B-126195, JAN. 13, 1956

B-126195: Jan 13, 1956

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TO THE HONORABLE SECRETARY OF THE ARMY: REFERENCE IS MADE TO LETTER OF NOVEMBER 25. IT IS STATED. ARE NOT IN DISPUTE AND YOU REQUEST A DECISION AS TO WHETHER THE CONTRACTOR'S CLAIM FOR SUCH COSTS MAY BE SETTLED BY THE DEPARTMENT OF THE ARMY UNDER THE PROCEDURE SET FORTH IN SUBPARAGRAPHS A THROUGH E OF OUR DECISION DATED MAY 3. THE "FINDINGS OF FACT AND DECISION" OF THE CONTRACTING OFFICER ARE AS FOLLOWS: "/A) THAT THE DANIELSON MANUFACTURING COMPANY. "/B) THAT AT THE TIME THE ABOVE MENTIONED PURCHASE ORDERS WERE ISSUED. "/C) THAT THE ABOVE MENTIONED PURCHASE ORDERS WERE WRITTEN ON A "TIME-AND -MATERIALS" BASIS. NOR DID SAID PURCHASE ORDERS SPECIFY FIXED HOURLY RATES AT WHICH THE SUBCONTRACT WORK WAS TO BE CHARGED.

B-126195, JAN. 13, 1956

TO THE HONORABLE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO LETTER OF NOVEMBER 25, 1955, FROM THE ASSISTANT SECRETARY OF THE ARMY (LOGISTICS), WITH ATTACHMENTS, RELATING TO AN APPEAL BY THE DANIELSON MANUFACTURING COMPANY, DANIELSON, CONNECTICUT, FROM A DECISION OF THE CONTRACTING OFFICER UNDER COST-REIMBURSABLE CONTRACT NO. DA-18-064-404-CML-22, WITH YOUR DEPARTMENT, IN WHICH THE CONTRACTOR URGES THAT REIMBURSEMENT SHOULD BE MADE OF THE COSTS INCURRED FOR ITEMS PROCURED UNDER SUBCONTRACTS FOUND TO BE IN VIOLATION OF THE PROHIBITION AGAINST THE COST-PLUS-A-PERCENTAGE-OF COST SYSTEM OF CONTRACTING. THE FACTS, IT IS STATED, ARE NOT IN DISPUTE AND YOU REQUEST A DECISION AS TO WHETHER THE CONTRACTOR'S CLAIM FOR SUCH COSTS MAY BE SETTLED BY THE DEPARTMENT OF THE ARMY UNDER THE PROCEDURE SET FORTH IN SUBPARAGRAPHS A THROUGH E OF OUR DECISION DATED MAY 3, 1954, B-118109, 33 COMP. GEN. 533.

THE "FINDINGS OF FACT AND DECISION" OF THE CONTRACTING OFFICER ARE AS FOLLOWS:

"/A) THAT THE DANIELSON MANUFACTURING COMPANY, AN INDEPENDENT CONTRACTOR PERFORMING WORK AND SERVICES UNDER DEPARTMENT OF THE ARMY CONTRACT NO. DA- 18-064-404-CML-22 (FORMERLY DA-18-064-CML-2406), PLACED PURCHASE ORDER NO. A-6586 (DATED 15 OCTOBER 1954) FOR A UNIT FOR EXPANDING NYLON BOTTLES, AND PURCHASE ORDER NO. A-6660 (DATED 7 DECEMBER 1954) FOR TWO (2) CURVED TUBE INSERTS, WITH AMCO TOOL AND DIE, INC., ROCKVILLE, CONNECTICUT;

"/B) THAT AT THE TIME THE ABOVE MENTIONED PURCHASE ORDERS WERE ISSUED, A VALID NEED DID EXIST FOR THE ITEMS COVERED THEREUNDER FOR THE PROPER PERFORMANCE OF THE WORK AND SERVICES CALLED FOR UNDER THE ABOVE NUMBERED CONTRACT;

"/C) THAT THE ABOVE MENTIONED PURCHASE ORDERS WERE WRITTEN ON A "TIME-AND -MATERIALS" BASIS, BUT DID NOT ESTABLISH EITHER A PRICE CEILING OR A CEILING AMOUNT WHICH THE SUBCONTRACTOR COULD NOT EXCEED (EXCEPT AT HIS OWN RISK), NOR DID SAID PURCHASE ORDERS SPECIFY FIXED HOURLY RATES AT WHICH THE SUBCONTRACT WORK WAS TO BE CHARGED;

"/D) THAT THE FINAL COSTS BILLED BY THE SUBCONTRACTOR, AND FOR WHICH THE PRIME CONTRACTOR SEEKS REIMBURSEMENT, EXCEED THE INITIAL PRICES ESTIMATED BY THE SUBCONTRACTOR IN ITS PROPOSALS DATED 21 SEPTEMBER AND 24 NOVEMBER 1954;

"/E) THAT THERE IS NOT SUFFICIENT EVIDENCE THAT THE PRIME CONTRACTOR MAINTAINED SUCH ADMINISTRATIVE CONTROL AS IS NECESSARY TO ELIMINATE INCENTIVES ON THE PART OF THE SUBCONTRACTOR FOR INCREASING COSTS AND PROFIT.'

IN A LETTER DATED JULY 18, 1955, FROM THE CONTRACTING OFFICER, TRANSMITTING HIS FINDINGS AND DECISION, THE CONTRACTOR WAS ADVISED THAT ALL COSTS INCURRED IN CONNECTION WITH THE PURCHASE ORDERS IN QUESTION CONSTITUTE ITEMS OF UNALLOWABLE COSTS UNDER THE CONTRACT. THE CONTRACTOR WAS ALSO ADVISED CONCERNING ITS APPEAL RIGHTS UNDER THE CONTRACT "DISPUTES" ARTICLE, AND ITS RIGHT TO FILE A CLAIM FOR DIRECT SETTLEMENT BY OUR OFFICE.

IN ITS LETTER OF AUGUST 10, 1955, APPEALING FROM THE CONTRACTING OFFICER'S DECISION, THE CONTRACTOR ALLEGES THAT THE ITEMS IN QUESTION WERE PROCURED AT THE REQUEST OF THE PROJECT OFFICER WHO INDICATED THAT THE COMPANY SHOULD SAVE AS MUCH TIME AS POSSIBLE AND EXERT EVERY EFFORT TO COMPLETE THE CONTRACT WORK; THAT THE COMPANY COOPERATED TO THE FULLEST EXTENT IN ATTEMPTING TO FULFILL ITS OBLIGATIONS UNDER THE CONTRACT; THAT THE PROCUREMENT INVOLVED WAS NOT HANDLED STRICTLY IN ACCORDANCE WITH THE TECHNICAL PROVISIONS OF THE CONTRACT DUE TO LACK OF UNDERSTANDING ON THE PART OF PERSONNEL WHO, UPON THE DEATH OF THE TREASURER OF THE COMPANY, HAD ASSUMED THE PROCUREMENT DUTIES UNDER THE CONTRACT FORMERLY PERFORMED BY HIM; AND THAT BOTH THE PROJECT AND CONTRACTING OFFICERS HAVE APPROVED THE PURCHASE OF THE ITEMS IN QUESTION. THE CONTRACTOR URGES THAT, ALTHOUGH THE COST OF SAID ITEMS HAS BEEN DISALLOWED BY THE CONTRACTING OFFICER DUE TO THE METHOD OF SUBCONTRACTING, THE COMPANY "IS ENTITLED TO REIMBURSEMENT OF COSTS INCURRED IN CONNECTION WITH THE PURCHASE OF ITEMS THAT WERE APPROVED BY BOTH THE PROJECT OFFICER AND THE CONTRACTING OFFICER.'

IT WAS HELD IN OUR DECISION OF MAY 3, 1954, THAT WHERE A SUBCONTRACT VIOLATIVE OF THE PROHIBITION AGAINST THE COST-PLUS-A-PERCENTAGE-OF COST SYSTEM OF CONTRACTING IS MADE UNDER A COST-REIMBURSABLE CONTRACT THE GOVERNMENT DOES NOT BECOME OBLIGATED TO MAKE REIMBURSEMENT TO THE PRIME CONTRACTOR IN ACCORDANCE WITH THE TERMS OF THE SUBCONTRACT. THUS, UNDER THE FACTS APPEARING IN THIS CASE, AS DETERMINED BY THE CONTRACTING OFFICER, IT SEEMS CLEAR THAT REIMBURSEMENT ON THE BASIS CLAIMED BY THE CONTRACTOR IS NOT AUTHORIZED. IT WAS ALSO HELD IN OUR DECISION OF MAY 3, 1954, HOWEVER, THAT WHERE GOODS ARE FURNISHED OR SERVICES ARE RENDERED ON THE REQUEST OR ORDER OF AN OFFICER AUTHORIZED TO CONTRACT FOR THE UNITED STATES, BUT THE CONTRACT ITSELF IS VOID, THERE IS RECOGNIZED AN OBLIGATION ON THE UNITED STATES TO PAY THE VALUE OF SUCH GOODS AND SERVICES ACTUALLY FURNISHED AS UPON AN IMPLIED CONTRACT FOR A QUANTUM MERUIT. APPLYING THIS RULE TO THE FACTS PRESENTED FOR CONSIDERATION IN THAT CASE, A PROCEDURE WAS APPROVED FOR DETERMINING AND PROCESSING FOR PAYMENT THE FAIR AND REASONABLE PRICE FOUND DUE ON ACCOUNT OF THE TRANSACTIONS THERE INVOLVED AND, INASMUCH AS THE FACTS ESTABLISH THAT THE TRANSACTIONS HERE IN QUESTION ARE SIMILAR, THE SAME PROCEDURE MAY BE UTILIZED IN THIS CASE. REFERENCE TO THIS DECISION SHOULD BE INCLUDED IN THE PERTINENT FILE.

THE PAPERS ACCOMPANYING THE LETTER OF NOVEMBER 25, 1955, FROM YOUR DEPARTMENT, ARE RETURNED HEREWITH.