B-125499, NOV. 4, 1955

B-125499: Nov 4, 1955

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TO THE HONORABLE SECRETARY OF THE ARMY: REFERENCE IS MADE TO A LETTER DATED SEPTEMBER 12. WITH THE REQUEST THAT A DECISION BE RENDERED AS TO WHETHER PAYMENT THEREON IS AUTHORIZED. WAS COMMENDED APPROXIMATELY JANUARY 25. REPRESENTATIONS WERE MADE BY CONTRACTOR'S REPRESENTATIVES WHICH INDICATED THAT THE CONTRACTOR HAD A LEGAL ESTATE IN THE WAINWRIGHT SHIPYARD AT PANAMA CITY. THE PROPOSED CONTRACT WAS NEGOTIATED WITH THE CONTRACTOR UPON THIS PREMISE. WHEN THE PROPOSED CONTRACT WAS SUBMITTED TO THE ASSISTANT CHIEF OF STAFF. BECAUSE OF THIS QUESTION THE APPROVAL OF THE AWARD WAS MADE CONTINGENT UPON THE FACT THAT THE CONTRACTING OFFICER BE ASSURED THAT THE FACILITIES OF THE SHIPYARD WERE AVAILABLE TO THE CONTRACTOR AND THAT ANY MAJOR REPAIR OR REHABILITATION OF THE SHIPYARD WOULD NOT BE INCLUDED AS A REIMBURSABLE COST UNDER THE CONTRACT.

B-125499, NOV. 4, 1955

TO THE HONORABLE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER DATED SEPTEMBER 12, 1955, WITH ENCLOSURES, FROM THE ASSISTANT SECRETARY OF THE ARMY (LOGISTICS AND R AND D) TRANSMITTING BUREAU VOUCHER NO. 169, IN THE AMOUNT OF $61,922.25, STATED IN FAVOR OF THE GUARANTY TRUST CO. OF NEW YORK, ASSIGNEE FOR L. B. DELONG, D/B/A DELONG ENGINEERING AND CONSTRUCTION COMPANY UNDER COST-PLUS-A-FIXED- FEE CONTRACT NO. DA 44-177-TC-96, DATED FEBRUARY 1, 1952, WITH THE REQUEST THAT A DECISION BE RENDERED AS TO WHETHER PAYMENT THEREON IS AUTHORIZED.

THE SAID VOUCHER COVERS EXPENDITURES ALLEGEDLY INCURRED BY THE CONTRACTOR IN AND LEASING OF THE WAINWRIGHT SHIPYARD AT PANAMA CITY, FLORIDA, IN CONNECTION WITH THE CONTRACT. IT APPEARS FROM THE RECORD THAT NEGOTIATIONS FOR THE AWARD OF CONTRACT DA 44-177-TC-96, COVERING CERTAIN SELF-ELEVATING BARGES AND DOCK BARGES, AT AN ESTIMATED COST OF $14,905,000, WAS COMMENDED APPROXIMATELY JANUARY 25, 1952, BETWEEN THE RESEARCH CONTRACTING OFFICER, TRANSPORTATION RESEARCH AND DEVELOPMENT COMMAND, AND REPRESENTATIVES OF LEON B. DELONG, DOING BUSINESS AS THE DELONG ENGINEERING AND CONSTRUCTION COMPANY. DURING THESE NEGOTIATIONS THE CONTRACTING OFFICER QUESTIONED CONTRACTOR'S REPRESENTATIVES AS TO THE AVAILABILITY OF SUITABLE FACILITIES FOR THE FABRICATION AND CONSTRUCTION OF THE BARGES. REPRESENTATIONS WERE MADE BY CONTRACTOR'S REPRESENTATIVES WHICH INDICATED THAT THE CONTRACTOR HAD A LEGAL ESTATE IN THE WAINWRIGHT SHIPYARD AT PANAMA CITY, FLORIDA, AND THE PROPOSED CONTRACT WAS NEGOTIATED WITH THE CONTRACTOR UPON THIS PREMISE. WHEN THE PROPOSED CONTRACT WAS SUBMITTED TO THE ASSISTANT CHIEF OF STAFF, G-4, FOR APPROVAL OF AWARD, THE CHIEF, PURCHASES BRANCH, QUESTIONED THE REPRESENTATION OF DELONG TO THE EFFECT THAT THEY HAD A LEGAL ESTATE IN THE WAINWRIGHT SHIPYARD. BECAUSE OF THIS QUESTION THE APPROVAL OF THE AWARD WAS MADE CONTINGENT UPON THE FACT THAT THE CONTRACTING OFFICER BE ASSURED THAT THE FACILITIES OF THE SHIPYARD WERE AVAILABLE TO THE CONTRACTOR AND THAT ANY MAJOR REPAIR OR REHABILITATION OF THE SHIPYARD WOULD NOT BE INCLUDED AS A REIMBURSABLE COST UNDER THE CONTRACT.

UPON INVESTIGATION BY THE CONTRACTING OFFICER IT WAS FOUND THAT THE CONTRACTOR DID NOT HAVE ANY LEGAL ESTATE IN THE SHIPYARD, WHEREUPON THE CONTRACTING OFFICER ASSISTED DELONG IN MAKING GOOD HIS PREVIOUS REPRESENTATION AND A SUITABLE LEASE WAS EXECUTED MARCH 14, 1952, BETWEEN THE SEABOARD MACHINERY CORPORATION AND THE UNITED STATES. THE SEABOARD MACHINERY CORPORATION IMMEDIATELY ASSIGNED THIS LEASE TO DELONG. THE CONTRACTING OFFICER, BEING SATISFIED THAT DELONG NOW HAD A LEGAL ESTATE IN THE SHIPYARD, CAUSED SUPPLEMENTAL AGREEMENT NO. 1, DATED MARCH 14, 1952, TO BE PREPARED AND EXECUTED.

PARAGRAPHS 1 AND 2 OF SUPPLEMENTAL AGREEMENT NO. 1 PROVIDE AS FOLLOWS:

"1. THE CONTRACTOR REPRESENTS, AS AN INDUCEMENT TO THE GOVERNMENT TO AWARD THE PRINCIPAL CONTRACT, THAT THE FACILITIES OF THE WAINWRIGHT SHIPYARD, PANAMA CITY, FLORIDA, ARE AVAILABLE TO THE CONTRACTOR FOR THE PERFORMANCE OF THE PRINCIPAL CONTRACT AND WILL BE AVAILABLE DURING ALL OF THE TIME REQUIRED FOR ITS PERFORMANCE. IT IS UNDERSTOOD THAT THIS REPRESENTATION OF AVAILABILITY OF FACILITIES IS SUBJECT TO ANY AND ALL PROVISIONS OF FEDERAL LAW, EXECUTIVE ORDER AND APPLICABLE FEDERAL REGULATIONS RELATING TO NATIONAL INDUSTRIAL RESERVE PROPERTIES.

"2. THAT THE CONTRACTOR WILL NOT BE REIMBURSED UNDER THE PROVISIONS OF THE PRINCIPAL CONTRACT FOR ANY COST INCURRED IN THE PERFORMANCE OF THE CONTRACT FOR ANY MAJOR REPAIR OR REHABILITATION OF THE WAINWRIGHT SHIPYARD.'

SHORTLY AFTER THE EXECUTION OF SUPPLEMENTAL AGREEMENT NO. 1, THE CONTRACTOR DISCUSSED WITH THE CONTRACTING OFFICER THE POSSIBILITY OF REDUCING THE LENGTH OF THE SELF-ELEVATING BARGES FROM 500 TO 427 FEET. AFTER IT WAS AGREED TO REDUCE THE LENGTH OF THE BARGES THE CONTRACTOR REQUESTED THAT HE BE PERMITTED TO SUBCONTRACT THE CONSTRUCTION OF THE BARGES. THIS REQUEST WAS GRANTED BUT IT WAS RECOGNIZED, HOWEVER, THAT IF THE CONSTRUCTION OF THE BARGES WAS TO BE SUBCONTRACTED, THE ACTUAL WORK PERFORMED AND RESPONSIBILITY OF CONSTRUCTION BY THE PRIME CONTRACTOR, DELONG, WOULD BE CONSIDERABLY REDUCED AND, THEREFORE, THE FEE SHOULD BE REDUCED. BY LETTER DATED APRIL 18, 1952, DELONG REQUESTED THAT WHEN THE NEW SUPPLEMENT WAS WRITTEN, WHICH WOULD PERMIT THEM TO MANUFACTURE ALL THE BARGES AT FACILITIES OTHER THAN THE FACILITIES LOCATED AT PANAMA CITY, FLORIDA, THAT ONE OF THE REIMBURSABLE COSTS UNDER THE CONTRACT, AS MODIFIED, WOULD BE REASONABLE EXPENSES INCURRED BY DELONG IN ACQUIRING, MAINTAINING AND DISPOSING OF ITS INTEREST IN THE WAINWRIGHT SHIPYARD AT PANAMA CITY. SUPPLEMENTAL AGREEMENT NO. 2 WAS EXECUTED APRIL 25, 1952, WITHOUT CONTAINING THE PROVISIONS FOR SUCH REIMBURSEMENT AND WAS SIGNED BY DELONG WHO APPARENTLY RAISED NO QUESTION AS TO THE LACK OF SUCH PROVISIONS. BY LETTER DATED DECEMBER 1, 1953, THE CONTRACTOR REQUESTED THAT THE CONTRACTING OFFICER PAY THE SUM OF $61,397.34, AND BY LETTER DATED APRIL 21, 1954, ADVISED THAT HIS EXPENSES IN CONNECTION WITH THE WAINWRIGHT SHIPYARD HAD BEEN INCREASED, DUE TO VARIOUS INSURANCE EXPENSES, TO $62,022.95, LATER REDUCED TO $59,129.64, AND REQUESTED THAT THE CONTRACTING OFFICER APPROVE THIS AMOUNT FOR REIMBURSEMENT.

ARTICLES 4 AND 5 OF THE INVOLVED CONTRACT PROVIDE IN PART AS FOLLOWS:

"4. FIXED FEE

"* * * IT IS AGREED THAT THE FEE INCLUDES ALL PROFIT TO WHICH THE CONTRACTOR IS ENTITLED FOR WORK AND SERVICES TO BE PERFORMED HEREUNDER, AND SUCH FEE ALSO INCLUDES ALL OVERHEAD EXPENSES NOT OTHERWISE REIMBURSABLE HEREUNDER. * * *.

"5. REIMBURSEMENT FOR COSTS

"THE GOVERNMENT SHALL REIMBURSE THE CONTRACTOR * * * FOR ITS ACTUAL EXPENDITURES, INCLUDING ACTUAL OVERHEAD COSTS INCURRED, NECESSARY FOR AND INCURRED IN THE PERFORMANCE OF THE WORK HEREUNDER TO BE DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 15, PART 2 OF THE ARMED SERVICES PROCUREMENT REGULATION IN EFFECT ON THE DATE OF THIS CONTRACT, * * *. THE PARTIES MAY, BY MODIFICATION TO THIS CONTRACT, PROVIDE THAT ANY PARTICULAR ITEM OF COST OR TYPE OF ITEM OF COST SHALL BE REIMBURSABLE OR NOT REIMBURSABLE UNDER THIS CONTRACT.'

SECTION 15-201 OF THE ARMED SERVICES PROCUREMENT REGULATIONS PROVIDES IN PART AS FOLLOWS:

"15-201 GENERAL BASIS FOR DETERMINATION OF COSTS. THE TOTAL COST OF A COST-REIMBURSEMENT TYPE CONTRACT IS THE SUM OF THE ALLOWABLE DIRECT COSTS INCIDENT TO THE PERFORMANCE OF THE CONTRACT, PLUS THE PROPERLY ALLOCABLE PORTION OF ALLOWABLE INDIRECT COSTS, LESS APPLICABLE INCOME AND OTHER CREDITS. THE TESTS USED IN DETERMINING THE ALLOWABILITY OF COSTS ALSO INCLUDE (I) REASONABLENESS, (II) APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES, AND (III) ANY LIMITATIONS AS TO TYPES OR AMOUNTS OF COST ITEMS SET FORTH IN THIS PART 2 OF SECTION XV OR OTHERWISE INCLUDED IN THE CONTRACT. * * *"

UNDER THE TERMS OF THE PRINCIPAL CONTRACT DATED FEBRUARY 1, 1952, THE REQUIRED BARGES WERE TO BE DELIVERED AT THE CONTRACTOR'S YARD. IN VIEW THEREOF AND THE FACT THAT NO PROVISION WAS MADE FOR THE LEASING OF FACILITIES BY THE CONTRACTOR, IT IS APPARENT THAT THE CONTRACTOR'S FIXED FEE INCLUDED ANY EXPENSES INCIDENT TO PROVIDING FACILITIES. MOREOVER, WHEN SUPPLEMENT NO. 2 WAS EXECUTED, THE CONTRACTOR'S REQUEST THAT A CLAUSE PROVIDING FOR REIMBURSEMENT OF THE COSTS OF ACQUIRING, MAINTAINING AND DISPOSING OF THE WAINWRIGHT SHIPYARD BE INCLUDED THEREIN WAS NOT COMPLIED WITH, AND IT WOULD APPEAR THAT THE CONTRACTOR WAIVED HIS RIGHT TO CLAIM REIMBURSEMENT FOR THESE COSTS BY ACCEPTING THE AGREEMENT.

THERE IS NO PROVISION IN THE CONTRACT AS MODIFIED WHICH PROVIDES THAT THE GOVERNMENT WOULD PAY THE COSTS INCIDENT TO THE LEASING OF THE WAINWRIGHT SHIPYARD, NOR IS THERE ANY PROVISION IMPOSING AN OBLIGATION ON THE CONTRACTOR TO LEASE THE YARD. AS REPORTED BY THE CONTRACTING OFFICER THE SHIPYARD WAS ACQUIRED BY LEASE IN ORDER TO MAKE GOOD A REPRESENTATION WHICH THE CONTRACTOR HAD MADE TO INDUCE THE CONTRACTING OFFICER TO AWARD THE CONTRACT. IT IS REPORTED FURTHER THAT NO WORK OF ANY NATURE CALLED FOR UNDER THE CONTRACT WAS PERFORMED AT THE WAINWRIGHT SHIPYARD AND THAT THE MODIFICATIONS PROVIDED FOR IN SUPPLEMENTAL AGREEMENT NO. 2 WERE SUGGESTED BY THE CONTRACTOR FOR ITS BENEFIT.

AN EXAMINATION OF ARTICLES 4 AND 5 OF THE CONTRACT, AND SECTION 15 201 OF THE ARMED SERVICES PROCUREMENT REGULATION, FAILS TO DISCLOSE ANY BASIS UPON WHICH REIMBURSEMENT FOR THE INVOLVED COSTS COULD BE MADE. THE CONTRACTOR REPRESENTED THAT THE FACILITIES OF THE SHIPYARD WERE AVAILABLE AND IN EXECUTING THE SUPPLEMENTAL AGREEMENTS DID NOT TAKE EXCEPTION TO THE FACT THAT NO PROVISION WAS MADE FOR THE PAYMENT OF THE COSTS INCURRED UNDER THE LEASE. IN OTHER WORDS, IT APPEARS THAT THE EXPENSES INCURRED IN CONNECTION WITH THE ACQUISITION, MAINTENANCE, AND DISPOSAL OF THE WAINWRIGHT SHIPYARD, WHICH THE RECORD SHOWS WAS NEVER UTILIZED, MAY NOT BE CONSIDERED TO HAVE BEEN NECESSARY FOR AND INCURRED IN THE PERFORMANCE OF THE WORK WITHIN THE MEANING OF ARTICLE 5 SO AS TO QUALIFY FOR REIMBURSEMENT UNDER THE CONTRACT.

ACCORDINGLY, THE VOUCHER IS RETURNED HEREWITH, AND YOU ARE ADVISED THAT PAYMENT THEREON IS NOT AUTHORIZED.