B-141528, JANUARY 20, 1960, 39 COMP. GEN. 535

B-141528: Jan 20, 1960

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IS NOT AN ILLEGAL CONTRACT SO AS TO PRECLUDE REIMBURSEMENT OF AN AMOUNT DETERMINED TO BE REASONABLE. NOTWITHSTANDING THAT GENERALLY THE COST-PLUS-A-PERCENTAGE OF-COST PROHIBITION IS APPLICABLE TO SUBCONTRACTS. REQUESTING AN ADVANCE DECISION AS TO WHETHER PAYMENT IS AUTHORIZED ON A VOUCHER IN FAVOR OF THE STATE OF CALIFORNIA FOR $108. IT IS STATED THAT RESPONSIBLE OPERATING OFFICIALS OF THE CORPS OF ENGINEERS HAVE INDICATED THAT IN THEIR JUDGMENT A 25 PERCENT ALLOWANCE IS REASONABLE. IT IS NOTED THAT A CONTRACT BETWEEN THE GOVERNMENT AND GUY F. IT APPEARS THAT THE COSTS FOR THE WORK PERFORMED ARE NOT UNREASONABLE. YOUR DOUBT AS TO THE PROPRIETY OF PAYMENT ON THE VOUCHER ARISES BECAUSE OF THE COST-PLUS-A-PERCENTAGE-OF COST FEATURE IN THE SUBCONTRACT WHICH IS AUTHORIZED BY REGULATIONS ISSUED BY THE STATE OF CALIFORNIA.

B-141528, JANUARY 20, 1960, 39 COMP. GEN. 535

CONTRACTS - COST-PLUS-A-PERCENTAGE-OF-COST PROHIBITION - FLOOD CONTROL PROJECTS - SUBCONTRACT BETWEEN STATE AND PRIVATE CONTRACTOR A SUBCONTRACT WITH A COST-PLUS-A-PERCENTAGE-OF-COST PROVISIONS BETWEEN A SUBCONTRACTOR AND A STATE UNDER A COST-REIMBURSEMENT PRIME CONTRACT BETWEEN A STATE AND THE FEDERAL GOVERNMENT, INCIDENT TO A PROJECT AUTHORIZED BY THE FLOOD CONTROL ACT OF 1950 AND PURSUANT TO THE AUTHORITY IN SECTION 2 OF THE ACT OF JUNE 28, 1938, 33 U.S.C. 701C-1, WHICH DOES NOT CONTAIN ANY RESTRICTION ON THE TYPES OF METHODS OF CONTRACTING OR ANY RESTRICTIONS ON EXPENDITURES TO THE STATES, EXCEPT THAT SUCH EXPENDITURES MUST BE REASONABLE, IS NOT AN ILLEGAL CONTRACT SO AS TO PRECLUDE REIMBURSEMENT OF AN AMOUNT DETERMINED TO BE REASONABLE, NOTWITHSTANDING THAT GENERALLY THE COST-PLUS-A-PERCENTAGE OF-COST PROHIBITION IS APPLICABLE TO SUBCONTRACTS.

TO J. P. HOGAN, DEPARTMENT OF THE ARMY, JANUARY 20, 1960:

WE REFER TO A LETTER OF NOVEMBER 18, 1959, FORWARDED BY SECOND ENDORSEMENT OF DECEMBER 11, 1959, REQUESTING AN ADVANCE DECISION AS TO WHETHER PAYMENT IS AUTHORIZED ON A VOUCHER IN FAVOR OF THE STATE OF CALIFORNIA FOR $108,790.16 SUBMITTED PURSUANT TO COST REIMBURSABLE CONTRACT NO. DA-04-203-CIVENG-57-53.

TO CARRY OUT THE CITED CONTRACT, THE STATE ENTERED INTO A SUBCONTRACT WITH GUY F. ATKINSON AND COMPANY. UNDER THE SUBCONTRACT THE STATE ISSUED CHANGE ORDERS PROVIDING FOR WORK NOT COVERED BY THE ORIGINAL PLANS AND SPECIFICATIONS TO BE PAID FOR ON THE BASIS OF DIRECT COSTS PLUS 25 PERCENT TO COVER OVERHEAD AND PROFIT.

IT IS STATED THAT RESPONSIBLE OPERATING OFFICIALS OF THE CORPS OF ENGINEERS HAVE INDICATED THAT IN THEIR JUDGMENT A 25 PERCENT ALLOWANCE IS REASONABLE. IN THIS CONNECTION, IT IS NOTED THAT A CONTRACT BETWEEN THE GOVERNMENT AND GUY F. ATKINSON AND COMPANY FOR CONSTRUCTION OF A DAM ON THE SAME PROJECT CALLS FOR A PRICE COMPUTED TO INCLUDE AMOUNTS FOR OVERHEAD AND PROFIT WHICH TOGETHER ACCOUNT FOR 25 PERCENT OF THE ESTIMATED DIRECT COSTS. THUS, IT APPEARS THAT THE COSTS FOR THE WORK PERFORMED ARE NOT UNREASONABLE. YOUR DOUBT AS TO THE PROPRIETY OF PAYMENT ON THE VOUCHER ARISES BECAUSE OF THE COST-PLUS-A-PERCENTAGE-OF COST FEATURE IN THE SUBCONTRACT WHICH IS AUTHORIZED BY REGULATIONS ISSUED BY THE STATE OF CALIFORNIA.

WE HAVE HELD THAT ANY PROHIBITION WITH RESPECT TO THE USE OF COST PLUS-A- PERCENTAGE-OF-COST CONTRACTING IS APPLICABLE TO SUBCONTRACTS, SINCE ANY COSTS INCURRED UNDER A SUBCONTRACT WOULD BE FOR REIMBURSEMENT UNDER THE PRIME CONTRACT AND FAILURE TO APPLY THE PROHIBITION TO SUBCONTRACTS WOULD PERMIT SUBSTANTIAL EVASION OF THE PURPOSES OF THE PROHIBITION. 21 COMP. GEN. 858, 863.

HOWEVER, THE PROJECT IN QUESTION WAS AUTHORIZED BY THE FLOOD CONTROL ACT OF 1950, 64 STAT. 170, AND THE CONTRACT WITH THE STATE WAS ENTERED INTO PURSUANT TO 33 U.S.C. 701C-1, PROVIDING IN PART:

* * * NOTWITHSTANDING ANY RESTRICTIONS, LIMITATIONS, OR REQUIREMENT OF PRIOR CONSENT PROVIDED BY ANY OTHER ACT, THE SECRETARY OF THE ARMY IS AUTHORIZED AND DIRECTED TO ACQUIRE IN THE NAME OF THE UNITED STATES TITLE TO ALL LANDS, EASEMENTS AND RIGHTS-OF-WAY NECESSARY FOR ANY DAM AND RESERVOIR PROJECT OR CHANNEL IMPROVEMENT OR CHANNEL RECTIFICATION PROJECT FOR FLOOD CONTROL, WITH FUNDS HERETOFORE OR HEREAFTER APPROPRIATED OR MADE AVAILABLE FOR SUCH PROJECTS, AND STATES, POLITICAL SUBDIVISIONS THEREOF, OR OTHER RESPONSIBLE LOCAL AGENCIES, SHALL BE GRANTED AND REIMBURSED, FROM SUCH FUNDS, SUMS EQUIVALENT TO ACTUAL EXPENDITURES DEEMED REASONABLE BY THE SECRETARY OF THE ARMY AND THE CHIEF OF ENGINEERS AND MADE BY THEM IN ACQUIRING LANDS, EASEMENTS, AND RIGHTS-OF-WAY FOR ANY DAM AND RESERVOIR PROJECT, OR ANY CHANNEL IMPROVEMENT OR CHANNEL RECTIFICATION PROJECT FOR FLOOD CONTROL HERETOFORE OR HEREIN AUTHORIZED: * * *.

SINCE THE STATUTE PURSUANT TO WHICH THE CONTRACT WAS ENTERED INTO CONTAINS NO RESTRICTION ON THE TYPES OR METHODS OF CONTRACTING OR OTHER FORMS OF EXPENDITURE TO BE REIMBURSED TO STATES OR OTHER GOVERNMENTAL AGENCIES, IT DOES NOT APPEAR THAT PAYMENT OF THE VOUCHER, THE REASONABLENESS OF WHICH HAS BEEN APPROVED BY PROPER AUTHORITY, WOULD BE ILLEGAL. YOU ARE, THEREFORE, ADVISED THAT PAYMENT THEREOF WILL NOT BE QUESTIONED BY THIS OFFICE.