B-149465, MAY 29, 1963

B-149465: May 29, 1963

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TO AIRTRONICS INTERNATIONAL CORPORATION: REFERENCE IS MADE TO YOUR LETTER OF JULY 16. ARTICLE III OF THE CONTRACT STATED THAT THE ESTIMATED COSTS WERE $27. 250 "ALLOTTED FOR THIS CONTRACT" WAS NOT TO BE EXCEEDED WITHOUT PRIOR APPROVAL OF THE CONTRACTING OFFICER AS NOTED IN ARTICLE IV. IT WAS POINTED OUT IN ARTICLE IV THAT THE GOVERNMENT WAS NOT OBLIGATED TO REIMBURSE YOU FOR COSTS INCURRED IN EXCESS OF THE ESTIMATED AMOUNT. IT WAS STIPULATED THAT YOU WOULD MAINTAIN IN YOUR FILES DOCUMENTATION THAT WOULD ADEQUATELY SUBSTANTIATE ALL PAYMENTS CHARGED TO THIS AGREEMENT AND YOU WERE WARNED THAT LACK OF SUCH DOCUMENTATION "COULD RESULT IN A DISALLOWANCE OF CHARGES TO THIS CONTRACT.'. IT WAS PROVIDED THAT YOU CONSTRUCT AN ADDITIONAL AUDIO SOUNDPROOF ROOM.

B-149465, MAY 29, 1963

TO AIRTRONICS INTERNATIONAL CORPORATION:

REFERENCE IS MADE TO YOUR LETTER OF JULY 16, 1962, FORWARDED HERE BY YOUR ATTORNEY, MR. E. K. GUBIN, PRESENTING A CLAIM FOR $16,779.75 ALLEGED TO BE DUE IN CONNECTION WITH WORK PERFORMED UNDER CONTRACT NO. SCC-27903 ENTERED INTO WITH THE DEPARTMENT OF STATE ON JUNE 29, 1960.

UNDER THE TERMS OF THE CONTRACT YOU AGREED TO UNDERTAKE THE NECESSARY RESEARCH, DESIGN AND CONSTRUCTION OF AN AUDIO SOUNDPROOF ROOM IN ACCORDANCE WITH CERTAIN PLANS AND SPECIFICATIONS ON A COST REIMBURSABLE BASIS. ARTICLE III OF THE CONTRACT STATED THAT THE ESTIMATED COSTS WERE $27,500 FOR WHICH A FIXED FEE OF $2,750 WOULD BE ALLOWED AND THAT THE TOTAL AMOUNT OF $30,250 "ALLOTTED FOR THIS CONTRACT" WAS NOT TO BE EXCEEDED WITHOUT PRIOR APPROVAL OF THE CONTRACTING OFFICER AS NOTED IN ARTICLE IV. IT WAS POINTED OUT IN ARTICLE IV THAT THE GOVERNMENT WAS NOT OBLIGATED TO REIMBURSE YOU FOR COSTS INCURRED IN EXCESS OF THE ESTIMATED AMOUNT. UNDER ARTICLE VI YOU AGREED TO MAINTAIN ADEQUATE BOOKS AND RECORDS PERTAINING TO THE COSTS AND EXPENSES OF THE AGREEMENT. ALSO, IT WAS STIPULATED THAT YOU WOULD MAINTAIN IN YOUR FILES DOCUMENTATION THAT WOULD ADEQUATELY SUBSTANTIATE ALL PAYMENTS CHARGED TO THIS AGREEMENT AND YOU WERE WARNED THAT LACK OF SUCH DOCUMENTATION "COULD RESULT IN A DISALLOWANCE OF CHARGES TO THIS CONTRACT.' UNDER AMENDMENT NO. 1 TO THE CONTRACT, EXECUTED JULY 21, 1960, IT WAS PROVIDED THAT YOU CONSTRUCT AN ADDITIONAL AUDIO SOUNDPROOF ROOM. THE TOTAL ALLOWABLE COSTS WERE INCREASED BY $25,300 AND THE TOTAL SCHEDULE OF COSTS WAS CHANGED TO SHOW THAT THE ESTIMATED COSTS WERE TO BE $50,500 PLUS A FIXED FEE OF $5,050 WHICH AMOUNT WAS NOT TO BE EXCEEDED WITHOUT PRIOR APPROVAL OF THE CONTRACTING OFFICER. WHILE NO FORMAL CHANGE ORDERS APPEAR TO HAVE BEEN ISSUED, CHANGES IN THE COURSE OF THE WORK WERE MADE AND ARE REFERRED TO IN THE RECORD AS CHANGE ORDERS NOS. 1 AND 2.

THE FINDING OF THE CONTRACTING OFFICER ON JULY 28, 1961, SHOWS THAT AS OF NOVEMBER 30, 1960, NO DELIVERY "ON EITHER SEGMENT OF CONTRACT SCC-27903" HAD BEEN ACCOMPLISHED. AFTER YOU HAD BEEN CONTACTED YOUR REPRESENTATIVE MET WITH OFFICERS OF THE DEPARTMENT OF STATE ON DECEMBER 2, 1960. DEVELOPED THAT NO WORK HAD BEEN PERFORMED ON ROOM NO. 2. AS OF THE TIME OF THE CONTRACTING OFFICER'S FINDING IT APPEARS THAT YOU HAD BEEN PAID A TOTAL OF $51,341.29. ALSO, IT APPEARS THAT YOU WERE ADVISED BY TELEGRAM OF FEBRUARY 14, 1961, THAT YOUR RIGHT TO PROCEED WITH CONSTRUCTION OF THE ADDITIONAL ROOM UNDER AMENDMENT NO. 1 WAS TERMINATED EFFECTIVE FEBRUARY 23, 1961. AN AUDIT OF YOUR RECORDED COSTS WAS MADE BY THE ADMINISTRATIVE OFFICE AND THEREPORT OF THAT AUDIT WAS ISSUED ON APRIL 28, 1961. ON THE BASIS OF THE REPORT AND THE QUESTIONS RAISED IN CONNECTION THEREWITH THE CONTRACTING OFFICER ADDRESSED A LETTER TO YOU ON JULY 28, 1961, IN WHICH HE FOUND THAT YOU HAD BEEN OVERPAID IN THE AMOUNT OF $11,478.31 AND HE ADVISED THAT YOU HAD THE RIGHT TO APPEAL HIS FINDING AND DECISION TO THE SECRETARY OF STATE IN ACCORDANCE WITH THE TERMS OF THE CONTRACT. YOU REFUNDED THE SUM OF $11,478.31 AND BY LETTER OF SEPTEMBER 6, 1961, YOU APPEALED TO THE SECRETARY OF STATE FROM THE FINDING OF THE CONTRACTING OFFICER. ON DECEMBER 5, 1961, YOUR APPEAL WAS DENIED.

IN YOUR LETTER OF JULY 16, 1962, YOU PRESENTED A CLAIM FOR $16,779.75 COMPRISING (1) THE AMOUNT OF $2,311.47, THE BALANCE ALLEGED TO BE DUE IN APRIL 1961 AFTER PAYMENT OF THE REFERRED-TO AMOUNT OF $51,341.29; (2) THE AMOUNT OF $11,478.31 REFUNDED BY YOU UNDER PROTEST; AND (3) THE AMOUNT OF $2,989.97 ALLEGED TO BE DUE AS TERMINATION COSTS.

IN THE STATEMENT OF ACCOUNT ACCOMPANYING THE CONTRACTING OFFICER'S FINDING OF JULY 28, 1961, YOU WERE ALLOWED THE AMOUNT OF $2,325.12 AS TERMINATION COSTS WHICH REPRESENTED MATERIALS PURCHASED FOR ROOM NO. 2. SINCE ROOM NO. 1 WAS DELIVERED AND SINCE IT IS INDICATED THAT THE ONLY WORK DONE IN CONNECTION WITH ROOM NO. 2 WAS A PROCUREMENT OF A PORTION OF THE MATERIALS, IT HAS BEEN CONCLUDED THAT THE AMOUNT OF $2,989.97 FOR TERMINATION COSTS IN ADDITION TO THE AMOUNT OF $2,325.12 ALLOWED FOR MATERIALS IS EXCESSIVE. AS TO THE OTHER TWO ITEMS, NO SEPARATE DISCUSSION FOR EACH ITEM IS REQUIRED AND IT IS CONSIDERED THAT THEY ARE NOT FOR ALLOWANCE FOR REASONS HEREINAFTER SET OUT.

AS TO YOUR STATEMENT THAT WHILE YOU APPEALED FROM THE CONTRACTING OFFICER'S FINDING TO THE SECRETARY OF STATE,"NOTHING CAME OF THIS APPEAL" BECAUSE OF THE "INTERNAL APPEALS PROCEDURES OF STATE," THIS OVERLOOKS ENTIRELY THE DENIAL OF YOUR APPEAL ON DECEMBER 5, 1961, BY THE ACTING ASSISTANT SECRETARY FOR ADMINISTRATION, ACTING AS THE AUTHORIZED REPRESENTATIVE OF THE SECRETARY OF STATE. THE LETTER OF DECEMBER 5 INFORMED YOU WHY YOUR APPEAL FROM THE ADVERSE FINDING OF THE CONTRACTING OFFICER DATED JULY 28, 1961, WAS DENIED. INSOFAR AS THE RECORDS SHOW, YOU DID NOT INFORM THE SECRETARY OF STATE THEREAFTER THAT YOU WERE NOT AFFORDED AN OPPORTUNITY TO PRESENT DATA IN ADDITION TO THAT CONTAINED IN YOUR LETTERS OF SEPTEMBER 6 AND 27, 1961, AS IMPLIED IN THE LETTER OF JULY 16, 1962. IF YOU FELT THAT YOU WERE DEPRIVED OF ANY OF YOUR RIGHTS TO BE HEARD IN REGARD TO THE DISPUTED QUESTIONS OF FACT YOU SHOULD HAVE REQUESTED A RECONSIDERATION OF THE MATTER AFTER THE DENIAL OF YOUR APPEAL ON DECEMBER 5, 1961. SEE ARTICLE 12, STANDARD FORM 32, MADE A PART OF THE CONTRACT.

IT IS YOUR CONTENTION THAT THE ADMINISTRATIVE OFFICE AUDITED YOUR COSTS AND FOUND THEM TO HAVE BEEN $53,652.76 AND THAT SINCE YOU HAD BEEN PAID $51,341.29 THERE REMAINED A BALANCE OF $2,311.47 STILL DUE YOU AS OF THE TIME OF THE AUDIT. THE REPORT OF THE ADMINISTRATIVE OFFICE DATED OCTOBER 5, 1962, STATES, IN EFFECT, THAT ALTHOUGH THE AUDIT OF YOUR COSTS DISCLOSED THAT THE RECORDED COSTS WERE SHOWN AS $53,652.76 IT WAS NOT ESTABLISHED THAT THE ENTIRE AMOUNT WAS EXPENDED COST. IN THAT CONNECTION IT WAS STATED ON PAGE 7 OF THE CONTRACTING OFFICER'S FINDING OF FACT DATED JULY 28, 1961, THAT THE INVOICE FOR PROFESSIONAL SERVICES IN THE AMOUNT OF $1,292.71 DID NOT REPRESENT AN AMOUNT WHICH HAD BEEN PAID. ALSO, IN THE LETTER OF OCTOBER 5, 1962, IT WAS STATED THAT ON ACCOUNT OF THE FAILURE OF YOUR RECORDS TO SHOW THAT THE LABOR AND MATERIAL CHARGES WERE APPROVED BY THE PROJECT MANAGER AND THEREFORE CHARGEABLE TO THE PROJECT, IT WAS DECIDED TO ALLOW THE AMOUNT OF $39,862.98 AS COSTS INCURRED AND THE CONTRACTING OFFICER IN HIS LETTER OF AUGUST 4, 1961, ASKED YOU TO REFUND THE SUM OF $11,478.31. HE DIRECTED YOUR ATTENTION TO YOUR RIGHTS UNDER THE DISPUTES PROVISION OF THE CONTRACT TO APPEAL THE MATTER TO THE SECRETARY OF STATE. WITH YOUR LETTER OF AUGUST 9, 1961, TO THE CONTRACTING OFFICER YOU REMITTED THE SUM OF $11,478.31 AND YOU RESERVED YOUR RIGHT TO APPEAL THE MATTER TO THE SECRETARY OF STATE. AS STATED ABOVE, YOUR APPEAL WAS DENIED ON DECEMBER 5, 1961. IN DENYING YOUR APPEAL IT WAS POINTED OUT THAT IT WAS SOLELY A MATTER OF DISTRIBUTING THE CLAIMED COSTS TO ROOM NO. 1 OR ROOM NO. 2 ALTHOUGH IT WAS NOT REASONABLE TO CONSIDER THE CHARGES SHOWN IN YOUR LETTER OF SEPTEMBER 27, 1961, AS APPLICABLE TO ROOM NO. 2 SINCE NO WORK HAD BEEN DONE WITH RESPECT THERETO EXCEPT THE PURCHASE OF A PORTION OF THE NECESSARY MATERIALS. YOU HAD BEEN GIVEN CREDIT FOR THE COSTS OF THESE MATERIALS BUT YOU HAD NOT BEEN ALLOWED ANY OTHER COSTS IN REGARD TO ROOM NO. 2. IN YOUR APPEAL TO THE SECRETARY OF STATE, YOU RECOGNIZED THAT YOU HAD SUBMITTED A COST BREAKDOWN OF $30,250 FOR ROOM NO. 1 WHEN THE CONTRACT WAS ENTERED INTO WITH YOU FOR THE CONSTRUCTION OF THIS ROOM. IT APPEARS FROM THE AUDIT OF YOUR REPORTED EXPENDITURES THAT EXCEPT FOR THE PURCHASE OF MATERIALS FOR ROOM NO. 2 ALL THE AMOUNTS CLAIMED WERE CHARGEABLE TO ROOM NO. 1. IT IS NOTED, TOO, THAT IN YOUR LETTER OF FEBRUARY 2, 1961, TO THE CONTRACTING OFFICER YOU EVEN STATED THAT YOU HAD EXPENDED OR WERE ENTITLED TO $61,855.16.

THE REPORT OF THE ADMINISTRATIVE OFFICE DATED OCTOBER 5, 1962, IN DEALING WITH YOUR CLAIM FOR ADDITIONAL COMPENSATION AS SET FORTH IN YOU LETTER OF JULY 16, 1962, IS IN PERTINENT PART AS FOLLOWS:

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

SUBSEQUENT TO YOUR LETTER OF JULY 16, 1962, YOUR ATTORNEY SUBMITTED ADDITIONAL MATTERS IN HIS LETTER OF JANUARY 9, 1963, TO OUR OFFICE, WHICH LETTER IN TURN WAS TRANSMITTED TO THE DEPARTMENT OF STATE FOR COMMENT. TO THE MATTER OF WHETHER ROOM NO. 1 OR ROOM NO. 2 WAS DELIVERED, IT HAS BEEN CONTENDED ON YOUR BEHALF THAT ROOM NO. 2 WAS DELIVERED ALTHOUGH THE ADMINISTRATIVE OFFICE HAS CONTENDED THAT IT WAS ROOM NO. 1. INSOFAR AS REIMBURSEMENT FOR WORK PERFORMED IS CONCERNED, THE CONTRACT COST FOR ROOM NO. 1 WAS LIMITED TO $30,250 AND FOR ROOM NO. 2 THE CONTRACT COST WAS LIMITED TO $25,300. IT IS ADMITTED IN YOUR LETTER OF DECEMBER 26, 1962, THAT MODIFICATIONS IN THE CONSTRUCTION WERE MADE AS THE WORK PROGRESSED AND WHILE YOU INSIST THAT THE "ROOM ACTUALLY DELIVERED WAS CLOSER TO ROOM 2," THE FINAL ACCOUNTING BY THE ADMINISTRATIVE OFFICE WAS BASED ON THE LARGER MAXIMUM ALLOWABLE COST OF $30,250. IN CONNECTION WITH THE QUESTION WHETHER IT WAS POSSIBLE FOR COSTS TO BE CHARGED TO THE INSTANT CONTRACT EVEN THOUGH THEY WERE ACTUALLY FOR OTHER CONTRACTS BEING PERFORMED BY YOU IT IS POINTED OUT IN THE LETTER OF JANUARY 9 FROM YOUR ATTORNEY THAT ALL OF THE WORK WAS PERFORMED IN A SEALED-OFF AREA OF THE PLANT, WITH EMPLOYEES WHO WERE SPECIALLY HIRED AS A FULL CREW AND WERE NOT YOUR NORMAL EMPLOYEES. THE ADMINISTRATIVE OFFICE STATES THAT THIS SECURITY MEASURE WAS ONLY NATURAL AND PROPER SINCE THE CONTRACT WORK WAS CONFIDENTIAL IN CLASSIFICATION. IN THE PREAMBLE OF THE CONTRACT IT WAS REITERATED THAT YOU WERE ,QUALIFIED IN THIS FIELD" AND IT THEREFORE SHOULD NOT HAVE BEEN NECESSARY TO HIRE A FULL CREW OF SPECIAL EMPLOYEES TO WORK ON THIS JOB WHO WERE NOT YOUR NORMAL EMPLOYEES. IN YOUR LETTER OF DECEMBER 26, 1962, TO YOUR ATTORNEY, YOU STATED THAT "ALL TIME SPENT BY THESE MACHINISTS AND ALL OTHER EMPLOYEES WAS ACCURATELY KEPT BY JOB NUMBER AND INDIVIDUAL EMPLOYEE TIME CARDS, WHICH WERE PUNCHED IN AND OUT OF JOBS WORKED ON.' IN LETTER OF APRIL 11, 1963, THE DEPARTMENT STATES THAT IN THE AUDITOR'S OPINION THE TIMECARDS AND RECORDS WERE NOT PROPERLY PREPARED AS REQUIRED BY ARTICLE VI OF THE CONTRACT WHICH REQUIRES DOCUMENTATION THAT WILL ADEQUATELY SUBSTANTIATE ALL PAYMENTS CHARGED TO THIS CONTRACT. IT IS FURTHER STATED THAT THE AUDIT REPORT INDICATES THAT TIMECARDS WERE IN MANY INSTANCES "FILLED-IN" IN PENCIL. SOME CARDS WERE PUNCHED BY THE TIME CLOCK WHILE SOME WERE NOT PUNCHED BY THE TIME CLOCK. THIS DEFICIENCY WAS RECOGNIZED BY YOUR PRESIDENT WHEN HE ISSUED A MEMORANDUM DIRECTING THAT ALL TIMECARDS BE PUNCHED IN AND PUNCHED OUT EVERY WORKDAY.

ALSO, THE DEPARTMENT, IN ITS LETTER OF APRIL 11, 1963, COMMENTING ON THE VARIOUS QUESTIONS RAISED IN THE LETTER OF JANUARY 9, 1963, REFERRED TO HEREINABOVE, STRESSES THE FACT THAT NO ACTUAL WORK WAS BEGUN ON ROOM NO. 2 WHEN THE CONTRACT ARRANGEMENTS FOR THAT ROOM WERE TERMINATED BY THE DEPARTMENT. THE CONTRACTING OFFICER, IN HIS FINDING OF JULY 28, 1961, ALLOWED THE AMOUNT OF $2,325.12 AS TERMINATION COSTS FOR ROOM NO. 2, WHICH AMOUNT REPRESENTED COST OF MATERIALS.

IN VIEW OF THE FACT THAT ACTUAL CONSTRUCTION WORK INVOLVED ONLY ONE ROOM AND THAT THE DEPARTMENT HAS DETERMINED THAT THE INVOLVED ROOM WAS ROOM NO. 1 AS MODIFIED, THE CLAIMED ITEMS OF $2,311.47 AND $11,478.31 MUST BE REGARDED AS IN EXCESS OF THE CONTRACT COST LIMITATION FOR ROOM NO. 1, AS AUGMENTED BY THE AMOUNTS OF THE VERBAL CHANGES REFERRED TO IN EXHIBIT NO. 2 ATTACHED TO THE CONTRACTING OFFICER'S FINDING OF JULY 28, 1961. AS TO THE ITEM OF $1,292.71, REPRESENTING THE SERVICES OF GRAD, URBAHN AND SEELYE, DISALLOWED MAINLY BECAUSE PAYMENT HAD NOT BEEN MADE, THE DEPARTMENT FEELS THAT THE MERITS OF THIS ITEM SHOULD NOT BE CONSIDERED UNTIL PAYMENT HAS BEEN MADE. WITH REGARD TO THE ITEM OF $2,989.97, THE ITEMIZATION OF THE AMOUNT CLAIMED WAS SET OUT AS EXHIBIT "A" TO YOUR LETTER OF SEPTEMBER 27, 1961, TO THE SECRETARY OF STATE (ITEM 6 OF CONTRACTING OFFICER'S FILE). THE DEPARTMENT, IN ITS LATEST LETTER OF APRIL 11, 1963, DOES NOT RECOMMEND PAYMENT OF THIS ITEM BUT CALLS PARTICULAR ATTENTION TO THE ITEM OF 104.13 PERCENT AS OVERHEAD ON THE SALARY OF ONE EMPLOYEE, AMOUNTING TO $221.54, WHICH IT CONSIDERS AS EXCESSIVE. IN THE ABSENCE OF A FURTHER JUSTIFICATION OF THE CLAIMED EXPENSES FOR TERMINATION, HAVING IN MIND THAT WORK ON ONE ROOM WAS PERFORMED AND THE ONLY WORK PERFORMED ON THE OTHER ROOM WAS THE PROCUREMENT OF MATERIALS, THE CLAIM FOR $2,989.97 MUST BE DISALLOWED. THE ADEQUACY OF YOUR ACCOUNTING RECORDS AND THE DETERMINATION OF THE ALLOWABLE COSTS BASED ON THESE RECORDS INVOLVE PRIMARILY QUESTIONS OF FACT WHICH UNDER THE TERMS OF THE CONTRACT ARE FOR DECISION BY THE CONTRACTING OFFICER SUBJECT TO APPEAL TO THE SECRETARY OF STATE BY YOU UPON AN ADVERSE FINDING. ON THE PRESENT RECORD, SINCE THE FINDING OF THE CONTRACTING OFFICER HAS BEEN ADVERSE AND SINCE YOUR APPEAL FROM THAT FINDING HAS BEEN DENIED, WE WOULD NOT BE WARRANTED IN PAYING THE AMOUNTS CLAIMED.