B-141718, MARCH 23, 1960, 39 COMP. GEN. 650

B-141718: Mar 23, 1960

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GENERALLY MAY NOT BE REGARDED AS A NECESSARY OR REQUIRED EXPENSE OF THE WORK TO BE CONSIDERED AS A REIMBURSABLE ITEM OF DIRECT COST IN THE ADJUSTMENT OF APPROPRIATIONS BETWEEN THE AGENCIES BUT ARE FOR PAYMENT FROM THE INDEFINITE APPROPRIATION ESTABLISHED FOR PAYMENT OF JUDGMENTS IN 31 U.S.C. 724A. ALTHOUGH MONEY PAID BY THE MARITIME ADMINISTRATION UNDER 46 U.S.C. 748 TO SATISFY A JUDGMENT OBTAINED BY A CONTRACTOR'S EMPLOYEE FOR INJURIES SUSTAINED WHILE WORKING ON A GOVERNMENT VESSEL WHICH WAS BEING REACTIVATED FOR THE DEPARTMENT OF THE NAVY PURSUANT TO AN INTERAGENCY AGREEMENT EXECUTED UNDER SECTION 601 OF THE ECONOMY ACT OF JUNE 30. IT IS NOT AN EXPENSE THAT REASONABLY MAY BE REGARDED AS NECESSARY OR REQUIRED IN ORDER TO CONDITION THE VESSEL FOR USE TO REQUIRE CONSIDERATION IN ADJUSTMENT OF APPROPRIATIONS.

B-141718, MARCH 23, 1960, 39 COMP. GEN. 650

APPROPRIATIONS - JUDGMENTS - INTERAGENCY SERVICES - PAYMENT PROCEDURE JUDGMENTS AGAINST THE UNITED STATES ARISING INCIDENT TO INTERAGENCY WORK PERFORMED UNDER SECTION 601 OF THE ECONOMY ACT OF 1932, 31 U.S.C. 686, GENERALLY MAY NOT BE REGARDED AS A NECESSARY OR REQUIRED EXPENSE OF THE WORK TO BE CONSIDERED AS A REIMBURSABLE ITEM OF DIRECT COST IN THE ADJUSTMENT OF APPROPRIATIONS BETWEEN THE AGENCIES BUT ARE FOR PAYMENT FROM THE INDEFINITE APPROPRIATION ESTABLISHED FOR PAYMENT OF JUDGMENTS IN 31 U.S.C. 724A, EXCEPT WHERE OTHERWISE EXPRESSLY AUTHORIZED BY LAW. ALTHOUGH MONEY PAID BY THE MARITIME ADMINISTRATION UNDER 46 U.S.C. 748 TO SATISFY A JUDGMENT OBTAINED BY A CONTRACTOR'S EMPLOYEE FOR INJURIES SUSTAINED WHILE WORKING ON A GOVERNMENT VESSEL WHICH WAS BEING REACTIVATED FOR THE DEPARTMENT OF THE NAVY PURSUANT TO AN INTERAGENCY AGREEMENT EXECUTED UNDER SECTION 601 OF THE ECONOMY ACT OF JUNE 30, 1932, 31 U.S.C. 686, MAY BE REGARDED AS A PART OF THE TOTAL COST OF THE WORK, IT IS NOT AN EXPENSE THAT REASONABLY MAY BE REGARDED AS NECESSARY OR REQUIRED IN ORDER TO CONDITION THE VESSEL FOR USE TO REQUIRE CONSIDERATION IN ADJUSTMENT OF APPROPRIATIONS; THEREFORE, AND SINCE NAVY DEPARTMENT APPROPRIATIONS ARE NOT AVAILABLE FOR THE PAYMENT OF JUDGMENTS, REIMBURSEMENT FOR THE PAYMENT IS NOT AUTHORIZED.

TO THE SECRETARY OF THE NAVY, MARCH 23, 1960:

REFERENCE IS MADE TO LETTER OF JANUARY 15, 1960, FROM THE UNDER SECRETARY OF THE NAVY, REQUESTING A DECISION AS TO WHETHER, UNDER THE FACTS AND CIRCUMSTANCES HEREINAFTER RELATED, A PORTION OF THE SUM OF $126,335.25--- BEING THE AMOUNT PAID BY THE MARITIME ADMINISTRATION PURSUANT TO FEDERAL COURT ORDER TO ONE JOSEPH YOST FOR PERSONAL DAMAGES SUSTAINED WHILE WORK ON THE SS BULL RUN--- MAY BE REIMBURSED TO THE ADMINISTRATION FROM THE NAVY INDUSTRIAL FUND.

IT APPEARS THAT BY LETTER OF NOVEMBER 7, 1956, THE MARITIME ADMINISTRATOR INFORMED THE DEPARTMENT OF THE NAVY THAT ACTION HAD BEEN STARTED TO ACTIVATE ITS T2-TYPE LAID-UP TANKERS, PURSUANT TO REQUEST FROM THE OFFICE OF DEFENSE MOBILIZATION, IN ANTICIPATION OF AN URGENT NEED FOR ADDITIONAL TANKER TONNAGE. THE ADMINISTRATOR SUGGESTED THAT THE NAVY ACCEPT TWELVE OF THE TANKERS UPON COMPLETION OF ACTIVATION, UNDER A CUSTODY ARRANGEMENT, FOR INTEGRATION INTO THE MILITARY SEA TRANSPORTATION SERVICE OPERATING TANKER FLEET. ALSO, HE SUGGESTED THAT THE NAVY REIMBURSE THE MARITIME ADMINISTRATION FOR THE "TOTAL ACTIVATING COST" OF THE TANKERS.

IN REPLY OF NOVEMBER 8, 1956, THE NAVY INFORMED THE MARITIME ADMINISTRATOR THAT IT CONCURRED IN THE PROPOSAL FOR EMERGENCY USE OF THE TANKERS BOTH AS TO OPERATION AND COMPENSATION. THE NAVY, HOWEVER, RESERVED THE RIGHT TO ACCEPT OR REJECT USE OF THE TANKERS ON THE BASIS OF NEED THEREFOR, AND LIMITED ITS FINANCIAL RESPONSIBILITY FOR ACTIVATING COSTS ACCORDINGLY.

IT APPEARS FURTHER THAT NAVY ACCEPTED THE SS BULL RUN ON DECEMBER 22, 1956, AND THAT IT WAS USED BY THE MILITARY SEA TRANSPORTATION SERVICE AS A CONTRACT OPERATED TANKER UNTIL SEPTEMBER 23, 1957, WHEN IT WAS RETURNED TO THE MARITIME ADMINISTRATION. DURING THE ACTIVATION OF THIS TANKER ONE JOSEPH YOST, AN EMPLOYEE OF O-BRIEN BORS. SHIPYARD CORPORATION, THE CONTRACTOR PERFORMING THE ACTIVATION WORK PURSUANT TO A MARITIME ADMINISTRATION CONTRACT, SUFFERED SERIOUS PERSONAL INJURIES.

MR. YOST BROUGHT SUIT AGAINST THE UNITED STATES AND OTHERS IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK TO RECOVER DAMAGES FOR THE INJURIES SUFFERED. IN ITS DECISION--- YOST V. GENERAL ELECTRIC COMPANY, 173 F.1SUPP. 630--- THE COURT CONCLUDED THAT THE UNITED STATES ( MARITIME ADMINISTRATION) WAS NEGLIGENT IN THAT IT FAILED TO EXERCISE THAT DEGREE OF CARE WHICH THE ORDINARY AND PRUDENT SHIPOWNER WOULD HAVE EXERCISED UNDER THE SAME OR SIMILAR CIRCUMSTANCES. MR. YOST WAS AWARDED A JUDGMENT AGAINST THE UNITED STATES IN THE SUM OF $125,000, WHICH SUM TOGETHER WITH COST OF THE SUIT AND INTEREST WAS PAID PURSUANT TO GENERAL ACCOUNTING OFFICE CERTIFICATE OF SETTLEMENT CLAIM NO. Z 1995414, DATED SEPTEMBER 4, 1959, FROM THE APPROPRIATION ADMINISTRATIVELY RECOMMENDED, NAMELY,"13X4303 VESSEL OPERATIONS REVOLVING FUND, MARITIME ACTIVITIES.'

THE MARITIME ADMINISTRATION SUBSEQUENTLY BILLED THE NAVY FOR THE SUM OF $105,279.40 TO RECOVER A PORTION OF THE SUM PAID MR. YOST. THERE IS NO ISSUE RAISED AS TO THE CORRECTNESS OF THE METHOD OF APPORTIONMENT ADOPTED BY THE ADMINISTRATION. HOWEVER, IN A MEMORANDUM OF LAW ACCOMPANYING THE LETTER OF JANUARY 15, THE NAVY DISCLAIMS LIABILITY FOR THE PAYMENT OF THIS SUM ON THE GROUNDS THAT (1) ITS FUNDS ARE NOT AVAILABLE FOR THE PAYMENT OF JUDGMENTS, AND (2) THAT IF THE SUM CLAIMED BE CONSIDERED IN THE NATURE OF REIMBURSABLE ACTIVATING COSTS OF THE TANKER, RATHER THAN PAYMENT OF A JUDGMENT, SUCH COSTS ARE NOT PROPERLY CHARGEABLE TO THE NAVY INDUSTRIAL FUND ESTABLISHED UNDER AUTHORITY OF 5 U.S.C. 172D (C), BECAUSE THE AMOUNT CLAIMED WAS NOT EXPENDED AS AN INTEGRAL PART OF THE COST OF MATERIAL OR SERVICES FURNISHED INCIDENT TO ACTIVATING THE TANKER.

IN SUPPORT OF MARITIME'S CLAIM FOR REIMBURSEMENT OF A PORTION OF THE PAYMENT MADE TO MR. YOST, WE INFORMALLY LEARNED IT IS THEIR CONTENTION THAT THE AGREEMENT WITH NAVY FOR USE OF THE TANKERS PROVIDED FOR REIMBURSEMENT OF THE "TOTAL ACTIVATING COST" THEREOF; THAT PAYMENT OF THE JUDGMENT IS AN OPERATING EXPENSE WHICH WOULD NOT HAVE BEEN INCURRED BY MARITIME HAD NOT THE ACTIVATING WORK BEEN UNDERTAKEN; AND THAT SINCE THE JUDGMENT WAS SATISFIED BY MARITIME THE AMOUNT NOW BEING CLAIMED FROM NAVY IS NOT IN SATISFACTION OF THE JUDGMENT, BUT A PART OF THE LEGITIMATE COST OF THE WORK DIRECTLY INCIDENT TO ACTIVATING THE TANKER AND, THEREFORE, PROPER TO BE BORNE BY THE NAVY.

THE REFERRED-TO LETTERS OF THE MARITIME ADMINISTRATION AND THE NAVY COMPRISE THE ENTIRE UNDERSTANDING AND AGREEMENT OF BOTH AGENCIES AS TO THE SERVICES TO BE RENDERED AND THE RELATIVE LIABILITIES FOR THE COSTS INCURRED IN ACTIVATING THE TANKERS. WHILE THE LETTERS DO NOT STATE UNDER WHAT STATUTORY AUTHORITY REIMBURSEMENT IS PROPOSED, IT IS PRESUMED THAT THE TRANSACTION WAS ACCOMPLISHED UNDER AUTHORITY OF SECTION 601 OF THE ECONOMY ACT OF JUNE 30, 1932, AS AMENDED, 31 U.S.C. 686.

THIS STATUTE AUTHORIZES A GOVERNMENT AGENCY TO PLACE ORDERS WITH OTHER GOVERNMENT AGENCIES FOR MATERIALS, SUPPLIES, EQUIPMENT, WORK OR SERVICES OF ANY KIND THAT THE REQUISITIONED AGENCY MAY BE IN A POSITION TO SUPPLY OR EQUIPPED TO RENDER, AND IN THE CASE OF MARITIME TO PROCURE SUCH SUPPLIES, EQUIPMENT, AND SERVICES BY OUTSIDE CONTRACTS. ALSO, IT PROVIDES FOR PAYMENT ON THE BASIS OF THE "ACTUAL COST" OF THE SUPPLIES, EQUIPMENT, AND SERVICES FURNISHED AS MAY BE AGREED UPON BY THE PARTIES CONCERNED.

IT WOULD THUS APPEAR THAT THE PARTICULAR QUESTION TO BE DECIDED IN THIS CASE IS WHETHER A PROPORTIONATE PART OF THE JUDGMENT PAID BY THE MARITIME ADMINISTRATION, IN/CONNECTION WITH ACTIVATING THE S.S. BULL RUN, PROPERLY MAY BE REGARDED AS AN ELEMENT OF COST UNDER SECTION 601 CHARGEABLE TO THE NAVY AND CREDITED TO THE ADMINISTRATION.

THE TERM "ACTUAL COST" CONTAINED IN THE PROVISIONS OF SECTION 601 PERMITTING THE PERFORMANCE OF INTERAGENCY SERVICES WITH REIMBURSEMENT ON THE BASIS OF THE ACTUAL COST OF PERFORMING THE SERVICE AS MAY BE AGREED UPON BY THE AGENCIES CONCERNED HAS BEEN THE SUBJECT OF A NUMBER OF DECISIONS BY THE GOVERNMENT ACCOUNTING OFFICERS. SEE, FOR EXAMPLE, 22 COMP. GEN. 74; 32 ID. 479; 38 ID. 734 AND DECISIONS CITED THEREIN. THE DECISIONS HAVE CONSISTENTLY HELD THAT SUCH COST COMPREHENDS THE DIRECT COST INCURRED BY THE PERFORMING AGENCY IN FURNISHING SERVICES OR SUPPLIES WHICH BECOME A PART OF THE FINISHED PRODUCT AND, IN ADDITION, MAY INCLUDE THE OVERHEAD AND OTHER INDIRECT EXPENSES PROPORTIONATELY ALLOCABLE TO SUCH SERVICES.

TO REGARD THE MONEY PAID OUT BY MARITIME ON JUDGMENT OF THE COURT, BECAUSE OF DAMAGES NEGLIGENTLY INFLICTED ON MR. YOST, AS AN ITEM OF REIMBURSABLE COST WITHIN SECTION 601 IS A NOVEL PROPOSITION. THE PROPOSAL IS APPARENTLY BASED UPON THE THEORY THAT THE NAVY BY AGREEING TO PAY THE "TOTAL ACTIVATING COST" OF THE TANKERS BECAME RESPONSIBLE FOR THE COURSE OF BUSINESS OF THE MARITIME ADMINISTRATION IN THE PERFORMANCE OF ITS CONTRACT WITH THE O-BRIEN BROS. SHIPYARD CORPORATION. WE FIND NOTHING IN THE EXCHANGE OF LETTERS BETWEEN MARITIME AND THE NAVY TO INDICATE ANY SUCH INTENT.

WHILE THE MONEY SO PAID OUT IS AN EXPENSE WHICH PROPERLY MAY BE REGARDED AS FORMING A PART OF THE TOTAL COST INCURRED BY MARITIME IN ACTIVATING THE SS BULL RUN, IT IS VERY DOUBTFUL THAT IT IS PROPER FOR CONSIDERATION IN AN ADJUSTMENT OF GOVERNMENT APPROPRIATIONS INVOLVING INTERAGENCY PROCUREMENT UNDER SECTION 601, SINCE IT CLEARLY IS NOT AN EXPENSE THAT REASONABLY MAY BE SAID TO HAVE BEEN NECESSARY OR REQUIRED IN ORDER TO CONDITION THE TANKER FOR USE BY THE NAVY. SEE D. E. STALTER, INC. V. STATE, 219 NYS 324. MOREOVER, IN VIEW OF THE PATTERN PRESCRIBED BY THE CONGRESS FOR THE PAYMENT OF JUDGMENTS RENDERED AGAINST THE UNITED STATES (31 U.S.C. 724A; 46 ID. 748), WE DO NOT BELIEVE THAT THE CONGRESS INTENDED APPROPRIATIONS OF AGENCIES, NOT OTHERWISE AVAILABLE FOR THE PAYMENT OF JUDGMENTS, TO BE CHARGED THEREWITH, WITHOUT REGARD TO LIMITATION OF AMOUNT, ON THE BASIS THAT SUCH JUDGMENTS WHEN ARISING OUT OF SECTION 601 TRANSACTIONS BE CONSIDERED NOT A JUDGMENT BUT A REIMBURSABLE ITEM OF DIRECT COST.

ACCORDINGLY, FOR THE REASONS STATED HEREIN, WE MUST CONCLUDE THAT THE NAVY INDUSTRIAL FUND OR ANY OTHER APPROPRIATION OF THE NAVY IS NOT AVAILABLE FOR PAYMENT OF THE SUBJECT CLAIM.

A COPY OF THIS DECISION IS BEING FURNISHED TO THE ADMINISTRATOR OF THE MARITIME ADMINISTRATION.