B-128244, MAY 23, 1963
Highlights
TO GENERAL ELECTRIC COMPANY: WE HAVE YOUR LETTER OF DECEMBER 11. THE DEDUCTION WAS MADE PURSUANT TO NOTICE OF EXCEPTION NO. 800001. A COPY OF WHICH IS ENCLOSED. WHICH WAS IN EFFECT AT THE TIME THE SUBCONTRACTS WERE EXECUTED. THAT REGULATION OPERATED AS A FURTHER RESTRICTION ON THE LIMITATION ESTABLISHED IN WHAT WAS THEN SECTION 4 (B) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947. AS DETERMINED BY THE AGENCY HEAD AT THE TIME OF ENTERING INTO SUCH CONTRACT (EXCEPT THAT A FEE NOT IN EXCESS OF 15 PERCENTUM OF SUCH ESTIMATED COST IS AUTHORIZED IN ANY SUCH CONTRACT FOR EXPERIMENTAL. OF THE PROJECT TO WHICH SUCH FEE IS APPLICABLE IS AUTHORIZED IN CONTRACTS FOR ARCHITECTURAL OR ENGINEERING SERVICES RELATING TO ANY PUBLIC WORKS OR UTILITY PROJECT).'.
B-128244, MAY 23, 1963
TO GENERAL ELECTRIC COMPANY:
WE HAVE YOUR LETTER OF DECEMBER 11, 1962, WITH ENCLOSURES, ADDRESSED TO OUR CLAIMS DIVISION, CONCERNING THE DEDUCTION OF $11,106 FROM PAYMENTS UNDER COST REIMBURSABLE FACILITIES CONTRACT NO. DA 36-039-SC 26607, DATED MARCH 3, 1952, BETWEEN THE SIGNAL CORPS SUPPLY AGENCY AND THE GENERAL ELECTRIC COMPANY. THE DEDUCTION WAS MADE PURSUANT TO NOTICE OF EXCEPTION NO. 800001, DATED AUGUST 19, 1957, A COPY OF WHICH IS ENCLOSED. THE AMOUNT REPRESENTS FEES PAID TWO SECOND-TIER SUBCONTRACTORS (THE RAISLER CORPORATION AND FISCHBACK AND MOORE, INC.) IN EXCESS OF THE PERCENTAGE AUTHORIZED UNDER PARAGRAPH 3-406.2 OF THE ARMED SERVICES PROCUREMENT REGULATION, WHICH WAS IN EFFECT AT THE TIME THE SUBCONTRACTS WERE EXECUTED. THAT PARAGRAPH PROVIDED IN PERTINENT PART AS FOLLOWS:
"THE FIXED FEE SHALL BE NEGOTIATED BY THE PARTIES, BUT SHALL NOT EXCEED (EXCEPT TO THE EXTENT APPROVED BY THE SECRETARY OF THE DEPARTMENT CONCERNED WITHIN THE LIMITS IMPOSED BY SECTION 4 (B) OF THE ACT) EITHER (I) TEN PERCENTUM (10 PERCENT) OF THE ESTIMATED COST, EXCLUSIVE OF FEE, OF ANY CONTRACT FOR EXPERIMENTAL, DEVELOPMENTAL, OR RESEARCH WORK OR (II) SEVEN PERCENTUM (7 PERCENT) OF THE ESTIMATED COST, EXCLUSIVE OF FEE, OF ANY OTHER CONTRACT * * *.'
THAT REGULATION OPERATED AS A FURTHER RESTRICTION ON THE LIMITATION ESTABLISHED IN WHAT WAS THEN SECTION 4 (B) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947, 62 STAT. 23 (NOW CODIFIED IN SOMEWHAT DIFFERENT FORM AS 10 U.S.C. 2306 (D) (, PROVIDING IN PART AS FOLLOWS:
"THE COST-PLUS-A-PERCENTAGE-OF-COST SYSTEM OF CONTRACTING SHALL NOT BE USED, AND IN THE CASE OF A COST-PLUS-A-FIXED-FEE CONTRACT THE FEE SHALL NOT EXCEED 10 PERCENTUM OF THE ESTIMATED COST OF THE CONTRACT, EXCLUSIVE OF THE FEE, AS DETERMINED BY THE AGENCY HEAD AT THE TIME OF ENTERING INTO SUCH CONTRACT (EXCEPT THAT A FEE NOT IN EXCESS OF 15 PERCENTUM OF SUCH ESTIMATED COST IS AUTHORIZED IN ANY SUCH CONTRACT FOR EXPERIMENTAL, DEVELOPMENTAL, OR RESEARCH WORK AND THAT A FEE INCLUSIVE OF THE CONTRACTOR'S COSTS AND NOT IN EXCESS OF 6 PERCENTUM OF THE ESTIMATED COST, EXCLUSIVE OF FEES, AS DETERMINED BY THE AGENCY HEAD AT THE TIME OF ENTERING INTO THE CONTRACT, OF THE PROJECT TO WHICH SUCH FEE IS APPLICABLE IS AUTHORIZED IN CONTRACTS FOR ARCHITECTURAL OR ENGINEERING SERVICES RELATING TO ANY PUBLIC WORKS OR UTILITY PROJECT).'
IT IS OUR POSITION, TO WHICH THE DEPARTMENT OF DEFENSE APPEARS TO HAVE ACCEDED, THAT THE LIMITATIONS IN THE REGULATION AND THE ACT APPLY NOT ONLY TO PRIME CONTRACTS BUT ALSO TO FIRST AND LOWER-TIER SUBCONTRACTS. THEREFORE, IN THE ABSENCE OF APPROVAL OF A HIGHER FEE (WITHIN THE LIMITS ESTABLISHED BY THE ACT) BY THE SECRETARY OF THE ARMY AS PROVIDED IN THE REGULATION, THE MAXIMUM PERMISSIBLE FEE ON THE SUBCONTRACTS IN QUESTION WAS 7 PERCENT. WE RECOGNIZE THAT THE CONTRACTING OFFICER ATTEMPTED TO APPROVE THE HIGHER FEE IN THESE TWO INSTANCES BUT WE FIND NOTHING IN EITHER THE ACT OR THE REGULATION WHICH WOULD AUTHORIZE AN INCREASE UPON APPROVAL OF THE CONTRACTING OFFICER. ACCORDINGLY, THE NOTICE OF EXCEPTION WAS ISSUED AND, IN OUR VIEW, PROPERLY SO. ..END :