, THAT THIS ACTION WAS TAKEN TO PRECLUDE THE RECURRENCE OF THE QUESTIONED SITUATION PREVIOUSLY EXISTING. THE RECORD SHOWS ALSO THAT WITH RESPECT TO THE WORK PERFORMED BEFORE THE EFFECTIVE DATE OF THE SUBCONTRACT AND BILLED ON THE BASIS OF THE COST OF LABOR AND MATERIALS, PLUS 80 PERCENT OVERHEAD, 7 PERCENT GENERAL AND ADMINISTRATIVE EXPENSES, AND 5 PERCENT PROFIT, THE CONTRACTOR DEDUCTED THE PROFIT ITEM THEREBY REDUCING THE AMOUNT OF THE CLAIM TO $3,889.17, AS SET OUT IN THE VOUCHER AND SUPPORTING INVOICES TRANSMITTED WITH ITS LETTER OF AUGUST 20, 1954. THE CONTRACTING OFFICER, HOWEVER, IN A LETTER DATED DECEMBER 2, 1954, AFFIRMED HIS PRIOR DETERMINATION AND ADVISED THE CONTRACTOR THAT NO FURTHER ACTION WITH RESPECT TO THE MATTER WAS CONTEMPLATED.

IN A LETTER DATED JANUARY 4, 1955, THE CONTRACTOR PROTESTED THE ACTION TAKEN BY THE CONTRACTING OFFICER AND REQUESTED THAT ITS CLAIM, REASSERTED IN THE SUM OF $4,083.64, BE REFERRED TO OUR OFFICE "FOR A QUANTUM MERUIT BASIS OF SETTLEMENT.' THE CONTRACTOR CONTENDS THAT IT IS ENTITLED TO REIMBURSEMENT OF ALL REASONABLE COSTS WHICH ARE CONSIDERED A PRODUCTIVE CONTRIBUTION TO THE CONTRACT, AND RELATES THE PROCEDURES AND CONTROLS EXERCISED OVER THE WORK INVOLVED, WHICH ARE NOT QUESTIONED BY THE CONTRACTING OFFICER, AS FOLLOWS:

"* * * SINCE THE EARLY STAGES OF CONTRACT DA 44-177-TC-96, ITEMS OF WORK DEVELOPED AT THE SUBCONTRACTOR'S PLANT IN ORANGE, TEXAS, THAT WERE OUTSIDE THE SCOPE OF THE SEVERAL SUBCONTRACTS IN EFFECT. THE EXTRA WORK COULD NOT BE ANTICIPATED UNTIL THE NEED BECAME APPARENT, AND INCLUDED WELDERS, COMPRESSORS, CRANES AND OTHER PIECES OF EQUIPMENT; ALSO WORK INVOLVED IN TRANSFERRING STEEL TO HOUSTON AND PERFORMING OTHER SERVICES REQUIRING SPECIAL EQUIPMENT. THE JOBS WERE INTERMITTENT AND UNPREDICTABLE AND USUALLY REQUIRED THE USE OF YARD EQUIPMENT AND EQUIPMENT OPERATORS AS WELL AS SHOP FACILITIES AND MECHANICS. DUE TO THE DIVERSIFIED NATURE OF THE WORK AND THE LIMITED TIME AVAILABLE FOR ACCOMPLISHMENT, EMPLOYMENT OF THE SPECIALIZED PERSONNEL AND ACQUISITION OF EQUIPMENT WAS CONSIDERED TO BE AN EXPENSIVE AND TIME CONSUMING ARRANGEMENT WHICH WAS MUCH MORE EFFICIENTLY AND ECONOMICALLY PERFORMED BY THE SUBCONTRACTOR'S AVAILABLE ORGANIZATION. FURTHERMORE, OUR SMALL FORCE OF SUPERVISORY EMPLOYEES WERE ENGAGED IN REGULAR DEMANDING ACTIVITIES AND COULD NOT REASONABLY SPARE THE TIME REQUIRED TO INSTRUCT NEWLY HIRED PERSONNEL IN SUCH INTERMITTENT WORK. WAS, THEREFORE, CONCLUDED THAT THE MOST EFFECTIVE AND ECONOMICAL METHOD OF ACCOMPLISHING UNFORESEEN WORK WAS TO ENGAGE THE SERVICES OF CONSOLIDATED WESTERN STEEL DIVISION WHEN NEEDED. THE INTENT OF THE WORK ORDER SYSTEM WAS THEREFORE, NOT FRAUDULENT, AND WAS CONSIDERED BY BOTH THE CONTRACTOR AND SUBCONTRACTOR AS A WORKABLE ARRANGEMENT THAT IS ACCEPTED PRACTICE IN SHIPYARDS. APPROPRIATE PRECAUTIONS WERE TAKEN TO ASSURE POSITIVE CONTROL OF ALL SERVICES. DAILY TIME SHEETS, DETAILING ALL LABOR, EQUIPMENT AND MATERIAL WERE REQUIRED FROM THE SUBCONTRACTOR AND APPROVAL BY THE DELONG REPRESENTATIVE AND BY TRADC, CHIEF SHIPBUILDING INSPECTOR WAS ARRANGED TO VERIFY THE NEED AND ACTUAL PRODUCTIVE EXPENDITURE OF THESE ITEMS.'

THERE HAVE BEEN FURNISHED IN SUPPORT OF THE CLAIM TWO CERTIFICATES, ONE BY THE CHIEF SHIPBUILDING INSPECTOR TO THE EFFECT THAT HE OBSERVED THE WORK PERFORMED, THAT THE MAN HOURS LISTED ARE ACCURATE AND WERE UTILIZED IN THE PERFORMANCE OF WORK WHICH WAS NECESSARY AND SATISFACTORILY PERFORMED, AND THAT THE GOVERNMENT RECEIVED THE BENEFIT OF THE SERVICES. IN THE OTHER CERTIFICATE, THE CONTRACTING OFFICER CERTIFIES, IN ADDITION, THAT AFTER INVESTIGATION IT IS CONCLUDED THAT NO UNREASONABLE COSTS WERE INCURRED OR PAID, AND FURTHER THAT THE ESTABLISHED ACTUAL COSTS TOTAL $3,889.17.

IN OUR DECISION TO THE SECRETARY OF THE ARMY DATED MAY 3, 1954, B 118109, 33 COMP. GEN. 533, A PROCEDURE FOR PROCESSING REIMBURSEMENTS CLAIMED UNDER CIRCUMSTANCES SIMILAR TO THOSE HERE INVOLVED WAS APPROVED AND PAYMENT WAS AUTHORIZED ON THE BASIS OF THE FAIR AND REASONABLE VALUE OF THE ITEMS FURNISHED. APPLYING THE PRINCIPLES OF THIS DECISION TO THE INSTANT CASE, THE INFORMATION AND DATA OF RECORD ARE SUFFICIENT TO ESTABLISH THAT THE SUM OF $3,899.17 REPRESENTS NO MORE THAN THE FAIR AND REASONABLE VALUE OF THE SERVICES COVERED BY THE INVOICES IN QUESTION.

ACCORDINGLY, YOU ARE ADVISED THAT THE CONTRACTOR'S CLAIM IS BEING REFERRED TO THE CLAIMS DIVISION OF OUR OFFICE WITH INSTRUCTIONS TO ALLOW THE SUM OF $3,889.17 IN FULL AND FINAL SETTLEMENT.