B-155750, FEB. 9, 1965

B-155750: Feb 9, 1965

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WAS TO PROVIDE CERTAIN COMMUNICATION FACILITIES AND SERVICES UPON REQUEST THEREFOR BY THE GOVERNMENT IN THE FORM OF COMMUNICATION SERVICE AUTHORIZATIONS WHICH WERE TO MAKE REFERENCE TO THE CONTRACT AND SPECIFY THE SERVICES. THIS CONTRACT WAS ENTERED INTO PURSUANT TO THE PROVISIONS OF 10 U.S.C. 2304 (A) (10) WHICH PROVIDES THAT CONTRACTS MAY BE NEGOTIATED WHERE THEY COVER SERVICES FOR WHICH IT IS IMPRACTICABLE TO SECURE COMPETITION. WEDZ-SM 85000 WAS ISSUED TO WESTERN DIAL. THIS CONTRACT NO. 61-7 WAS AFFIRMED BY POST LOAN ENGINEERING CONTRACT NO. 11E. IN ARTICLE VI THEREOF IT WAS PROVIDED THAT THE COMPENSATION PAYABLE WAS THAT STATED IN "ACE CONTRACT FORM" 501 ATTACHED THERETO. WHICH WAS THE CONTRACT DATED AUGUST 1.

B-155750, FEB. 9, 1965

TO MAJOR CARROL F. LEAS, UNITED STATES AIR FORCE:

IN YOUR LETTER OF NOVEMBER 16, 1964, YOU REQUEST A DECISION AS TO THE PROPRIETY OF PAYMENT OF THE AMOUNT OF $23,600 CLAIMED BY SOUTHWEST DIAL, INC., THE SUCCESSOR COMPANY TO WESTERN DIAL, NC., UNDER CONTRACT NO. AF 34/601/-15667, DATED DECEMBER 1, 1962.

UNDER THE TERMS OF THE CITED CONTRACT WESTERN DIAL, INC., WAS TO PROVIDE CERTAIN COMMUNICATION FACILITIES AND SERVICES UPON REQUEST THEREFOR BY THE GOVERNMENT IN THE FORM OF COMMUNICATION SERVICE AUTHORIZATIONS WHICH WERE TO MAKE REFERENCE TO THE CONTRACT AND SPECIFY THE SERVICES, FACILITIES AND EQUIPMENT DESIRED, ALL SUBJECT TO AND IN ACCORDANCE WITH THE CONTRACTOR'S REGULATIONS. THIS CONTRACT WAS ENTERED INTO PURSUANT TO THE PROVISIONS OF 10 U.S.C. 2304 (A) (10) WHICH PROVIDES THAT CONTRACTS MAY BE NEGOTIATED WHERE THEY COVER SERVICES FOR WHICH IT IS IMPRACTICABLE TO SECURE COMPETITION.

ON JUNE 12, 1963, A COMMUNICATIONS SERVICE AUTHORIZATION NO. WEDZ-SM 85000 WAS ISSUED TO WESTERN DIAL, INC., TO PROVIDE SPECIAL CONSTRUCTION OF A CABLE LINE FROM A CERTAIN POINT OF CONNECTION WITH THE SOUTHWESTERN BELL TELEPHONE COMPANY TO THE WHITEMAN AIR FORCE BASE, MISSOURI. THE AUTHORIZATION PROVIDED, AMONG OTHER THINGS, THAT UPON COMPLETION OF THE CONSTRUCTION, THE CONTRACTOR SHOULD SUBMIT TO THE CONTRACTING OFFICER A DETAILED ITEMIZED INVOICE BASED ON THE ACTUAL COSTS INCURRED. ALTHOUGH NEITHER THE CONTRACT NOR THE AUTHORIZATION ISSUED THEREUNDER MADE ANY MENTION OF SUBCONTRACTING ANY OF THE CONTRACT WORK, THE CONTRACTOR HAD BY CONTRACT NO. 61-7 ENGAGED THE ENGINEERING SERVICES OF GAULT, MOORE AND STEVENS ON AUGUST 1, 1961, OR PRIOR TO ENTERING INTO THE CONTRACT WITH THE GOVERNMENT. THIS CONTRACT NO. 61-7 WAS AFFIRMED BY POST LOAN ENGINEERING CONTRACT NO. 11E, DATED OCTOBER 28, 1963, AND IN ARTICLE VI THEREOF IT WAS PROVIDED THAT THE COMPENSATION PAYABLE WAS THAT STATED IN "ACE CONTRACT FORM" 501 ATTACHED THERETO, WHICH WAS THE CONTRACT DATED AUGUST 1, 1961. ARTICLE VI OF THE FIRST CONTRACT (NO. 61-7) PROVIDED, AMONG OTHER THINGS, THAT THE COMPENSATION PAYABLE TO THE ENGINEER (GAULT, MOORE AND STEVENS) FOR SERVICES PERFORMED SHOULD BE A SUM EQUAL TO THE OUT OF-POCKET EXPENSE OF THE ENGINEER AS DEFINED THEREIN PLUS 100 PERCENT, PLUS CERTAIN OTHER ITEMS.

IN THE AUDIT OF THE EXPENSES CONDUCTED BY THE DEPARTMENT OF THE AIR FORCE, THE AMOUNT OF $23,600 CLAIMED BY SOUTHWEST DIAL, INC., THE SUCCESSOR COMPANY TO WESTERN DIAL, INC., WAS SET ASIDE FOR FURTHER CONSIDERATION AND WAS PRESENTED TO YOU FOR PAYMENT AS A SEPARATE ITEM. THIS AMOUNT REPRESENTS THE "100 PERCENT" PAYABLE UNDER THE COMPENSATION ARTICLE OF THE CONTRACT WITH THE SUBCONTRACTOR.

DOUBT HAS ARISEN AS TO THE PROPRIETY OF PAYMENT BECAUSE OF THE PROHIBITION CONTAINED IN 10 U.S.C. 2306 (A) TO THE EFFECT THAT THE COST- PLUS-A-PERCENTAGE-OF-COST SYSTEM OF CONTRACTING MAY NOT BE USED. IN THIS CONNECTION PARAGRAPH 3-401 (B) OF THE ARMED SERVICES PROCUREMENT REGULATION PROVIDES THAT ALL PRIME CONTRACTS ON OTHER THAN A FIRM FIXED- PRICE BASIS SHALL PROHIBIT COST-PLUS-A-PERCENTAGE-OF-COST SUBCONTRACTS BY AN APPROPRIATE CLAUSE. HOWEVER, THE PRIME CONTRACT IN THIS CASE DID NOT CONTAIN SUCH A CLAUSE.

REGARDLESS OF THE FACT THAT THE PRIME CONTRACT DID NOT CONTAIN A CLAUSE PROHIBITING THE USE OF COST-PLUS-A-PERCENTAGE-OF-COST SUBCONTRACTS, WE HAVE HELD THAT WHERE THE LAW PROHIBITS CONTRACTING BY THE GOVERNMENT OFFICERS ON SUCH A BASIS, THE LAW MAY NOT BE EVADED BY THE USE OF SUBCONTRACTS ON THAT BASIS. SEE 21 COMP. GEN. 858; AND 33 ID. 533. THUS, WHILE WE HAVE RECOGNIZED THAT SUBCONTRACTS ENTERED INTO BY THE PRIME CONTRACTOR ON A COST-PLUS-A-PERCENTAGE-OF-COST BASIS MAY NOT FORM A VALID BASIS FOR REIMBURSEMENT BY THE GOVERNMENT, WE HAVE ADHERED TO THE GENERAL RULE OF LAW THAT THE GOVERNMENT MAY BECOME OBLIGATED UPON AN IMPLIED CONTRACT TO PAY THE REASONABLE VALUE OF THE BENEFITS ACCEPTED BY IT AS TO WHICH IT HAS GENERAL POWER TO CONTRACT. SEE 38 COMP. GEN. 38 AND COURT CASES CITED THEREIN. NOTHING HAS BEEN PRESENTED TO SHOW WHETHER OR NOT THE AMOUNT CLAIMED REPRESENTS THE REASONABLE VALUE OF THE BENEFITS RECEIVED BY THE GOVERNMENT ALTHOUGH IT MAY BE ARGUED THAT THE APPROVAL OF THE CONTRACT OF OCTOBER 28, 1963, BY THE RURAL ELECTRIFICATION ADMINISTRATION--- WHICH CONTRACT PROVIDES FOR PAYMENT TO THE ENGINEER ON THE BASIS QUESTIONED--- ESTABLISHES THIS FACT. THEREFORE, UNLESS YOU FIND THAT REIMBURSEMENT OF THE PRIME CONTRACTOR OF THE AMOUNT CLAIMED WOULD RESULT IN PAYMENT OF AN AMOUNT IN EXCESS OF THAT REPRESENTING THE REASONABLE VALUE OF THE BENEFITS RECEIVED BY THE GOVERNMENT, THE VOUCHER SUBMITTED WITH YOUR LETTER MAY BE PAID IN THE FULL AMOUNT, IF OTHERWISE CORRECT.