B-142130, MAR. 21, 1960

B-142130: Mar 21, 1960

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PRICES APPARENTLY WERE NOT ESTABLISHED UNTIL AFTER THE WORK WAS PERFORMED. WHILE THE MATTER IS NOT ENTIRELY CLEAR. IT IS CONTENDED BY THE CLAIMANT THAT. WAS UNABLE TO ESTIMATE THE TIME REQUIRED WITH ANY REASONABLE DEGREE OF ACCURACY. IT WAS REPORTED THAT THE AIR FORCE AUDITOR HAS AUDITED THE COSTS IN QUESTION AND DETERMINED THAT THEY WERE INCURRED AND ARE PROPERLY ALLOCABLE TO THE CONTRACTS. IT IS ALSO REPORTED IN THE LETTER THAT THE CONTRACTING OFFICER HAS DETERMINED THAT THE COSTS ARE FAIR AND REASONABLE AND THAT THE GOVERNMENT RECEIVED GOODS AND SERVICES REASONABLY WORTH THE AMOUNT CLAIMED. WAS DISALLOWED BECAUSE IT WAS CONSIDERED THAT THE SUBCONTRACTS CONSTITUTE COST-PLUS-A PERCENTAGE-OF-COST CONTRACTING WHICH IS PROHIBITED UNDER 10 U.S.C. 2306 (A).

B-142130, MAR. 21, 1960

TO THE SECRETARY OF THE ARMY:

BY LETTER OF SEPTEMBER 17, 1959, REFERENCE ORDEA-K, FORWARDED THROUGH THE CHIEF OF ORDNANCE AND CHIEF OF FINANCE, COLONEL W. A. DAVIS, BIRMINGHAM ORDNANCE DISTRICT, SUBMITTED HERE FOR SETTLEMENT THE CLAIM OF HAYES AIRCRAFT CORPORATION FOR $40,739.50, REPRESENTING AMOUNTS DISALLOWED BY THE CONTRACTING OFFICER UNDER COST-TYPE CONTRACTS NOS. DA-01-009-ORD-588 AND DA-01-009-ORD-611.

THE AMOUNTS IN QUESTION REPRESENT MACHINE SHOP WORK PERFORMED BY A SUBCONTRACTOR. PURCHASE ORDERS ISSUED BY THE CONTRACTOR TO THE SUBCONTRACTOR FOR SUCH WORK INCLUDE IN THE BLANK FOR ,PRICING UNIT" ONLY THE STATEMENT "PRICE ADVISE" OR "TO ADVISE.' PRICES APPARENTLY WERE NOT ESTABLISHED UNTIL AFTER THE WORK WAS PERFORMED. WHILE THE MATTER IS NOT ENTIRELY CLEAR, IT IS CONTENDED BY THE CLAIMANT THAT, NOTWITHSTANDING THE FAILURE OF THE PURCHASE ORDERS TO SO STATE, THE PARTIES TO THE SUBCONTRACTS HAD AGREED PRIOR TO COMMENCEMENT OF THE WORK THEREUNDER THAT THE SUBCONTRACTOR WOULD BE PAID AT THE RATE OF $7 PER HOUR AND THAT NO PRICE COULD BE AGREED UPON IN ADVANCE BECAUSE THE SUBCONTRACTOR, DUE TO LACK OF EXPERIENCE WITH RESPECT TO THE PARTICULAR ITEMS, WAS UNABLE TO ESTIMATE THE TIME REQUIRED WITH ANY REASONABLE DEGREE OF ACCURACY.

IT WAS REPORTED THAT THE AIR FORCE AUDITOR HAS AUDITED THE COSTS IN QUESTION AND DETERMINED THAT THEY WERE INCURRED AND ARE PROPERLY ALLOCABLE TO THE CONTRACTS. IT IS ALSO REPORTED IN THE LETTER THAT THE CONTRACTING OFFICER HAS DETERMINED THAT THE COSTS ARE FAIR AND REASONABLE AND THAT THE GOVERNMENT RECEIVED GOODS AND SERVICES REASONABLY WORTH THE AMOUNT CLAIMED. PAYMENT, HOWEVER, WAS DISALLOWED BECAUSE IT WAS CONSIDERED THAT THE SUBCONTRACTS CONSTITUTE COST-PLUS-A PERCENTAGE-OF-COST CONTRACTING WHICH IS PROHIBITED UNDER 10 U.S.C. 2306 (A). THAT VIEW APPEARS TO BE BASED ON OUR DECISION AT 33 COMP. GEN. 533, 536, IN WHICH WE STATED:

"* * * FURTHERMORE, I CONCUR IN THE VIEW EXPRESSED * * * THAT "ADVISE PRICE" AND "PRICE TO BE NEGOTIATED" SUBCONTRACTS * * * HAVE ATTRIBUTES WHICH, DEPENDING UPON THE PARTICULAR FACTUAL SITUATION, MAY CONSTITUTE A VIOLATION OF THE STATUTORY PROHIBITION * * *.' IN THE SAME DECISION WE HELD THAT PAYMENT COULD BE MADE ON A QUANTUM MERUIT BASIS EVEN WHERE THE STATUTORY PROHIBITION HAD BEEN VIOLATED. IT IS ADMINISTRATIVELY RECOMMENDED IN THIS INSTANCE THAT THE CONTRACTOR BE PAID THE FULL AMOUNT OF HIS CLAIM ON SUCH BASIS.

IT SHOULD BE NOTED THAT OUR CITED DECISION DID NOT HOLD THAT "ADVISE PRICE" OR "PRICE TO BE NEGOTIATED" SUBCONTRACTS ARE TO BE REGARDED AS PER SE CONTRARY TO THE STATUTORY BAR, BUT THAT THE DETERMINATION WOULD DEPEND UPON THE PARTICULAR CIRCUMSTANCES. THE INFORMATION AVAILABLE TO US IS INSUFFICIENT TO DETERMINE WHETHER IN THIS INSTANCE THE SUBCONTRACTS VIOLATE THE PROHIBITION AGAINST THE USE OF THE COST-PLUS A-PERCENTAGE-OF- COST SYSTEM OF CONTRACTING.

ARTICLE 16 (B) OF BOTH CONTRACTS PROVIDES:

"THE CONTRACTOR SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF THE CONTRACTING OFFICER, PLACE ANY SUBCONTRACT WHICH * * * (IV) IS ON A TIME- AND-MATERIAL OR LABOR-HOUR BASIS. THE CONTRACTING OFFICER MAY, IN HIS DISCRETION, RATIFY IN WRITING ANY SUCH SUBCONTRACT; SUCH ACTION SHALL CONSTITUTE THE CONSENT OF THE CONTRACTING OFFICER AS REQUIRED BY THIS PARAGRAPH (B).'

THUS, EVEN ACCEPTING THE CONTRACTOR'S CONTENTION THAT THE SUBCONTRACTS WERE IN FACT LET ON A LABOR-HOUR BASIS, THE AWARDING OF SUCH SUBCONTRACTS WAS CONTRARY TO THE PROVISIONS OF THE PRIME CONTRACT SINCE, AS THE RECORD INDICATES, THE CONTRACTING OFFICER DID NOT GIVE HIS WRITTEN CONSENT TO THEM EITHER PROSPECTIVELY OR RETROACTIVELY. THEREFORE, SINCE THE WORK WAS NOT PERFORMED PURSUANT TO VALID CONTRACT AUTHORITY IT IS COMPENSABLE ONLY ON A QUANTUM MERUIT BASIS. IN VIEW OF THIS CONCLUSION, IT APPEARS UNNECESSARY TO CONSIDER FURTHER WHETHER IN FACT THE COST-PLUS-A-PERCENTAGE -OF-COST PROHIBITION HAS BEEN VIOLATED.

IT IS FURTHER REPORTED THAT SUBSTANTIALLY THE SAME FACTS APPLY TO ADDITIONAL DISALLOWANCES ON THE INSTANT CONTRACT AND ONE OR MORE OTHER CONTRACTS WITH THE CLAIMANT IN THE DETROIT ORDNANCE DISTRICT, TOTALING $288,378.02. THIS LETTER AMOUNT AS WELL AS THE CLAIM OF $40,739.50MAY BE SETTLED IN ACCORDANCE WITH THE PROCEDURE APPROVED IN OUR DECISION OF MAY 3, 1954, B-118109, 33 COMP. GEN. 533, WITH THE UNDERSTANDING THAT THE DETERMINATIONS REQUIRED WILL BE PROPERLY DOCUMENTED IN THE AGENCY FILES AND MADE AVAILABLE FOR REVIEW BY OUR OFFICE. SEE B 135076, FEBRUARY 25, 1958.