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B-18159, DECEMBER 31, 1943, 23 COMP. GEN. 467

B-18159 Dec 31, 1943
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THAT NEITHER THE CONTRACTOR NOR SUBCONTRACTOR WAS REMISS IN THE PERFORMANCE OF ITS CONTRACTUAL OBLIGATIONS. 22 COMP. 1943: REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 30. - (A) * * * APPEARS TO HAVE BEEN BASED ON AN ASSUMPTION THAT THE LOSS RESULTED FROM THE FAILURE OF THE CONTRACTOR TO PERFORM ITS CONTRACTUAL DUTY. WHILE IT NOW APPEARS THAT THERE WAS NO FACTUAL BASIS FOR SUCH ASSUMPTION BUT THAT THE CONTRACTING OFFICER HAS AFFIRMATIVELY FOUND THAT NOTWITHSTANDING THE ABNORMAL CONDITIONS ATTENDING THE WORK IT WAS CARRIED ON BY THE CONTRACTOR "IN ACCORDANCE WITH THE BEST STANDARD PRACTICES. " AND (C) THERE IS NO ACTUAL BASIS FOR HOLDING THE PARTICULAR EMPLOYEES NEGLIGENT MERELY BECAUSE OF AN OVERPAYMENT UNDER ABNORMAL CONDITIONS OF $865.45 OUT OF A TOTAL PAYROLL OF OVER $12.

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B-18159, DECEMBER 31, 1943, 23 COMP. GEN. 467

CONTRACTS - COST-PLUS - ERRONEOUS PAYMENT BY COST-PLUS SUBCONTRACTOR OF UNEARNED WAGES UNDER A COST-PLUS-A-FIXED-FEE PRIME CONTRACT PROVIDING FOR REIMBURSEMENT TO THE CONTRACTOR OF THE ACTUAL COST OF THE WORK, INCLUDING "LOSSES AND EXPENSES, NOT COMPENSATED BY INSURANCE OR OTHERWISE," AND REQUIRING THE CONTRACTOR TO EMPLOY QUALIFIED AND EFFICIENT WORKERS IN CONFORMITY WITH THE BEST STANDARD PRACTICES, THE PRIME CONTRACTOR MAY BE REIMBURSED AMOUNTS PAID TO ITS SUBCONTRACTOR, UNDER A COST-PLUS SUBCONTRACT CONTAINING REIMBURSEMENT PROVISIONS SIMILAR TO THOSE OF THE PRIME CONTRACT, FOR WAGE OVERPAYMENTS RESULTING FROM ERRORS IN RECORDING TIME WORKED, WHERE THE CONTRACTING OFFICER DETERMINES THAT THE SUBCONTRACTOR'S TIMEKEEPING SYSTEM CONFORMS TO THE BEST STANDARD PRACTICE, AND THAT NEITHER THE CONTRACTOR NOR SUBCONTRACTOR WAS REMISS IN THE PERFORMANCE OF ITS CONTRACTUAL OBLIGATIONS. 22 COMP. GEN. 948, MODIFIED.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, DECEMBER 31, 1943:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 30, 1943, REQUESTING RECONSIDERATION OF DECISION DATED APRIL 8, 1943, B-18159, 22 COMP. GEN. 948, FOR THE STATED REASONS THAT SUCH DECISION---

(A) * * * APPEARS TO HAVE BEEN BASED ON AN ASSUMPTION THAT THE LOSS RESULTED FROM THE FAILURE OF THE CONTRACTOR TO PERFORM ITS CONTRACTUAL DUTY, WHILE IT NOW APPEARS THAT THERE WAS NO FACTUAL BASIS FOR SUCH ASSUMPTION BUT THAT THE CONTRACTING OFFICER HAS AFFIRMATIVELY FOUND THAT NOTWITHSTANDING THE ABNORMAL CONDITIONS ATTENDING THE WORK IT WAS CARRIED ON BY THE CONTRACTOR "IN ACCORDANCE WITH THE BEST STANDARD PRACTICES; " (B) THE CONTRACT SPECIFICALLY PROTECTS THE CONTRACTOR AGAINST LOSS UNLESS "CAUSED DIRECTLY BY BAD FAITH OR WILLFUL MISCONDUCT; " AND (C) THERE IS NO ACTUAL BASIS FOR HOLDING THE PARTICULAR EMPLOYEES NEGLIGENT MERELY BECAUSE OF AN OVERPAYMENT UNDER ABNORMAL CONDITIONS OF $865.45 OUT OF A TOTAL PAYROLL OF OVER $12,900,000.

IT MAY BE NOTED AT THE OUTSET THAT THE PAYMENT FOR WHICH REIMBURSEMENT NOW IS SOUGHT WAS MADE TO THE SUBCONTRACTOR BY THE PRIME CONTRACTOR WITH FULL KNOWLEDGE THAT IT REPRESENTED WAGE OVERPAYMENTS PREVIOUSLY MADE BY THE SUBCONTRACTOR TO ITS EMPLOYEES. IT IS OBVIOUS, OF COURSE, THAT A PRIME CONTRACTOR'S RIGHT TO REIMBURSEMENT FOR AN EXPENDITURE SIMILAR TO THAT HERE UNDER CONSIDERATION MUST BE DETERMINED IN THE LIGHT OF THE EXACT LIABILITY ESTABLISHED BETWEEN IT, THE GOVERNMENT, AND ITS SUBCONTRACTOR BY THE TERMS OF THE PARTICULAR CONTRACT AND SUBCONTRACT INVOLVED, AND THAT THE RESULT REACHED IN ANY SPECIFIED CASE MIGHT WELL BE DIFFERENT UNDER SLIGHTLY VARYING CONTRACTUAL PROVISIONS OR FACTUAL CIRCUMSTANCES.

THE SUBCONTRACT HERE INVOLVED WAS EXECUTED SEPTEMBER 4, 1940, BETWEEN HERCULES POWDER COMPANY, PRIME CONTRACTOR UNDER COST-PLUS-A FIXED-FEE CONTRACT NO. W-ORD-462, DATED AUGUST 16, 1940, AND MASON AND HANGER COMPANY, AS SUBCONTRACTOR, AND PROVIDES, IN PERTINENT PART, AS FOLLOWS:

ARTICLE II. IN THE PERFORMANCE OF THIS SUBCONTRACT, THE SUBCONTRACTOR BINDS HIMSELF TO THE CONTRACTOR AND TO THE GOVERNMENT TO COMPLY FULLY WITH ALL THE UNDERTAKINGS AND OBLIGATIONS OF THE CONTRACTOR, EXCEPTING SUCH AS DO NOT APPLY TO THE WORK TO BE PERFORMED BY THE SUBCONTRACTOR HEREUNDER, AS ARE SET FORTH IN THE PRINCIPAL CONTRACT, WHICH IS HEREBY ADOPTED AND MADE A PART OF THIS SUBCONTRACT, AND A COPY THEREOF IS HERETO ATTACHED, AND EXCEPTING ALSO SUCH UNDERTAKINGS AND OBLIGATIONS AS ARE CHANGED BY THE EXPRESS PROVISIONS OF THIS SUBCONTRACT.

ARTICLE III. IT BEING THE INTENT AND PURPOSE OF THE PARTIES HERETO, EXCEPT AS HEREIN OTHERWISE PROVIDED, TO PLACE THE CONTRACTOR IN THE SAME POSITION IN REGARD TO THIS SUBCONTRACT THAT THE GOVERNMENT OCCUPIES IN THE PRINCIPAL CONTRACT, AND TO PLACE THE SUBCONTRACTOR IN THE SAME POSITION IN REGARD TO THIS SUBCONTRACT THAT THE CONTRACTOR OCCUPIES IN SAID PRINCIPAL CONTRACT, IT IS EXPRESSLY STIPULATED AND AGREED THAT THE CONTRACTOR HAS AND RESERVES TO HIMSELF, AND THE SUBCONTRACTOR GRANTS TO SAID CONTRACTOR, THE SAME RIGHTS AND POWERS, IN EVERY DETAIL AND RESPECT THAT THE GOVERNMENT RESERVES TO ITSELF IN THE SAID PRINCIPAL CONTRACT; AND THE SUBCONTRACTOR ASSUMES ALL THE OBLIGATIONS PLACED UPON THE CONTRACTOR BY SAID PRINCIPAL CONTRACT IN SO FAR AS THE SAME APPLY TO THE WORK TO BE PERFORMED BY THE SUBCONTRACTOR HEREUNDER, AND ACCEPTS AND BINDS HIMSELF FAITHFULLY AND FULLY TO OBSERVE TOWARD THE CONTRACTOR AND THE GOVERNMENT EACH AND EVERY TERM AND PROVISION THEREOF, EXCEPT AS HEREIN EXPRESSLY MODIFIED, SO AS TO ENABLE THE CONTRACTOR TO FULFILL HIS EVERY OBLIGATION TO THE GOVERNMENT ACCORDING TO THE INTENT AND PROVISIONS OF SAID PRINCIPAL CONTRACT.

ARTICLE VI. THE SUBCONTRACTOR SHALL BE REIMBURSED BY THE CONTRACTOR IN THE MANNER DESCRIBED IN ARTICLE VI-B OF THE PRINCIPAL CONTRACT FOR SUCH COST OF THE WORK PERFORMED BY SUBCONTRACTOR, AS DESIGNATED IN ARTICLE I HEREOF, TO THE EXTENT THAT THE CONTRACTOR IS ENTITLED TO REIMBURSEMENT FOR THE SAME UNDER ARTICLE VI-A OF THE SAID PRINCIPAL CONTRACT WHEN SUCH WORK AND COST THEREOF HAVE BEEN APPROVED BY THE CONTRACTOR AND THE CONTRACTING OFFICER WHO EXECUTED THE PRINCIPAL CONTRACT, OR HIS DULY AUTHORIZED REPRESENTATIVE. * * *

ARTICLE X. ANYTHING CONTAINED IN THIS CONTRACT TO THE CONTRARY NOTWITHSTANDING, CONTRACTOR ASSUMES HEREUNDER NO LIABILITY TO SUBCONTRACTOR IN EXCESS OF THAT FOR WHICH CONTRACTOR WOULD BE ENTITLED TO REIMBURSEMENT UNDER THE SAID PRINCIPAL CONTRACT AS COST IN THE EVENT CONTRACTOR HAD PERFORMED THE WORK FOR GOVERNMENT WHICH SUBCONTRACTOR HAS AGREED TO PERFORM HEREUNDER; AND CONTRACTOR SHALL NOT BE OBLIGATED TO MAKE ANY PAYMENT WHATSOEVER TO SUBCONTRACTOR HEREUNDER, NO MATTER WHAT THE NATURE THEREOF MAY BE, UNLESS SUCH PAYMENTS ARE APPROVED BY THE CONTRACTING OFFICER FOR THE GOVERNMENT AS COST FOR WHICH CONTRACTOR IS ENTITLED TO REIMBURSEMENT FROM THE GOVERNMENT UNDER THE SAID PRINCIPAL CONTRACT * * *.

IT IS CLEAR FROM THE ABOVE-QUOTED PROVISIONS OF THE SUBCONTRACT, THAT THE LIABILITY OF THE PRIME CONTRACTOR TO THE SUBCONTRACTOR THEREUNDER FOR ANY PARTICULAR ITEM OF COST NOT OTHERWISE SPECIFICALLY PROVIDED FOR IS TO BE DETERMINED EXACTLY AS IF IT WERE A COST INCURRED BY THE PRIME CONTRACTOR FOR WHICH REIMBURSEMENT FROM THE GOVERNMENT WERE BEING SOUGHT UNDER THE PRIME CONTRACT. THE PROVISIONS OF THE PRIME CONTRACT RELEVANT TO THE QUESTION INVOLVED ARE AS FOLLOWS:

ARTICLE VI-A. REIMBURSEMENT FOR CONTRACTOR'S EXPENDITURES.

1. THE GOVERNMENT SHALL BEAR ALL COST AND EXPENSES OF EVERY CHARACTER AND DESCRIPTION INCURRED BY THE CONTRACTOR, WHEN APPROVED OR RATIFIED BY THE CONTRACTING OFFICER, IN CONNECTION WITH THE ACQUISITION OF SITE, DESIGN, CONSTRUCTION, EQUIPPING AND OPERATING OF SAID PLANT, OR ANY PART THEREOF (INCLUDING EQUIPMENT, ALTERATIONS, MAINTENANCE AND CLOSING DOWN), WHICH COSTS AND EXPENSES SHALL INCLUDE BUT SHALL NOT BE LIMITED TO THE FOLLOWING ITEMS, TO WIT:

(J) LOSSES AND EXPENSES, NOT COMPENSATED BY INSURANCE OR OTHERWISE (INCLUDING SETTLEMENTS OF CLAIMS MADE BETWEEN THE CONTRACTOR AND THIRD PARTIES, MADE WITH THE WRITTEN CONSENT OF THE CONTRACTING OFFICER), ACTUALLY SUSTAINED BY THE CONTRACTOR IN CONNECTION WITH THE WORK AND FOUND AND CERTIFIED BY THE CONTRACTING OFFICER TO BE JUST AND REASONABLE, OR DETERMINED BY DUE PROCESS OF LAW.

ARTICLE VIII-A. GENERAL.

2. * * * IT IS THE UNDERSTANDING OF THE PARTIES HERETO, AND THE INTENTION OF THIS CONTRACT, THAT ALL WORK UNDER THIS CONTRACT IS TO BE PERFORMED AT THE EXPENSE OF THE GOVERNMENT AND THAT THE GOVERNMENT SHALL HOLD THE CONTRACTOR HARMLESS AGAINST ANY LOSS, EXPENSE OR DAMAGE OF ANY KIND WHATSOEVER ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OF THE WORK.

3. THE WORK SHALL BE EXECUTED IN THE BEST AND MOST WORKMANLIKE MANNER BY QUALIFIED, CAREFUL AND EFFICIENT WORKERS, IN CONFORMITY WITH THE BEST STANDARD PRACTICES.

ARTICLE VIII-B. SPECIAL REQUIREMENTS.

1. THE CONTRACTOR HEREBY AGREES THAT HE WILL:

(G) AT ALL TIMES USE HIS BEST EFFORTS IN ALL ACTS HEREUNDER TO PROTECT AND SUBSERVE THE INTEREST OF THE GOVERNMENT.

IN YOUR LETTER YOU STATE THAT CONSIDERATION DOES NOT APPEAR TO HAVE BEEN GIVEN IN THE DECISION OF APRIL 8, 1943, SUPRA, TO THE PROVISIONS OF ARTICLE VIII-O-1 AND 1-/A) OF THE PRIME CONTRACT. IT IS APPARENT THAT THE RECIPROCAL RIGHTS AND OBLIGATIONS OF THE CONTRACTOR AND SUBCONTRACTOR MUST BE DETERMINED BY THE TERMS OF THE CONTRACT EXISTING BETWEEN THEM DURING THE PERIOD OF THE SUBCONTRACTUAL RELATIONSHIP. HOWEVER, SINCE IT APPEARS THAT THE PROVISIONS OF ARTICLE VIII-0-1 AND 1 /A) WERE FIRST MADE A PART OF THE PRIME CONTRACT BY SUPPLEMENT 5 THERETO, DATED FEBRUARY 25, 1942, IT IS NOT BELIEVED THAT THEY PROPERLY MAY BE CONSIDERED AS AFFECTING THE RIGHTS AND LIABILITIES OF THE PARTIES WITH RESPECT TO THE SUBCONTRACT HERE INVOLVED, ALL WORK THEREUNDER HAVING BEEN REPORTED AS COMPLETED BY OCTOBER 18, 1941.

IT MAY BE CONCEDED THAT UNDER THE PROVISIONS OF ARTICLE VI-A-1-/J) AND ARTICLE VIII-A-2 OF THE PRIME CONTRACT, QUOTED ABOVE, REIMBURSEMENT FOR LOSSES AND EXPENSES SIMILAR TO THOSE HERE INCURRED BY THE SUBCONTRACTOR IS WARRANTED IF SUCH LOSSES AND EXPENSES ACTUALLY BE SUSTAINED BY THE CONTRACTOR IN CONNECTION WITH THE WORK, AND ARE FOUND AND CERTIFIED BY THE CONTRACTING OFFICER TO BE JUST AND REASONABLE, PROVIDED, AS HELD IN THE DECISION OF APRIL 8, 1943, SUCH LOSSES ARE NOT PROXIMATELY ATTRIBUTABLE TO THE CONTRACTOR'S OWN FAILURE PROPERLY TO PERFORM THE DUTIES IMPOSED UPON IT BY OTHER PROVISIONS OF THE CONTRACT, SUCH AS ARTICLES VIII-A-3 AND VIII -B-1-/G) HERE INVOLVED.

IN SUPPORT OF YOUR CONTENTION THAT THERE EXISTS NO FACTUAL BASIS FOR AN ASSUMPTION THAT THE CONTRACTOR OR SUBCONTRACTOR IN THE PRESENT CASE WAS REMISS IN THE PERFORMANCE OF ITS CONTRACTUAL OBLIGATIONS, THERE WAS TRANSMITTED WITH YOUR LETTER A " FINDING OF FACTS" DATED SEPTEMBER 7, 1943, MADE BY THE CONTRACTING OFFICER'S REPRESENTATIVE, THE MORE PERTINENT PORTIONS OF WHICH MAY BE SUMMARIZED BRIEFLY AS FOLLOWS:

THE OVERPAYMENTS IN QUESTION RESULTED, FOR THE MOST PART, FROM ERRORS IN RECORDING TIME WORKED. THE WORK PERFORMED BY MASON AND HANGER COMPANY UNDER THE SUBCONTRACT WAS GENERAL CONSTRUCTION WORK CONSISTING OF MANY SEPARATE PROJECTS SPREAD OVER AN AREA OF SOME 2,000 ACRES, LARGELY UNENCLOSED. AS MANY AS 14,000 WORKMEN WERE EMPLOYED DURING THE PERIOD IN WHICH MOST OF THE ERRORS WERE MADE, THEIR TIME BEING KEPT BY MEANS OF NUMBERED BRASS CHECKS ISSUED TO AND COLLECTED FROM EACH EMPLOYEE BY TIME CHECKERS AT THE BEGINNING AND END OF EACH SHIFT, IN ADDITION TO WHICH TWO "FIELD CHECKS" WERE MADE BY TIME CHECKERS DURING EACH OF THE THREE SHIFTS WORKED DAILY, A SYSTEM OF TIMEKEEPING WHICH CONFORMS TO THE BEST STANDARD PRACTICE. THE WORK PERFORMED BY THE SUBCONTRACTOR BEGAN SEPTEMBER 9, 1940, AND TERMINATED OCTOBER 18, 1941, DURING WHICH TIME WAGES PAID BY THE COMPANY ON WEEKLY PAY ROLLS TOTALED OVER $12,000,000. UPON DISCOVERY OF THE ERRORS EFFORTS MADE BY THE SUBCONTRACTOR TO RECOVER THE OVERPAYMENTS MET WITH PARTIAL SUCCESS, LEAVING A BALANCE OF $865.45 UNRECOVERED.

ON THE BASIS OF THE FACTS AS FOUND BY HIM, THE CONTRACTING OFFICER'S REPRESENTATIVE CONCLUDED HIS FINDING, AS FOLLOWS:

26. BOTH THE HERCULES POWDER CO., PRIME CONTRACTOR, AND THE MASON AND HANGER CO., SUBCONTRACTOR, ARE RECOGNIZED CONTRACTORS BEARING A REPUTATION FOR INTEGRITY, RELIABILITY AND A HIGH DEGREE OF COMPETENCY AND EFFICIENCY. DURING THE PERIOD OF TIME WHEN THE SUBJECT LOSSES OCCURRED, BOTH THE PRIME CONTRACTOR AND THE SUBCONTRACTOR EMPLOYED CAREFUL, EFFICIENT AND COMPETENT SUPERVISORY PERSONNEL. EVERY EFFORT WAS EXERTED TO EMPLOY HONEST, COMPETENT AND EFFICIENT TECHNICAL FIELD AND CLERICAL PERSONNEL.

27. BOTH THE PRIME CONTRACTOR AND THE SUBCONTRACTOR PERFORMED THE WORK IN ACCORDANCE WITH THE BEST STANDARD PRACTICE, STRIVING AT ALL TIMES TO PROTECT AND SUBSERVE THE INTEREST OF THE GOVERNMENT.

28. THE SUBJECT LOSSES OCCURRED DURING THE HEIGHT OF CONSTRUCTION ACTIVITY ON A PROJECT OF HUGE PROPORTIONS, INVOLVING THE EMPLOYMENT OF MANY THOUSANDS OF EMPLOYEES SCATTERED IN VARIOUS GROUPS OVER AN UNENCLOSED AREA OF SEVERAL THOUSAND ACRES. THE NATIONAL DEFENSE NEEDS REQUIRED AN EARLY COMPLETION OF THE SUBJECT PROJECT. TIME WAS OF ABSOLUTE ESSENCE. THE CONTRACTOR IN HIS ENDEAVOR TO MEET THE UNUSUAL REQUIREMENTS WAS COMPELLED TO WORK UNDER VERY GREAT DIFFICULTIES AND HANDICAPS. IN SPITE OF THE GREAT STRESS AND STRAIN PRODUCED BY THE ABNORMAL CONDITIONS, THE EVIDENCE IS THAT THE CONTRACTOR CARRIED ON THE WORK IN ACCORDANCE WITH THE BEST STANDARD PRACTICES.

29. NEITHER THE CONTRACTOR NOR THE SUBCONTRACTOR WAS REMISS IN THE PERFORMANCE OF THEIR CONTRACTUAL OBLIGATIONS. ON ALL THE EVIDENCE I AM SATISFIED AND, THEREFORE, I FIND THAT THE HERCULES POWDER CO., AND THE MASON AND HANGER CO. WERE FREE OF FAULT FOR THE SUBJECT LOSSES.

ACCORDINGLY, IN VIEW OF THE FACTS NOW REPORTED IN THE MATTER, YOU ARE ADVISED THAT THE AMOUNT EXPENDED BY THE CONTRACTOR IN THIS CASE TO COVER THE LOSSES IN QUESTION MAY BE REGARDED AS A PROPER CHARGE AGAINST THE UNITED STATES UNDER THE CONTRACT INVOLVED.

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