B-165708, JUL. 8, 1969

B-165708: Jul 8, 1969

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KUNZIG: REFERENCE IS MADE TO A LETTER DATED JUNE 18. NINE TYPES OF WHICH WERE LISTED. IN EACH OF THE THREE CONTRACTS "INSURANCE REQUIRED UNDER THE TERMS OF THIS CONTRACT" IS THE NINTH SPECIFIED TYPE OF GENERAL OFF-SITE OVERHEAD EXPENSE REFERRED TO AS BEING INCLUDED IN THE CONTRACTOR'S FEE. NO QUESTION WAS RAISED IN REGARD TO WORKMEN'S COMPENSATION INSURANCE COSTS UNTIL AFTER THE AWARD OF THE SECOND AND THIRD CONTRACTS AT WHICH TIME THE CONTRACTING OFFICER WAS ADVISED BY THE CONTRACTOR'S ATTORNEYS THAT THE GOVERNMENT HAD BEEN REIMBURSING THE CONTRACTOR FOR WORKMEN'S COMPENSATION INSURANCE PREMIUM PAYMENTS MADE IN CONNECTION WITH THE PERFORMANCE OF THE FIRST CONTRACT. THE CONTRACTING OFFICER DETERMINED THAT THE GOVERNMENT WAS NOT OBLIGATED TO REIMBURSE THE CONTRACTOR FOR COSTS OF SUCH NATURE BECAUSE OF THE APPARENT INCLUSION OF WORKMEN'S COMPENSATION INSURANCE COSTS IN THE AGREED UPON FEES TO BE PAID UNDER THE THREE CONTRACTS.

B-165708, JUL. 8, 1969

TO MR. KUNZIG:

REFERENCE IS MADE TO A LETTER DATED JUNE 18, 1969, FROM MR. HART T. MANKIN, GENERAL COUNSEL, FURNISHING A SUPPLEMENTAL REPORT CONCERNING THE REQUEST MADE OF BEHALF OF GRUNLEY-WALSH CONSTRUCTION COMPANY, INCORPORATED, ROCKVILLE, MARYLAND, THAT WE AUTHORIZE REIMBURSEMENT OF WORKMEN'S COMPENSATION INSURANCE COSTS INCURRED BY THAT FIRM IN CONNECTION WITH THE PERFORMANCE OF SERVICES BY ITS FIELD PERSONNEL AT THE PROJECT SITES OF COST-PLUS-A-FIXED-FEE CONTRACTS NOS. GS-03B-15573, GS-03B-15857 AND GS-03B-15858, ENTERED INTO FOR THE COMPLETION OF CERTAIN RENOVATION AND RESTORATION WORK AT MADISON PLACE AND JACKSON PLACE, LAFAYETTE SQUARE, WASHINGTON, D.C.

THE CONTRACTS PROVIDE THAT THE FEES PAYABLE TO THE CONTRACTOR SHALL BE EXCLUSIVE OF AND IN ADDITION TO TOTAL CONSTRUCTION COSTS, AND THAT THE FEES SHALL INCLUDE THE CONTRACTOR'S GENERAL OFF-SITE OVERHEAD EXPENSES, NINE TYPES OF WHICH WERE LISTED, AND CERTAIN INCIDENTAL EQUIPMENT AND PROTECTIVE CLOTHING COSTS. IN EACH OF THE THREE CONTRACTS "INSURANCE REQUIRED UNDER THE TERMS OF THIS CONTRACT" IS THE NINTH SPECIFIED TYPE OF GENERAL OFF-SITE OVERHEAD EXPENSE REFERRED TO AS BEING INCLUDED IN THE CONTRACTOR'S FEE.

NO QUESTION WAS RAISED IN REGARD TO WORKMEN'S COMPENSATION INSURANCE COSTS UNTIL AFTER THE AWARD OF THE SECOND AND THIRD CONTRACTS AT WHICH TIME THE CONTRACTING OFFICER WAS ADVISED BY THE CONTRACTOR'S ATTORNEYS THAT THE GOVERNMENT HAD BEEN REIMBURSING THE CONTRACTOR FOR WORKMEN'S COMPENSATION INSURANCE PREMIUM PAYMENTS MADE IN CONNECTION WITH THE PERFORMANCE OF THE FIRST CONTRACT. THOSE REIMBURSEMENTS HAD BEEN APPROVED BY THE GOVERNMENT'S CONSTRUCTION ENGINEER. HOWEVER, THE CONTRACTING OFFICER DETERMINED THAT THE GOVERNMENT WAS NOT OBLIGATED TO REIMBURSE THE CONTRACTOR FOR COSTS OF SUCH NATURE BECAUSE OF THE APPARENT INCLUSION OF WORKMEN'S COMPENSATION INSURANCE COSTS IN THE AGREED UPON FEES TO BE PAID UNDER THE THREE CONTRACTS.

THE CONTRACTOR'S ATTORNEYS HAVE CONTENDED IN LETTERS TO OUR OFFICE THAT THE CONTRACTING OFFICER'S DETERMINATION WAS UNREASONABLE AND IN AN ADMINISTRATIVE REPORT OF JANUARY 22, 1969, IT WAS RECOMMENDED, IN EFFECT, THAT THE CLAIM PENDING BEFORE US BE DENIED. HOWEVER, IN THE SUPPLEMENTAL REPORT OF JUNE 18, 1969, WE ARE ADVISED THAT YOUR ADMINISTRATION PROPOSES TO REIMBURSE THE CONTRACTOR FOR THE COSTS OF WORKMEN'S COMPENSATION INSURANCE BASED UPON A CONCLUSION THAT SUCH ACTION WOULD BE IN ACCORDANCE WITH A REASONABLE INTERPRETATION OF THE FEE AND THE CONSTRUCTION COST PROVISIONS OF THE THREE CONTRACTS.

THE LETTER OF JUNE 18, 1969, STATES THAT WORKMEN'S COMPENSATION PREMIUM COSTS ARE NOT AN OFF-SITE OVERHEAD EXPENSE; THAT THEY ARE INCURRED AS A DIRECT RESULT AND IN AMOUNTS PROPORTIONATE TO THE QUANTITY OF THE LABOR PERFORMED ON THE SITE; THAT THE REMAINING EIGHT ILLUSTRATIONS OF OFF-SITE OVERHEAD EXPENSES ENUMERATED IN SUBPARAGRAPH (B) OF THE FEE PROVISIONS BELONG IN THE CATEGORY OF "OFF-SITE OVERHEAD EXPENSES; " AND THAT THERE IS, THEREFORE, A CONFLICT BETWEEN THE PREMISE STATED IN SUBPARAGRAPH (B) AND THE TYPE OF COST LISTED UNDER ITEM NO. 9 THEREOF.

THE LETTER ALSO STATES THAT THE "CONTRACTOR CONSTRUCTION COST" PROVISIONS OF THE THREE CONTRACTS ARE SUFFICIENTLY BROAD TO INCLUDE WORKMEN'S COMPENSATION PREMIUMS PAID BY THE CONTRACTOR, SINCE CONSTRUCTION COSTS ARE DEFINED AS EMBRACING "ALL EXPENDITURES AND CHARGES INCURRED BY THE CONTRACTOR DIRECTLY ATTRIBUTABLE TO THE PERFORMANCE OF THE CONTRACT, BUT EXCLUDING * * * THE CONTRACTOR'S GENERAL AND OFF-SITE OVERHEAD EXPENSES," AND WORKMEN'S COMPENSATION INSURANCE COSTS ARE NOT GENERALLY CONSIDERED TO BE OFF-SITE OVERHEAD EXPENSES. FURTHERMORE, IT IS POINTED OUT THAT WORKMEN'S COMPENSATION INSURANCE POLICIES, WHICH WERE TO BE PROCURED BY THE CONTRACTOR AND MAINTAINED DURING THE PERIODS OF CONTRACT PERFORMANCE, WERE REQUIRED BY THE TERMS OF THE THREE CONTRACTS TO CONTAIN CERTAIN ENDORSEMENTS RELATING TO POSSIBLE CANCELLATIONS OF SUCH POLICIES, INCLUDING AN ENDORSEMENT COVERING PRO-RATA ADJUSTMENT WHICH EVIDENTLY WOULD NOT HAVE BEEN NECESSARY SO FAR AS THE GOVERNMENT WAS CONCERNED IF IT HAD BEEN CONSIDERED THAT THE CONTRACTOR WOULD NOT BE REIMBURSED FOR ITS WORKMEN'S COMPENSATION INSURANCE COSTS.

SINCE WORKMEN'S COMPENSATION INSURANCE COSTS CANNOT BE REGARDED AS AN OFF -SITE OVERHEAD EXPENSE, THERE APPEARS TO BE NO REAL CONFLICT BETWEEN THE FEE PROVISIONS AND THE CONSTRUCTION COST PROVISIONS OF THE THREE CONTRACTS. ALSO, WE AGREE THAT THE PROVISIONS OF THE THREE CONTRACTS, WHEN CONSIDERED AS A WHOLE, REASONABLY COULD BE INTERPRETED AS EVIDENCING AN INTENTION OF THE PARTIES THAT THE CONTRACTOR WOULD BE REIMBURSED FOR WORKMEN'S COMPENSATION INSURANCE PREMIUMS PAID IN CONNECTION WITH THE PERFORMANCE OF SERVICES BY ITS FIELD PERSONNEL AT THE PROJECT SITES. THEREFORE ARE NOT REQUIRED TO OBJECT TO THE PROPOSED REIMBURSEMENT OF SUCH COSTS. IN CONNECTION WITH THE GENERAL COUNSEL'S SUGGESTION THAT THE CLAIM BEFORE US MAY BE DISREGARDED IF WE AGREE WITH THE REVISED POSITION OF YOUR ADMINISTRATION, THE CONTRACTOR'S ATTORNEYS ARE BEING FURNISHED A COPY OF THIS LETTER AND ADVISED THAT WE ARE CONSIDERING THE CASE CLOSED.

AS REQUESTED IN THE ORIGINAL REPORT OF JANUARY 22, 1969, WE ARE RETURNING THE DOCUMENTS AND CORRESPONDENCE SUBMITTED WITH THE REPORT.