B-125235, MARCH 16, 1956, 35 COMP. GEN. 518

B-125235: Mar 16, 1956

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1956: REFERENCE IS MADE TO YOUR LETTER OF AUGUST 17. 20-YEAR OPERATING SUBSIDY CONTRACTS WITH THAT OPERATOR FOR EACH OF ITS SERVICES OR ROUTES AT THE TIME THE FIRST NEW VESSEL FOR SUCH SERVICE OR ROUTE IS PLACED IN SERVICE AND FOR THE CONSOLIDATION OF SUCH OPERATOR'S MULTIPLE CONTRACTS FOR ACCOUNTING PURPOSES. THE PROPOSAL IS URGED BY THE SUBSIDIZED OPERATORS IN CONNECTION WITH ACCELERATED VESSEL REPLACEMENT PROGRAMS AND THE FINANCING THEREOF FROM PRIVATE SOURCES. OR LINE" FOR WHICH THE APPLICATION IS APPROVED. THAT THERE IS AUTHORITY FOR THE CURRENT PRACTICE OF INCLUDING IN ONE CONTRACT MORE THAN ONE ROUTE OR LINE IS CLEARLY INDICATED BY THE PROVISION IN SECTION 601 (B) THAT " EVERY APPLICATION FOR AN OPERATING-DIFFERENTIAL SUBSIDY (CONTRACT) * * * SHALL BE ACCOMPANIED BY STATEMENTS DISCLOSING THE NAMES OF ALL PERSONS HAVING ANY PECUNIARY INTEREST * * * IN SUCH APPLICATION.

B-125235, MARCH 16, 1956, 35 COMP. GEN. 518

VESSELS - OPERATING-DIFFERENTIAL SUBSIDIES - CONSOLIDATED OPERATOR CONTRACTS THE EXECUTION OF A MASTER TYPE VESSEL SUBSIDY CONTRACT WHICH WOULD CONSOLIDATE FOR ACCOUNTING PURPOSES ALL OF THE INDIVIDUAL SUBSIDY CONTRACTS HELD BY ONE OPERATOR FOR EACH OF ITS SERVICES, ROUTES OF LINES MAY NOT BE AUTHORIZED UNDER THE OPERATING-DIFFERENTIAL SUBSIDY PROVISIONS OF TITLE VI OF THE MERCHANT MARINE ACT, 1936, WHICH CONTEMPLATE CONTRACTS ON AN INDIVIDUAL AS DISTINGUISHED FROM AN OPERATOR BASIS.

TO THE CHAIRMAN, FEDERAL MARITIME BOARD, MARCH 16, 1956:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 17, 1955, SUPPLEMENTED BY YOUR LETTER OF NOVEMBER 25, INQUIRING AS TO WHETHER WE WOULD BE REQUIRED TO OBJECT TO THE EXECUTION BY THE FEDERAL MARITIME BOARD OF A CONTRACT WITH A SUBSIDIZED OPERATOR WHICH PROVIDES FOR THE SUBSEQUENT EXECUTION OF SEPARATE, CONCURRENT, 20-YEAR OPERATING SUBSIDY CONTRACTS WITH THAT OPERATOR FOR EACH OF ITS SERVICES OR ROUTES AT THE TIME THE FIRST NEW VESSEL FOR SUCH SERVICE OR ROUTE IS PLACED IN SERVICE AND FOR THE CONSOLIDATION OF SUCH OPERATOR'S MULTIPLE CONTRACTS FOR ACCOUNTING PURPOSES. THE PROPOSAL IS URGED BY THE SUBSIDIZED OPERATORS IN CONNECTION WITH ACCELERATED VESSEL REPLACEMENT PROGRAMS AND THE FINANCING THEREOF FROM PRIVATE SOURCES.

AS WE VIEW YOUR PROPOSAL, IT CONTEMPLATES, IN EFFECT, THE EXECUTION OF A "MASTER CONTRACT" WITH AN INDIVIDUAL OPERATOR WHICH WOULD CONSOLIDATE THEREUNDER THE RECAPTURE ACCOUNTING OF ALL SUBSIDY CONTRACTS HELD BY THE OPERATOR, REGARDLESS OF THE DATE OF EXECUTION OR DURATION OF THE SEPARATE CONTRACTS.

TITLE VI OF THE MERCHANT MARINE ACT, 1936, 46 U.S.C. 1171, ET SEQ., SETS FORTH THE TERMS AND CONDITIONS UNDER WHICH THE FEDERAL MARITIME BOARD MAY GRANT TO AN APPLICANT A CONTRACT PROVIDING FINANCIAL AID IN THE FORM OF AN OPERATING-DIFFERENTIAL SUBSIDY FOR THE OPERATION OF A VESSEL OR VESSELS "IN SUCH SERVICE, ROUTE, OR LINE" FOR WHICH THE APPLICATION IS APPROVED. THAT THERE IS AUTHORITY FOR THE CURRENT PRACTICE OF INCLUDING IN ONE CONTRACT MORE THAN ONE ROUTE OR LINE IS CLEARLY INDICATED BY THE PROVISION IN SECTION 601 (B) THAT " EVERY APPLICATION FOR AN OPERATING-DIFFERENTIAL SUBSIDY (CONTRACT) * * * SHALL BE ACCOMPANIED BY STATEMENTS DISCLOSING THE NAMES OF ALL PERSONS HAVING ANY PECUNIARY INTEREST * * * IN SUCH APPLICATION, OR IN THE OWNERSHIP OR USE OF THE VESSEL OR VESSELS, ROUTES OR LINES COVERED THEREBY * * *.' AT THE SAME TIME, IT DOES NOT APPEAR THAT THE GRANTING OF A SUBSIDY CONTRACT TO AN OPERATOR FOR ONE SERVICE, ROUTE, OR LINE, WAS INTENDED TO PRECLUDE THE GRANTING OF ANOTHER SUBSIDY CONTRACT TO THE SAME OPERATOR FOR A DIFFERENT SERVICE, ROUTE OR LINE. THIS CONNECTION, HOWEVER, THERE IS FOR YOUR CONSIDERATION THE RESULTING ADMINISTRATIVE AND ACCOUNTING PROBLEMS WHICH WOULD APPEAR TO MAKE THE GRANTING OF SUCH CONCURRENT CONTRACTS IMPRACTICABLE, IF NOT IMPOSSIBLE, FOR THE FOLLOWING REASONS:

1. THERE WOULD BE CONTRACTS WITH VARYING TERMINATION AND TEN-YEAR

RECAPTURE DATES, RESULTING IN CONSIDERABLY MORE AUDITING AND

ACCOUNTING WORK FOR BOTH THE MARITIME ADMINISTRATION AND THE

SUBSIDIZED OPERATORS.

2. THE MARITIME ADMINISTRATION WOULD HAVE TO ADMINISTER AND DETERMINE

THAT THE OPERATORS ARE COMPLYING WITH THE CONTRACT PROVISIONS OF

EACH CONTRACT.

3. OPERATORS WOULD HAVE TO PREPARE SEPARATE BILLINGS AND STATEMENTS

FOR EACH CONTRACT, IN ORDER TO ALLOCATE OVERHEAD EXPENSES AND MAKE

DETERMINATIONS OF CAPITAL NECESSARILY EMPLOYED, PROFITS, TAXES,

AND RECAPTURE ON EACH INDIVIDUAL CONTRACT.

4. THE ANNUAL ACCOUNTINGS WOULD BE INCREASED BY THE ADDITIONAL NUMBER

OF CONTRACTS ENTERED INTO.

5. RESERVE FUND REQUIREMENTS AND DIVIDEND REGULATIONS WOULD HAVE

TO BE CALCULATED ON AN INDIVIDUAL CONTRACT BASIS.

6. THE FACT THAT AN OPERATOR COULD BE IN A RECAPTURE POSITION ON

CERTAIN CONTRACTS AND IN A LOSS POSITION ON OTHERS COULD OPERATE

TO THE DETRIMENT OF EITHER THE GOVERNMENT OR THE OPERATOR.

A REASONABLE CONSTRUCTION OF ITS RELATED PROVISIONS CONVINCES US THAT TITLE VI ADDRESSES ITSELF TO THE TERMS AND CONDITIONS APPLICABLE TO INDIVIDUAL SUBSIDY CONTRACTS AND THAT EACH SUBSIDY CONTRACT HAS TO BE ADMINISTERED AND ACCOUNTED FOR INDIVIDUALLY. FOR EXAMPLE, SECTION 606 (5), 46 U.S.C. 1176 (5), PROVIDES THAT:

EVERY CONTRACT FOR AN OPERATING-DIFFERENTIAL SUBSIDY UNDER THIS TITLE SHALL PROVIDE (FOR RECAPTURE ACCOUNTING WITH THE AMOUNT OF RECAPTURE NOT TO EXCEED) THE AMOUNT OF THE OPERATING-DIFFERENTIAL SUBSIDY PAYMENTS THERETOFORE MADE * * * UNDER SUCH CONTRACT * * *. ( ITALICS SUPPLIED.) SECTION 607 (B), 46 U.S.C. 1177 (B), REFERS TO "CUMULATIVE NET PROFITS OF THE CONTRACTOR * * * IN EXCESS OF 10 PERCENTUM PER ANNUM FROM THE DATE THE CONTRACT WAS EXECUTED.'

ACCORDINGLY, WE PERCEIVE NO LEGAL OBJECTION TO GRANTING SEPARATE CONTRACTS COVERING SEPARATE SERVICES, LINES, OR ROUTES TO THE SAME OPERATOR. HOWEVER, INASMUCH AS THE PROVISIONS OF TITLE VI CLEARLY ARE APPLICABLE UPON AN INDIVIDUAL CONTRACT BASIS, WE CANNOT AGREE THAT THE BOARD IS AUTHORIZED FOR ACCOUNTING PURPOSES TO CONSOLIDATE INDIVIDUAL CONTRACTS UNDER A "MASTER CONTRACT" EXECUTED ON AN "OPERATOR" BASIS.