B-149643, SEPTEMBER 6, 1962, 42 COMP. GEN. 152

B-149643: Sep 6, 1962

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ADVERTISING - PARTICIPATION IN EXHIBITS - PROHIBITION COSTS INCURRED BY DEFENSE COST-PLUS PRIME CONTRACTORS IN PARTICIPATING IN INVITATIONAL EXHIBITS SPONSORED BY THE AREA REDEVELOPMENT ADMINISTRATION TO DISPLAY MATERIALS THAT COULD BE PRODUCED IN LABOR SURPLUS AREAS MAY NOT BE REGARDED AS ADVERTISING COSTS WHICH ARE EXCEPTED FROM THE PROHIBITION IN SECTION 636 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT. PARTICULARLY IN VIEW OF THE FACT THAT THE LEGISLATIVE HISTORY INDICATES THAT THE PURPOSE OF THE EXHIBITS WOULD HAVE COME WITHIN ONE OF TWO EXEMPTIONS WHICH THE CONGRESS CONSIDERED AND THEN DISREGARDED. SUCH EXHIBIT COSTS INCURRED BY DEFENSE CONTRACTS ARE NOT REIMBURSABLE EXPENSES UNDER COST-PLUS CONTRACTS.

B-149643, SEPTEMBER 6, 1962, 42 COMP. GEN. 152

ADVERTISING - PARTICIPATION IN EXHIBITS - PROHIBITION COSTS INCURRED BY DEFENSE COST-PLUS PRIME CONTRACTORS IN PARTICIPATING IN INVITATIONAL EXHIBITS SPONSORED BY THE AREA REDEVELOPMENT ADMINISTRATION TO DISPLAY MATERIALS THAT COULD BE PRODUCED IN LABOR SURPLUS AREAS MAY NOT BE REGARDED AS ADVERTISING COSTS WHICH ARE EXCEPTED FROM THE PROHIBITION IN SECTION 636 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1962, AGAINST USE OF APPROPRIATED FUNDS TO REIMBURSE DEFENSE CONTRACTORS FOR ADVERTISING COSTS, PARTICULARLY IN VIEW OF THE FACT THAT THE LEGISLATIVE HISTORY INDICATES THAT THE PURPOSE OF THE EXHIBITS WOULD HAVE COME WITHIN ONE OF TWO EXEMPTIONS WHICH THE CONGRESS CONSIDERED AND THEN DISREGARDED; THEREFORE, SUCH EXHIBIT COSTS INCURRED BY DEFENSE CONTRACTS ARE NOT REIMBURSABLE EXPENSES UNDER COST-PLUS CONTRACTS.

TO THE ACTING ADMINISTRATOR, AREA REDEVELOPMENT ADMINISTRATION, SEPTEMBER 6, 1962:

WE HAVE YOUR LETTER OF AUGUST 3, 1962, WITH ENCLOSURES, ADDRESSED TO OUR GENERAL COUNSEL, REQUESTING A PRELIMINARY INTERPRETATION ON WHETHER FIRMS PARTICIPATING IN EXHIBITS SPONSORED BY YOUR AGENCY PURSUANT TO THE AREA REDEVELOPMENT ACT, 75 STAT. 47, 42 U.S.C. 2501 NOTE, ARE PRECLUDED FROM REIMBURSEMENT FOR THE COST OF SUCH PARTICIPATION UNDERCOST-PLUS CONTRACTS WITH DEPARTMENT OF DEFENSE AGENCIES PURSUANT TO SECTION 636 OF PUBLIC LAW 87-144, 75 STAT. 381.

IT IS STATED IN THE LETTER THAT THESE EXHIBITS ARE HELD IN AREAS OF PERSISTENT AND SUBSTANTIAL LABOR SURPLUS AND HAVE AS THEIR PURPOSE THE DISPLAY OF SPECIFICATIONS, DRAWINGS AND SAMPLES OF ITEMS THAT PARTICIPATING PRIME CONTRACTOR CONSIDERED CAN BE PRODUCED WITHIN THE GIVEN AREA AND FOR WHICH ADDITIONAL SOURCES WOULD BE DESIRABLE.

SECTION 636 OF PUBLIC LAW 87-144, THE DEPARTMENT OF DEFENSE APPROPRIATION ACT OF 1962, ROVIDES:

SEC. 636. NO PART OF THE FUNDS APPROPRIATED HEREIN SHALL BE AVAILABLE FOR PAYING THE COSTS OF ADVERTISING BY ANY DEFENSE CONTRACTOR, EXCEPT ADVERTISING FOR WHICH PAYMENT IS MADE FROM PROFITS, AND SUCH ADVERTISING SHALL NOT BE CONSIDERED A PART OF ANY DEFENSE CONTRACT COST. THE PROHIBITION CONTAINED IN THIS SECTION SHALL NOT APPLY WITH RESPECT TO ADVERTISING CONDUCTED BY ANY SUCH CONTRACTOR, IN COMPLIANCE WITH REGULATIONS WHICH SHALL BE PROMULGATED BY THE SECRETARY OF DEFENSE, SOLELY FOR (1) THE RECRUITMENT BY THAT CONTRACTOR OF PERSONNEL REQUIRED FOR THE PERFORMANCE BY THE CONTRACTOR OF OBLIGATIONS ARISING UNDER A DEFENSE CONTRACT, (2) THE PROCUREMENT OF SCARCE ITEMS REQUIRED BY THE CONTRACTOR FOR THE PERFORMANCE OF A DEFENSE CONTRACT, OR (3) THE DISPOSAL OF SCRAP OR SURPLUS MATERIALS ACQUIRED BY THE CONTRACTOR IN THE PERFORMANCE OF A DEFENSE CONTRACT.

SECTION 636 IN THE FORM IN WHICH IT PASSED THE SENATE AS PART OF H.R. 7851 WAS IDENTICAL TO THE PROVISION IN THE ACT EXCEPT THAT IT INCLUDED THE FOLLOWING TWO ADDITIONAL EXCEPTIONS TO THE GENERAL PROVISION:

* * * (4) THE PROCUREMENT OF SUBCONTRACTORS REQUIRED FOR THE PERFORMANCE BY THE CONTRACTOR OF HIS OBLIGATIONS UNDER A DEFENSE CONTRACT, OR (5) COSTS OF PARTICIPATION IN EXHIBITS UPON INVITATION OF THE GOVERNMENT.

THESE TWO ADDITIONAL EXCEPTIONS WERE DELETED BY THE HOUSE OF REPRESENTATIVES ON AUGUST 10, 1961, AND THE FORM ADOPTED BY THE HOUSE WAS ACCEPTED BY THE SENATE ON THE SAME DAY.

THE HISTORY OF SECTION 636 CLEARLY INDICATES THAT THE CONGRESS CONSIDERED EXCEPTING FROM THE GENERAL RULE PROMULGATED THEREUNDER ADVERTISING COSTS INCURRED IN THE PROCUREMENT OF SUBCONTRACTORS, OR IN PARTICIPATION IN EXHIBITS UPON INVITATION OF THE GOVERNMENT. FROM THE DESCRIPTION OF THE FORM AND PURPOSE OF THE UNDERTAKINGS EXPLAINED IN YOUR LETTER, WE ARE OF THE VIEW THAT THEY WOULD HAVE COME WITHIN ONE OR THE OTHER OF THE EXCEPTIONS DELETED FROM THE LEGISLATION. IN VIEW OF THE FACT THAT THE CONGRESS CONSIDERED AND DISCARDED THE EXCEPTIONS, WE ARE OF THE OPINION THAT THE COSTS OF PARTICIPATION BY DEFENSE CONTRACTORS IN THE EXHIBITS CONDUCTED BY YOUR AGENCY CANNOT BE REGARDED AS REIMBURSABLE UNDER COST- PLUS CONTRACTS.