B-133658, SEP. 11, 1957

B-133658, SEP. 11, 1957

TO MR. JOHN F. MCKEE CERTIFYING OFFICER BUDGET AND FINANCE DIVISION ATOMIC ENERGY COMMISSION:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 29, 1957, REQUESTING ADVICE WHETHER THIS OFFICE WOULD BE REQUIRED TO OBJECT TO THE PAYMENT OF $2,995.81 TO THE WORCESTER FOUNDATION FOR EXPERIMENTAL BIOLOGY UNDER CONTRACT NO. AT/30-1/-918.

ORDINARILY, AN AUTHORIZED CERTIFYING OFFICER IS ENTITLED TO AN ADVANCE DECISION BY THIS OFFICE ONLY UPON PRESENTATION OF THE DOCUMENTED VOUCHER WHICH GAVE RISE TO HIS DOUBT AS TO THE PROPRIETY OF CERTIFYING THE VOUCHER FOR PAYMENT. HOWEVER, IN THIS INSTANCE, THIS OFFICE WILL CONSIDER THE QUESTION RAISED IN YOUR LETTER ON THE BASIS OF THE FACTS PRESENTED.

IT APPEARS THAT PRIOR TO SEPTEMBER 1, 1956, THE SUBJECT CONTRACT WAS ON A COST (NO FEE) BASIS, AND PROVIDED FOR A MONETARY CEILING ON THE TOTAL LIABILITY OF THE COMMISSION UNDER THE CONTRACT. IT ALSO PROVIDED THAT THE TOTAL OBLIGATION OF THE COMMISSION COULD BE INCREASED IN WRITING TO COVER ADDITIONAL WORK UNDER THE CONTRACT. THE CONTRACTOR WAS OBLIGATED UNDER PARAGRAPH 5 OF THE CONTRACT TO NOTIFY THE COMMISSION PROMPTLY IN WRITING WHENEVER IT BELIEVED THAT THE THEN MONETARY CEILING WAS INSUFFICIENT, WITH ITS ESTIMATE OF SUCH INSUFFICIENCY. NO FURTHER EXPENSES COULD BE INCURRED OR FURTHER WORK PERFORMED IN CONNECTION WITH WORK COVERED BY THE MONETARY CEILING AS ADJUSTED. HOWEVER, NOTWITHSTANDING THE COMMISSION'S CEILING LIABILITY, THE CONTRACTOR WAS ENTITLED UNDER THE CONTRACT TO BE COMPENSATED FOR WORK PERFORMED AND COSTS AND EXPENSES INCURRED, IN GOOD FAITH, IN ACCORDANCE WITH CEILING LIABILITY NOTIFICATIONS AND PRIOR TO ITS RECEIPT OF NOTICES EFFECTING DOWNWARD ADJUSTMENTS.

EFFECTIVE SEPTEMBER 1, 1956, THE CONTRACT WAS CONVERTED BY MODIFICATION TO A LUMP-SUM BASIS TO COVER WORK TO BE ACCOMPLISHED AFTER THAT DATE. HOWEVER, AT THE TIME OF THE CONTRACT MODIFICATION, NEITHER THE COMMISSION NOR THE CONTRACTOR REALIZED THAT THE CONTRACT EXPENSES EXCEEDED THE SPECIFIED MONETARY CEILING BY $2,995.81; AND IT IS STATED THAT HAD THE EXISTENCE OF SUCH COST EXCESS BEEN COMMUNICATED BY THE CONTRACTOR TO THE COMMISSION, THE COMMISSION WOULD HAVE RAISED THE CEILING BY THAT AMOUNT.

YOU STATE THAT THE COMMISSION WOULD LIKE TO INCREASE THE CONTRACT CEILING AND TO REIMBURSE THE CONTRACTOR IN THE AMOUNT OF $2,995.81 FOR COST EXCESSES INCURRED IN GOOD FAITH FOR THE BENEFIT OF THE GOVERNMENT.

WHILE NOT STATED, IT IS ASSUMED THAT THE LUMP-SUM CONTRACT IS IN EXISTENCE AND THAT A SUPPLEMENTAL AGREEMENT IS CONTEMPLATED TO EFFECT REIMBURSEMENT TO THE CONTRACTOR FOR THE COST EXCESS WHICH AROSE UNDER THE COST PORTION OF THE CONTRACT.

GENERALLY, IT WOULD NOT APPEAR TO BE IN THE BEST INTERESTS OF THE GOVERNMENT TO EFFECT A MODIFICATION OR REFORMATION OF A COST CONTRACT SUBSEQUENT TO ITS CONVERSION TO A LUMP-SUM BASIS. HOWEVER, IT IS REASONABLY CLEAR THAT IT WAS INTENDED THAT THE CONTRACTOR WOULD BE REIMBURSED--- WITHOUT ANY ALLOWANCE FOR FEE OR PROFIT--- FOR ITS ACTUAL COSTS OF PERFORMANCE NOT TO EXCEED THE SPECIFIED MONETARY CEILINGS AS ADJUSTED TO MEET THE CONTRACT REQUIREMENTS. ALSO, IT IS UNDERSTOOD THAT REIMBURSEMENT OF THE COST OVERRUN WILL NOT RESULT IN A PAYMENT TO THE CONTRACTOR OF AN AMOUNT GREATER THAN ITS ACTUAL COSTS.

ACCORDINGLY, WITH THE UNDERSTANDING THAT THE COMMISSION WOULD HAVE INCREASED THE MONETARY CEILING IF THE CONTRACT PROCEDURES HAD BEEN FOLLOWED BY THE CONTRACTOR, OUR OFFICE, ON THE BASIS OF THE FACTS SET FORTH IN YOUR LETTER, WILL NOT OBJECT TO THE PROPOSED REIMBURSEMENT TO THE CONTRACTOR, IF OTHERWISE PROPER.