B-17082, JUNE 9, 1941, 20 COMP. GEN. 865

B-17082: Jun 9, 1941

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IF THE CONTRACTING OFFICER SPECIFICALLY DETERMINES THAT THE COMPENSATION PAID FOR THE POSITIONS TO WHICH TRANSFERRED IS REASONABLE FOR THE SERVICES INVOLVED. IF THE RETIREMENT PLAN IS DISCONTINUED BY AN EMPLOYEE. THE GOVERNMENT WILL RECEIVE THE BENEFIT OF ANY REFUND TO THE CONTRACTOR OF CONTRIBUTIONS FOR WHICH THE GOVERNMENT HAD PREVIOUSLY REIMBURSED THE CONTRACTOR. REQUESTING DECISION WHETHER YOU ARE AUTHORIZED TO MAKE PAYMENT ON TWO VOUCHERS TRANSMITTED THEREWITH. THERE IS ATTACHED TO THE VOUCHER A LIST OF THE CONTRACTOR'S EMPLOYEES WHO HAVE BEEN TRANSFERRED FROM PAY ROLLS OF THE BUICK MOTOR DIVISION TO THE AVIATION ENGINE PLANT. THE VOUCHER HAS BEEN SUBMITTED FOR ADVANCE DECISION BECAUSE OF DOUBT WHETHER SUCH SALARY INCREASES ARE PROPERLY REIMBURSABLE BY THE GOVERNMENT AS ITEMS OF COST UNDER THE CONTRACT.

B-17082, JUNE 9, 1941, 20 COMP. GEN. 865

CONTRACTS - COST-PLUS - INCLUSION OF SALARY INCREASES AND CONTRIBUTIONS TO EMPLOYEES' RETIREMENT FUND A COST-PLUS-A-FIXED-FEE CONTRACTOR MAY BE REIMBURSED FOR SALARIES PAID ITS EMPLOYEES TRANSFERRED FROM ONE DIVISION OF THE ORGANIZATION TO ANOTHER AT SUBSTANTIAL INCREASES IN COMPENSATION, IF THE CONTRACTING OFFICER SPECIFICALLY DETERMINES THAT THE COMPENSATION PAID FOR THE POSITIONS TO WHICH TRANSFERRED IS REASONABLE FOR THE SERVICES INVOLVED, WITHIN THE MEANING OF TREASURY DECISION 5,000 CONTROLLING AMOUNTS PAYABLE UNDER THE CONTRACT. ACTUAL CONTRIBUTIONS BY A COST-PLUS-A-FIXED-FEE CONTRACTOR TO A VOLUNTARY RETIREMENT FUND FOR ITS EMPLOYEES--- AS DISTINGUISHED FROM MERE BOOK ENTRIES AS AN ACCRUED LIABILITY--- MAY BE REGARDED AS A REIMBURSABLE ITEM OF COST WITHIN THE MEANING OF TREASURY DECISION 5,000 CONTROLLING AMOUNTS PAYABLE UNDER THE CONTRACT, WITH THE UNDERSTANDING THAT, IF THE RETIREMENT PLAN IS DISCONTINUED BY AN EMPLOYEE, THE GOVERNMENT WILL RECEIVE THE BENEFIT OF ANY REFUND TO THE CONTRACTOR OF CONTRIBUTIONS FOR WHICH THE GOVERNMENT HAD PREVIOUSLY REIMBURSED THE CONTRACTOR.

COMPTROLLER GENERAL WARREN TO MAJ. F. E. COYNE, JR., U.S. ARMY, JUNE 9, 1941:

THERE HAS BEEN RECEIVED, BY INDORSEMENT OF MAY 20, 1941, FROM THE UNDER SECRETARY OF WAR, YOUR LETTER OF APRIL 30, 1941, REQUESTING DECISION WHETHER YOU ARE AUTHORIZED TO MAKE PAYMENT ON TWO VOUCHERS TRANSMITTED THEREWITH, IN FAVOR OF THE AVIATION ENGINE PLANT, BUICK MOTOR DIVISION, GENERAL MOTORS CORPORATION, IN THE AMOUNTS OF $16,583.88 AND $346.78, REPRESENTING EXPENSES INCURRED BY THE CORPORATION UNDER COST-PLUS-A-FIXED- FEE CONTRACT NO. W-535-AC-17479 DATED JANUARY 7, 1941, FOR FURNISHING TO THE WAR DEPARTMENT CERTAIN AERONAUTICAL EQUIPMENT.

VOUCHER NO. 1 IN THE AMOUNT OF $16,583.88 COVERS SALARIES PAID BY THE CONTRACTOR FOR THE PERIOD JANUARY 1 TO FEBRUARY 28, 1941, AS SUPPORTED BY PAY-ROLL AUDIT REGISTERS, AUDITED AND APPROVED BY THE AIR CORPS AUDITOR, AND APPROVED FOR PAYMENT BY THE AIR CORPS CONTRACTING AND PURCHASING OFFICER. ALSO, THERE IS ATTACHED TO THE VOUCHER A LIST OF THE CONTRACTOR'S EMPLOYEES WHO HAVE BEEN TRANSFERRED FROM PAY ROLLS OF THE BUICK MOTOR DIVISION TO THE AVIATION ENGINE PLANT, AT INCREASES IN SALARIES FOR CERTAIN EXECUTIVE PERSONNEL AVERAGING IN EXCESS OF 41 PERCENT, AS COMPUTED BY THE AIR CORPS AUDITOR. THE VOUCHER HAS BEEN SUBMITTED FOR ADVANCE DECISION BECAUSE OF DOUBT WHETHER SUCH SALARY INCREASES ARE PROPERLY REIMBURSABLE BY THE GOVERNMENT AS ITEMS OF COST UNDER THE CONTRACT.

IT IS PROVIDED, IN ARTICLE 3 (B) OF THE CONTRACT, THAT:

FOR PURPOSES OF DETERMINING THE AMOUNTS PAYABLE TO THE CONTRACTOR UNDER THIS CONTRACT, ALLOWABLE ITEMS OF COST WILL BE DETERMINED BY THE CONTRACTING OFFICER IN ACCORDANCE WITH REGULATIONS FOR THE DETERMINATION OF THE COST OF PERFORMING A CONTRACT AS PROMULGATED BY THE TREASURY DEPARTMENT IN SECTION 26.9 OF CHAP. I OF TITLE 26 OF CODE OF FEDERAL REGULATIONS, AS CONTAINED IN T.D. 5000 AND APPROVED BY THE SECRETARY OF WAR, AUGUST 2, 1940; * * *

WITH RESPECT TO REIMBURSEMENT OF THE CONTRACTOR'S COSTS, ARTICLE 6 (A) OF THE CONTRACT IS TO THE EFFECT THAT THE GOVERNMENT WILL CURRENTLY REIMBURSE THE CONTRACTOR FOR SUCH EXPENDITURES MADE IN ACCORDANCE WITH ARTICLE 3 AS MAY BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER OF THE ORIGINAL SIGNED PAY ROLLS FOR LABOR, ETC.

CONTRACT NO. W-535-AC-17479 CONTAINS NO PROVISION IMPOSING A DEFINITE MAXIMUM LIMITATION EITHER ON SALARIES OR INCREASES THEREIN TO BE PAID BY THE CONTRACTOR TO HIS EMPLOYEES. HOWEVER, TREASURY DECISION 5,000, WHICH IS TO SERVE AS THE CONTRACTING OFFICER'S CRITERION IN DETERMINING AMOUNTS PAYABLE UNDER THE CONTRACT, INCLUDES THE FOLLOWING PERTINENT PROVISION IN SECTION 26.9, PARAGRAPH (I):

UNREASONABLE COMPENSATION.--- THE SALARIES AND COMPENSATION FOR SERVICES WHICH ARE TREATED AS A PART OF THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT INCLUDE REASONABLE PAYMENTS FOR SALARIES, BONUSES, OR OTHER COMPENSATION FOR SERVICES. AS A GENERAL RULE, BONUSES PAID TO EMPLOYEES (AND NOT TO OFFICERS) IN PURSUANCE OF A REGULARLY ESTABLISHED INCENTIVE BONUS SYSTEM MAY BE ALLOWED AS A PART OF THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT.

THE TEST OF ALLOWABILITY IS WHETHER THE AGGREGATE COMPENSATION PAID TO EACH INDIVIDUAL IS FOR SERVICES ACTUALLY RENDERED INCIDENT TO, AND NECESSARY FOR, THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT, AND IS REASONABLE. EXCESSIVE OR UNREASONABLE PAYMENTS, WHETHER IN CASH, STOCK, OR OTHER PROPERTY, OSTENSIBLY AS COMPENSATION FOR SERVICES SHALL NOT BE INCLUDED IN THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT.

IF, THEREFORE, THE CONTRACTING OFFICER DETERMINES THAT THE SALARIES TO BE PAID THE INVOLVED EMPLOYEES ARE REASONABLE COMPENSATION FOR THE SERVICES TO BE PERFORMED IN THE POSITIONS TO WHICH THEY ARE TRANSFERRED AND THAT SUCH SALARIES REPRESENT ALLOWABLE ITEMS OF COST IN ACCORDANCE WITH ARTICLE 3 (B) OF THE CONTRACT, THEN PAYMENT OF VOUCHERS COVERING REIMBURSEMENT TO THE CONTRACTOR OF SALARIES AT THE INCREASED RATES WILL NOT BE QUESTIONED BY THIS OFFICE ON THAT ACCOUNT. WHILE THE CONTRACTING OFFICER'S APPROVAL OF THIS VOUCHER IMPLIES AN APPROVAL OF THE INCREASED SALARIES, IN ORDER TO MAKE CERTAIN THAT SUCH IS THE CASE, THE VOUCHER SHOULD BE ACCOMPANIED BY THE SPECIFIC DETERMINATION OF THE CONTRACTING OFFICER IN THIS RESPECT; AND IF SUCH INCREASES ARE APPROVED AS BEING REASONABLE, PAYMENT OF THE VOUCHER IS AUTHORIZED, IF OTHERWISE CORRECT.

VOUCHER NO. 10 IN THE AMOUNT OF $346.78 IS FOR ADDITIONAL CHARGES ON SALARIES PAID FOR THE PERIOD JANUARY 1 TO FEBRUARY 28, 1941, IN CONNECTION WITH CONTRACT NO. W-535-AC-17479, REPRESENTING THE COMPANY'S CONTRIBUTIONS TO A VOLUNTARY RETIREMENT FUND FOR EMPLOYEES; AND DECISION HAS BEEN REQUESTED WHETHER SUCH CONTRIBUTIONS ARE REIMBURSABLE UNDER THE TERMS OF THE CONTRACT.

IN A LETTER OF APRIL 24, 1941, FROM THE COMPTROLLER, AVIATION ENGINE PLANT, BUICK MOTOR DIVISION, TO THE HEAD COST AUDITOR, AIR CORPS, WAR DEPARTMENT, THE CHARGES ARE EXPLAINED AS OLLOWS:

WE HAND YOU HEREWITH VOUCHER COVERING EMPLOYEES' CONTRIBUTORY RETIREMENT PLAN. WE FEEL THAT THIS VOUCHER SHOULD BE PASSED WITHOUT QUESTION, DUE TO THE FACT THAT THIS PLAN REPORTS ACTUAL PAYMENTS. BRIEFLY, THE PROCEDURE IS AS FOLLOWS:

EMPLOYEES' CONTRIBUTORY RETIREMENT PLAN

AT THE ANNUAL MEETING OF THE STOCKHOLDERS HELD ON APRIL 30, 1940, THE ADOPTION OF THE EMPLOYEES' CONTRIBUTORY RETIREMENT PLAN WAS APPROVED. THE PLAN WAS MADE EFFECTIVE AS OF JULY 1, 1940.

THE PLAN, WHICH IS DESIGNED TO SUPPLEMENT THE OLD-AGE BENEFITS UNDER THE PRESENT FEDERAL SOCIAL SECURITY ACT THAT COVERS THE FIRST $250.00 OF MONTHLY EARNINGS, PROVIDES THAT ALL EMPLOYEES IN THE UNITED STATES RECEIVING SALARIES IN EXCESS OF $250.00 PER MONTH, WHO HAVE COMPLETED ONE YEAR OF SERVICE AND WHO, AT THE TIME THE OTHER REQUIREMENTS FOR ELIGIBILITY HAVE BEEN MET, HAVE REACHED THE AGE OF 40 AND ARE LESS THAN 55 YEARS OF AGE, ARE ELIGIBLE TO PARTICIPATE.

THE PLAN AS ADOPTED PROVIDES THAT EACH PARTICIPATING EMPLOYEE WILL CONTRIBUTE 5 PERCENT OF THE AMOUNT OF HIS MONTHLY SALARY IN EXCESS OF $250.00. AS OF OCTOBER 1, 1940, THE MINIMUM MONTHLY CONTRIBUTION WAS FIXED AT $2.00 FOR EMPLOYEES RECEIVING IN EXCESS OF $250.00 AND UP TO $290.00 PER MONTH. THE EMPLOYEE MAY CONTRIBUTE INTO THE PLAN ONLY UP TO AGE 60, EXCEPT THOSE EMPLOYEES WHO BECAME ELIGIBLE AFTER AGE 45, WHO MAY CONTRIBUTE FOR A PERIOD OF 15 YEARS OR TO THE DATE OF RETIREMENT, WHICHEVER IS EARLIER.

THE CORPORATION CONTRIBUTES THE BALANCE OF THE FUNDS NECESSARY TO PROVIDE THE ANNUITY BENEFITS UNDER THE PLAN, 1.3 TIMES THE EMPLOYEE'S CONTRIBUTION.

IN THE EVENT THE PLAN IS DISCONTINUED BY AN INDIVIDUAL, THROUGH DEATH OR RESIGNATION, HE RECEIVES (OR HIS BENEFICIARY) ALL OF HIS FUNDS SO DEPOSITED PLUS INTEREST AT THE RATE OF 2 1/2 PERCENT PER ANNUM, COMPOUNDED ANNUALLY. THE CORPORATION ALSO RECEIVES ITS PORTION OF FUNDS SO DEPOSITED, PLUS INTEREST AT THE RATE OF 2 1/2 PERCENT PER ANNUM, COMPOUNDED ANNUALLY, LESS A SMALL SERVICE CHARGE FOR CANCELLATION OF CONTRACT.

THE EMPLOYEE'S PORTION OF THE PREMIUMS ARE DEDUCTED ON THE PAY ROLL PRIOR TO EMPLOYEE RECEIVING HIS SALARY. THE EMPLOYER'S PORTION ( BUICK," AVIATION ENGINE PLANT"), TOGETHER WITH THE EMPLOYEE'S PORTION, ARE ESTABLISHED AS AN ACCRUED LIABILITY ACCOUNT.

MONTHLY REPORTS ARE RENDERED (JOURNAL VOUCHERS) BY THE AVIATION ENGINE PLANT TO THE GENERAL MOTORS CORPORATION COVERING EMPLOYEE'S AND EMPLOYER'S PORTION.

PREMIUMS TO THE INSURANCE COMPANIES ARE PAID DIRECT BY THE GENERAL MOTORS CORPORATION. THESE PREMIUM PAYMENTS INCLUDE COST OF ANNUITIES FOR EMPLOYEES OF AVIATION ENGINE PLANT, BUICK AND ALL OTHER SUBSIDIARIES OF THE GENERAL MOTORS CORPORATION. AVIATION ENGINE PLANT CONSIDERS THE MONTHLY REPORTS AS A JOURNAL VOUCHER THAT CONSTITUTES TRANSFER OF FUNDS AND LIABILITY TO THE GENERAL MOTORS CORPORATION, AND IS FOR ALL INTENTS AND PURPOSES A PAID ACCOUNT ON AVIATION ENGINE PLANT RECORDS.

I TRUST THE ABOVE IS SUFFICIENT EXPLANATION TO ENABLE YOU TO PASS THIS VOUCHER WITHOUT DIFFICULTY.

WHILE NEITHER THE CONTRACT NOR T.D. 5000 SPECIFICALLY PROVIDES FOR REIMBURSEMENT OF SUCH AN ITEM OF COST, ITS GENERAL PURPOSE REASONABLY COMES WITHIN THE MEANING OF PARAGRAPH (G) (4), SECTION 26.9, OF THE TREASURY DECISION, WHICH ALLOWS, AMONG OTHER THINGS, PENSION AND RETIREMENT PAYMENTS TO ADMINISTRATIVE OFFICE EMPLOYEES, AND OF PARAGRAPH (C) (5) (E) OF THAT SECTION WHICH COVERS SIMILAR PAYMENTS TO FACTORY EMPLOYEES. ACCORDINGLY, SUCH CHARGES MAY PROPERLY BE REGARDED AS A REIMBURSABLE ITEM OF COST.

IT IS TO BE NOTED, HOWEVER, THAT ARTICLE 6 (A) OF THE CONTRACT CONTEMPLATES REIMBURSEMENT FOR ACTUAL EXPENDITURES, AND NOT ANTICIPATED OR ACCRUED LIABILITIES. THE CONTRACTOR IS THE GENERAL MOTORS CORPORATION--- NOT THE AVIATION ENGINE PLANT--- AND IT IS EVIDENT THAT THE CORPORATION MAKES NO EXPENDITURE FOR CHARGES HERE INVOLVED UNTIL ITS QUARTERLY REMITTANCES OF PREMIUMS ARE MADE, AS INDICATED ON THE INVOICE ATTACHED TO THIS VOUCHER. COMPARE B-15804, APRIL 22, 1941, 20 COMP. GEN. 664.

ACCORDINGLY, REIMBURSEMENT TO THE CONTRACTOR OF CHARGES FOR THE EMPLOYER'S CONTRIBUTIONS ON THIS AND SIMILAR VOUCHERS IS NOT AUTHORIZED UNTIL SUCH EXPENDITURES HAVE IN FACT BEEN MADE BY THE GENERAL MOTORS CORPORATION. HOWEVER, IT IS TO BE UNDERSTOOD THAT THE GOVERNMENT WILL RECEIVE THE BENEFIT OF ANY REFUNDS TO THE CONTRACTOR OF CONTRIBUTIONS FOR WHICH THE GOVERNMENT HAS REIMBURSED IT UNDER THIS CONTRACT IN THE EVENT OF DISCONTINUANCE OF THE PLAN AS SET FORTH IN PARAGRAPH 2 OF PAGE 2 OF THE ABOVE-QUOTED LETTER OF APRIL 24, 1941.