B-150189, JAN. 7, 1963

B-150189: Jan 7, 1963

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UNDER PARAGRAPH 13C "COST AND EXPENSE" AS USED IN THE CONTRACTS WERE DEFINED AS INCLUDING. ACTUAL COST" UNDER PARAGRAPH 6 OF EACH CONTRACT SANTA FE WAS AUTHORIZED. AN AUDIT OF THE PAYMENTS MADE UNDER THE TWO CONTRACTS DISCLOSED THAT SANTA FE BILLED AND WAS PAID FOR THE ACTUAL COST OF WORKMEN'S COMPENSATION. IN THE EARLY STAGES OF BILLING UNDER CONTRACT NO. 14-06-500-455 SANTA FE ALSO WAS PAID FOUR PERCENT OF THE PAYROLL AND VACATION ALLOWANCE FOR WORKMEN'S COMPENSATION. PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE WHICH PAYMENTS YOU STATE WERE CREDITED IN SUBSEQUENT BILLINGS BY SANTA FE UPON DISCOVERY OF THE DUAL CHARGES SO THAT NO DUPLICATION OF INSURANCE AND BOND COSTS HAVE BEEN PAID BY THE GOVERNMENT.

B-150189, JAN. 7, 1963

TO MR. C. L. HARRIS, AUTHORIZED CERTIFYING OFFICER, BUREAU OF RECLAMATION, REGION 5:

YOUR LETTER OF OCTOBER 26, 1962, FILE 5-360, REQUESTS OUR DECISION WHETHER YOU MAY CERTIFY FOR PAYMENT TWO ENCLOSED VOUCHERS IN THE AGGREGATE AMOUNT OF $20,961.09 IN FAVOR OF THE PANHANDLE AND SANTA FE RAILWAY COMPANY. THE AMOUNTS CLAIMED ON THE VOUCHERS REPRESENT THE RETAINED PERCENTAGES WITHHELD FROM PROGRESS PAYMENTS MADE TO SANTE FE UNDER RELOCATION CONTRACTS NOS. 14-06-500-436 AND 14-06-500-455, DATED APRIL 20, AND MARCH 4, 1960, RESPECTIVELY. DOUBT AS TO THE PROPRIETY OF CERTIFYING THE VOUCHERS ARISES BECAUSE OUR FIELD AUDITORS, IN VIEW OF THE PROVISIONS OF 13C OF THE CONTRACTS, QUESTIONED PAYMENTS PREVIOUSLY MADE TO SANTA FE IN EXCESS OF FOUR PERCENT OF THE PAYROLL AND VACATION ALLOWANCE FOR INSURANCE PREMIUMS ON WORKMEN'S COMPENSATION, PUBLIC LIABILITY AND PROPERTY DAMAGE.

UNDER THE TWO CONTRACTS SANTA FE UNDERTOOK TO RELOCATE CERTAIN SEGMENTS OF ITS LINE INCIDENT TO THE CONSTRUCTION OF THE TWIN BUTTES DAM AND RESERVOIR. PARAGRAPH 13A OF EACH CONTRACT OBLIGATED THE UNITED STATES TO PAY SANTA FE THE COST AND EXPENSE FOR WORK PERFORMED, MATERIALS FURNISHED AND CERTAIN OTHER COSTS AND EXPENDITURES INCIDENT TO THE RELOCATION OF THE COMPANY'S TRACKS, SUBJECT TO THE AVAILABILITY OF APPROPRIATED FUNDS. UNDER PARAGRAPH 13C "COST AND EXPENSE" AS USED IN THE CONTRACTS WERE DEFINED AS INCLUDING---

TABLE

"WORKMEN'S COMPENSATION, PUBLIC LIABILITY

AND PROPERTY DAMAGE INSURANCE ON

SANTA FE EMPLOYEES ------ 4 PERCENT OF PAYROLL

AND VACATION ALLOWANCE.

"INSURANCE PREMIUMS AND BOND COST

PAID FOR PROTECTION OF CONTRACTOR

OR SANTA FE, UNDER CONTRACT ------ ACTUAL COST"

UNDER PARAGRAPH 6 OF EACH CONTRACT SANTA FE WAS AUTHORIZED, IF IT DESIRE, TO CONTRACT OR SUBCONTRACT ANY PORTION OF THE WORK TO BE PERFORMED THEREUNDER.

AN AUDIT OF THE PAYMENTS MADE UNDER THE TWO CONTRACTS DISCLOSED THAT SANTA FE BILLED AND WAS PAID FOR THE ACTUAL COST OF WORKMEN'S COMPENSATION, PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE ON ITS EMPLOYEES. IN ADDITION, IN THE EARLY STAGES OF BILLING UNDER CONTRACT NO. 14-06-500-455 SANTA FE ALSO WAS PAID FOUR PERCENT OF THE PAYROLL AND VACATION ALLOWANCE FOR WORKMEN'S COMPENSATION, PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE WHICH PAYMENTS YOU STATE WERE CREDITED IN SUBSEQUENT BILLINGS BY SANTA FE UPON DISCOVERY OF THE DUAL CHARGES SO THAT NO DUPLICATION OF INSURANCE AND BOND COSTS HAVE BEEN PAID BY THE GOVERNMENT. SINCE THE PAYMENTS TO SANTA FE FOR THE ACTUAL COST OF PREMIUMS FOR WORKMEN'S COMPENSATION, PUBLIC LIABILITY AND PROPERTY DAMAGE WERE IN EXCESS OF FOUR PERCENT OF THE PAYROLL AND VACATION ALLOWANCE OUR REGIONAL AUDITORS QUESTIONED THE PROPRIETY OF SUCH PAYMENTS.

IN SUPPORT OF THE CLAIM FOR REIMBURSEMENT IT WAS ACKNOWLEDGED IN AN ATTACHMENT TO THE COMPANY'S LETTER OF FEBRUARY 27, 1962, TO OUR REGIONAL AUDITORS THAT IN THE EARLY STAGES OF BILLING UNDER CONTRACT NO. 14-06-500- 455 FOUR PERCENT WAS ADDED FOR WORKMEN'S COMPENSATION INSURANCE AS PROVIDED FOR UNDER 13C OF THE CONTRACT. IT WAS STATED, HOWEVER, THAT FOLLOWING RECEIPT OF VOUCHERS FOR PREMIUMS FOR SUCH INSURANCE IT WAS CONSIDERED THAT THE ACTUAL COST WOULD BE MORE EQUITABLE THAN THE FOUR PERCENT AND THAT THEREFORE, CREDIT WAS ALLOWED FOR THE FOUR PERCENT CHARGES. IN THE COMPANY'S LETTER OF APRIL 19, 1962, TO THE BUREAU IT WAS STATED, IN EFFECT, THAT THE FOUR PERCENT FIGURE SHOULD NEVER HAVE BEEN USED IN THE CONTRACTS; THAT SUCH PERCENTAGE IS THE ONE USED BY IT IN ITS CONTRACTS WITH VARIOUS STATES FOR FEDERALLY FINANCED HIGHWAY PROJECTS WHERE THE COMPANY IS ITS OWN INSURER; THAT IN SUCH INSTANCES THE WORK WHICH IS DONE BY ITS OWN FORCES IS SMALL, AMOUNTING IN MANY CASES TO ONLY A FEW HUNDRED DOLLARS AND THEREFORE NO INSURANCE OF ANY KIND IS PURCHASED SINCE THE COMPANY ACTS AS ITS OWN INSURER; AND THAT THE FOUR PERCENT RATE WOULD NOT BE SUFFICIENT TO PURCHASE ANY TYPE OF INSURANCE PROTECTION.

AS EVIDENCE OF THE INSUFFICIENCY OF THE FOUR PERCENT RATE REFERENCE WAS MADE TO THE COMBINED TOTAL RATE OF $6.57 PER HUNDRED DOLLARS OF PAYROLL CHARGED BY THE H. B. ZACHRY COMPANY PRINCIPALLY FOR GRADING WHICH TAKES A LOW RATE AND IVAN DEMENT'S RATE OF $7.20 PER HUNDRED DOLLARS OF PAYROLL. THE COMPANY FURTHER STATED THAT WITHOUT EXCEPTION WHERE IT HAS PERFORMED WORK AS A CONTRACTOR FOR THE GOVERNMENT IT HAS COVERED SUCH PROJECTS WITH INSURANCE PLACED WITH ZURICH COMPANY AND CONTINENTAL CASUALTY COMPANY; THAT WHERE IT CONTRACTS FOR CONSTRUCTION ON ITS OWN RAILROAD IT COVERS SUCH WORK WITH THE SAME COMPANIES; THAT WITH COVERAGE SUCH AS IT DEMANDS OF THESE COMPANIES IT COULD NOT BUY CHEAPER INSURANCE AND BE FULLY PROTECTED AS IT HAD BEEN IN THE TWO PROJECTS AT SAN ANGELO; AND THAT IT CERTAINLY WAS THE COMPANY'S INTENT AT THE TIME THESE PROJECTS WERE NEGOTIATED TO COVER BOTH OF THEM WITH INSURANCE PROVIDED BY THE ZURICH AND THE CONTINENTAL CASUALTY COMPANIES WHOSE POLICIES WERE MADE EFFECTIVE AS OF MARCH 4, 1960.

IN A MEMORANDUM DATED JULY 24, 1962, THE ACTING FIELD SOLICITOR OF THE BUREAU EXPRESSED THE VIEW THAT THE EXPLANATIONS AND JUSTIFICATIONS FURNISHED BY THE COMPANY MERELY INDICATE A UNILATERAL ERROR. HE EXPRESSED THE VIEW, HOWEVER, THAT THE CONTRACT WHEN READ AS A WHOLE WAS AMBIGUOUS AND THAT THE INTENTIONS OF THE PARTIES AS EVIDENCED BY ALL THE MATERIAL FURNISHED HAVE BEEN COMPLIED WITH. IN SUPPORT OF THIS VIEW IT WAS POINTED OUT THAT IN ADDITION TO THE FOUR PERCENT PROVISION OF 13C OF THE CONTRACTS THERE IS FOR CONSIDERATION THE THIRD "WHEREAS" CLAUSE OF EACH CONTRACT WHEREIN IT IS PROVIDED THAT "IT IS THE FULL INTENT OF THIS CONTRACT THAT THE SANTA FE BE PROVIDED FULL TITLE TO AND CONTROL OF A COMPLETE RELOCATED PORTION OF RAILROAD AT NO EXPENSE TO SANTA FE IN EXCHANGE FOR ALL RIGHTS AND PROPERTY IT MAY HAVE IN EXISTING PORTION OF RAILROAD THAT WILL BE RELIEVED AND REMOVED.' THE ACTING FIELD SOLICITOR EXPRESSED THE VIEW THAT THE PARTIES UNDOUBTEDLY UNDERSTOOD THAT FOUR PERCENT OF THE PAYROLL AND VACATION ALLOWANCE WOULD COVER INSURANCE FOR SANTA FE'S USUAL MAINTENANCE ACTIVITY AND HE POINTED OUT THAT THE ACTION OF THE PARTIES SUBSEQUENT TO THE EXECUTION OF THE CONTRACTS, AS REFLECTED IN THE CORRESPONDENCE SHOWS THAT NEITHER CONSIDERED THE FOUR PERCENT ITEM AS LIMITING THE AMOUNT WHICH COULD BE REIMBURSED FOR INSURANCE. THE ACTING FIELD SOLICITOR EXPRESSED THE VIEW THAT THE CONTRACTOR WAS ENTITLED TO THE ACTUAL COST OF INSURANCE FOR WORKMEN'S COMPENSATION, PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE FOR REASONS AS FOLLOW:

"THE UNTENABLE POSITION OF CONSTRUING THE 4 PERCENT LANGUAGE AS A LIMITATION IS READILY APPARENT UNDER AN ASSUMED SITUATION IN WHICH THE RAILROAD COMPANY DOES NOT ACT UNDER THE ALTERNATIVE IN ARTICLE 6 TO SUBCONTRACT ANY PART OF THE WORK AND ACTUALLY PERFORMS ALL WORK WITH ITS OWN FORCES. UNDER SUCH A SITUATION, APPLYING THE REASONING IN MR. BLAIR'S LETTER OF MARCH 29, 1962, THE ONLY INSURANCE COSTS FOR WHICH THE UNITED STATES WOULD BE LIABLE WOULD BE THAT REPRESENTED BY 4 PERCENT OF SANTA FE'S PAYROLL. THIS WOULD EXCLUDE ENTIRELY THE "JOB HAZARD" COVERAGE, THE PREMIUM RATES FOR WHICH TAKE INTO ACCOUNT PARTICULAR HAZARDS DISCERNABLE ONLY FROM CONSTRUCTION SPECIFICATIONS. ARTICLE 6 WAS INTENDED TO GRANT SANTA FE AN ACTUAL CHOICE OF RELOCATING ITS LINES BY ITS OWN FORCES OR BY SUBCONTRACT, AND AN INTERPRETATION WHICH DENIES FULL REIMBURSEMENT UNDER ONE OF THE METHODS RENDERS THAT CHOICE MORE APPARENT THAN REAL. THE ERROR THEN IS NOT SO MUCH IN INCLUDING THE 4 PERCENT ITEM, (SINCE IT IS NOT APPARENT THAT NONE OF THE WORK PERFORMED BY SANTA FE'S EMPLOYEES, COULD HAVE BEEN INSURED UNDER SANTA FE'S ESTABLISHED PLAN OF DEDUCTING 4 PERCENT OF THE PAYROLL AND VACATION ALLOWANCE FOR WORKMEN'S COMPENSATION, PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE) AS IT IS IN FAILING TO SPECIFY THAT SANTA FE COULD OBTAIN INSURANCE TO COVER THE MORE HAZARDOUS CONSTRUCTION SITUATION, THERE BEING NO MEANS OF PURCHASING MERELY THE DIFFERENCE BETWEEN THE MAINTENANCE RISK AND THE CONSTRUCTION RISK. REGARDLESS OF THIS DEFICIENCY IN THE CONTRACT, THE UNITED STATES AGREED TO PAY SANTA FE'S ACTUAL COST OF RELOCATION, AND INSOLONG AS THE UNITED STATES DOES NOT REIMBURSE SANTA FE FOR EITHER DUPLICATED INSURANCE OR MAKE DUPLICATE PAYMENT FOR INSURANCE, THERE IS NO VIOLATION OF THE CONTRACT.'

ON THE RECORD PRESENTED WE CONCUR GENERALLY IN ALL VIEWS EXPRESSED BY THE ACTING FIELD SOLICITOR. AS INDICATED IN THE THIRD "WHEREAS" CLAUSE OF THE CONTRACT THE FULL INTENT OF THE CONTRACTS WAS THAT THE RELOCATION OF THE TWO SEGMENTS OF THE COMPANY'S LINES WAS TO BE ACCOMPLISHED "AT NO EXPENSE TO SANTA FE.' TO INTERPRET THE CONTRACTS AS LIMITING THE CONTRACTOR TO FOUR PERCENT FOR INSURANCE IN THE EVENT IT ELECTED TO PERFORM THE WORK WITH ITS OWN FORCES BUT AS AUTHORIZING REIMBURSEMENT OF THE ACTUAL COST OF SUCH INSURANCE IN THE EVENT SANTA FE SUBCONTRACTED THE WORK AS AUTHORIZED BY PARAGRAPH 6 OF THE CONTRACTS WOULD RESULT IN AN ANOMALOUS SITUATION.

SINCE THE CONTRACTS CLEARLY CONTEMPLATE THAT THE RELOCATIONS SHALL BE WITHOUT "EXPENSE TO SANTA FE" WE WOULD NOT BE REQUIRED TO OBJECT TO THE PAYMENTS MADE TO COMPANY FOR THE ACTUAL COST OF THE INSURANCE FOR WORKMEN'S COMPENSATION, PUBLIC LIABILITY AND PROPERTY DAMAGE. ACCORDINGLY, WE OFFER NO OBJECTION TO THE CERTIFICATION OF THE VOUCHERS, IF CORRECT IN OTHER RESPECTS. A REFERENCE TO THIS DECISION SHOULD BE MADE ON THE VOUCHERS, WHICH TOGETHER WITH THE RELATED PAPERS, ARE RETURNED.

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