B-18923, JULY 22, 1941, 21 COMP. GEN. 54

B-18923: Jul 22, 1941

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THE NAVY APPROPRIATIONS FOR " REPLACEMENT OF NAVAL VESSELS" ARE NOT AVAILABLE FOR PAYMENT OF BONUSES. 1941: I HAVE YOUR LETTER OF JULY 19. I HAVE ALREADY APPOINTED A BOARD CONSISTING OF REAR ADMIRAL GEORGE H. EXISTING CONTRACTS FOR THE CONSTRUCTION OF NAVAL VESSELS WILL BE MODIFIED BY ADDITION OF THE FOLLOWING ARTICLE: "COMPETITIVE INCENTIVE AWARD. A BOARD OF AWARDS APPOINTED BY THE SECRETARY OF THE NAVY WILL DETERMINE THE COMPARATIVE EFFICIENCY OF THE CONTRACTOR'S PLANT FROM TIME TO TIME AND MAKE APPROPRIATE RECOMMENDATIONS OF AWARD TO THE SECRETARY OF THE NAVY. "/C) ON APPROVAL OF AN AWARD BY THE SECRETARY OF THE NAVY. THE DESIGNATED CONTRACTOR AND ITS EMPLOYEES WILL BE AUTHORIZED TO DISPLAY CERTAIN DISTINCTIVE INSIGNIA AND THE CONTRACTOR WILL RECEIVE A CASH BONUS DETERMINED BY THE SECRETARY OF THE NAVY.

B-18923, JULY 22, 1941, 21 COMP. GEN. 54

APPROPRIATIONS - REPLACEMENT OF NAVAL VESSELS - AVAILABILITY FOR BONUSES TO CONTRACTORS' EMPLOYEES THE AUTHORITY VESTED IN THE SECRETARY OF THE NAVY BY SECTION 9 OF THE ACT OF JUNE 28, 1940, TO MODIFY "EXISTING CONTRACTS," OR HIS GENERAL AUTHORITY TO MODIFY CONTRACTS IN THE INTEREST OF THE UNITED STATES, DOES NOT INCLUDE THE AUTHORITY TO MODIFY A CONTRACT BY INSERTING PROVISIONS WHICH WOULD NOT BE LEGAL AND PROPER AS ORIGINAL PROVISIONS IN A CONTRACT. THE NAVY APPROPRIATIONS FOR " REPLACEMENT OF NAVAL VESSELS" ARE NOT AVAILABLE FOR PAYMENT OF BONUSES, FOR MERITORIOUS SERVICES, TO CONTRACTORS' EMPLOYEES ENGAGED ON NAVY DEPARTMENT SHIPBUILDING CONTRACTS, WHETHER PAYMENT BE DIRECTLY TO THE EMPLOYEES OR INDIRECTLY, THROUGH THE CONTRACTORS, UNDER AN UNENFORCEABLE MODIFICATION OF THE CONTRACTS.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE NAVY, JULY 22, 1941:

I HAVE YOUR LETTER OF JULY 19, 1941, AS FOLLOWS:

AS A RESULT OF A COMPREHENSIVE STUDY MADE AT MY REQUEST BY A GROUP OF QUALIFIED NAVAL AND CIVILIAN EXPERTS,"A PLAN TO REWARD OUTSTANDING ACCOMPLISHMENT AND TO STIMULATE THE COMPETITIVE SPIRIT, AMONG SHIPYARDS AND SHIP-WORKERS ENGAGED IN BUILDING NAVAL VESSELS, IN THEIR EFFORT TO ADVANCE NATIONAL DEFENSE" HAS BEEN OUTLINED.

I HAVE ALREADY APPOINTED A BOARD CONSISTING OF REAR ADMIRAL GEORGE H. ROCK, U.S.N. RETIRED, REAR ADMIRAL HARRY E. YARNELL, U.S.N., AND MR. W. N. HARRISON, FOR THE PURPOSE OF ADMINISTERING THIS PLAN.

UNDER THE RIGHT EXPRESSLY RESERVED IN THE SECRETARY OF THE NAVY, AT ANY TIME AND WITHOUT NOTICE TO THE SURETIES, TO MAKE CHANGES IN SHIP CONTRACTS, AND IN PURSUANCE OF THE AUTHORITY VESTED IN HIM BY SECTION 9 OF PUBLIC NO. 671 (76TH CONGRESS--- 3D SESSION) OF JUNE 28, 1940, TO MODIFY EXISTING CONTRACTS AS HE MAY DEEM NECESSARY TO EXPEDITE NAVAL DEFENSE AND TO OTHERWISE EFFECTUATE THE PURPOSES OF THAT ACT, EXISTING CONTRACTS FOR THE CONSTRUCTION OF NAVAL VESSELS WILL BE MODIFIED BY ADDITION OF THE FOLLOWING ARTICLE:

"COMPETITIVE INCENTIVE AWARD.--- (A) THE CONTRACTOR MAY, BY SEPARATE LETTER OF ASSENT ADDRESSED TO THE SECRETARY OF THE NAVY, AGREE TO BE PLACED ON A COMPETITIVE BASIS WITH OTHER CONTRACTORS BUILDING NAVAL VESSELS, WITH A VIEW OF ITS EMPLOYEES BEING PAID AWARDS FOR THE MERITORIOUS EXPEDITING OF THE SHIPBUILDING PROGRAM OF THE NAVY DEPARTMENT.

"/B) IN THE EVENT THAT THE CONTRACTOR AGREES TO PARTICIPATE IN SUCH COMPETITION, A BOARD OF AWARDS APPOINTED BY THE SECRETARY OF THE NAVY WILL DETERMINE THE COMPARATIVE EFFICIENCY OF THE CONTRACTOR'S PLANT FROM TIME TO TIME AND MAKE APPROPRIATE RECOMMENDATIONS OF AWARD TO THE SECRETARY OF THE NAVY.

"/C) ON APPROVAL OF AN AWARD BY THE SECRETARY OF THE NAVY, THE DESIGNATED CONTRACTOR AND ITS EMPLOYEES WILL BE AUTHORIZED TO DISPLAY CERTAIN DISTINCTIVE INSIGNIA AND THE CONTRACTOR WILL RECEIVE A CASH BONUS DETERMINED BY THE SECRETARY OF THE NAVY, TO BE USED TO THE EXCLUSIVE BENEFIT OF THE EMPLOYEES, AS APPROVED BY THE SECRETARY OF THE NAVY.'

THE ADDITIONAL PAYMENT TO THE CONTRACTOR UNDER THE PROVISIONS OF THE ARTICLE QUOTED ABOVE WILL BE IN REIMBURSEMENT ONLY OF ACTUAL PAYMENTS MADE TO THE WORKMEN AND WITHOUT PROFIT TO THE CONTRACTOR.

YOUR VIEWS AS TO THE AVAILABILITY OF FUNDS UNDER THE APPROPRIATION " REPLACEMENT OF NAVAL VESSELS" FOR SUCH PURPOSE ARE REQUESTED PRIOR TO PUTTING THIS PLAN INTO EFFECT INSOFAR AS CONCERNS PRIVATE SHIPYARDS.

I DESIRE TO PUT THIS PLAN INTO IMMEDIATE EFFECT IN ORDER TO DERIVE THE MAXIMUM BENEFITS FROM THE PROGRAM, AND YOUR EARLY DECISION IN THIS MATTER WILL BE APPRECIATED.

THE AUTHORITY VESTED IN YOU BY SECTION 9 OF THE ACT OF JUNE 28, 1940, PUBLIC NO. 671, 54 STAT. 680, TO MODIFY EXISTING CONTRACTS APPEARS TO RELATE TO CONTRACTS IN EXISTENCE AT THE TIME OF THE APPROVAL OF SAID ACT WHEREAS IT IS UNDERSTOOD FROM YOUR LETTER THAT UNDER THE PROPOSED PLAN OTHER CONTRACTS ENTERED INTO SUBSEQUENT TO JUNE 28, 1940, MIGHT BE MODIFIED. BUT, HOWEVER THAT MAY BE, THE AUTHORITY TO MODIFY "EXISTING CONTRACTS" AS CONTAINED IN SAID SECTION 9, OR YOUR GENERAL AUTHORITY TO MODIFY CONTRACTS IN THE INTEREST OF THE UNITED STATES, IS NOT SUCH AS TO AUTHORIZE CONTRACT MODIFICATIONS BY THE INSERTION THEREIN OF PROVISIONS WHICH WOULD NOT BE LEGAL AND PROPER AS ORIGINAL PROVISIONS IN A CONTRACT. IN THIS CONNECTION SEE PREIS AND CO. V. UNITED STATES, 58 CT.CLS. 81, PARTICULARLY THE LAST PARAGRAPH THEREOF ON PAGE 86.

IN EFFECT WHAT IS PROPOSED HERE IS THAT THE GOVERNMENT PAY BONUSES TO EMPLOYEES OF PRIVATE CONCERNS HAVING SHIPBUILDING CONTRACTS WITH THE NAVY DEPARTMENT. I FIND NOTHING IN THE ACTS MAKING APPROPRIATIONS AVAILABLE TO YOU FOR " REPLACEMENT OF NAVAL VESSELS" WHICH EXPRESSLY OR BY NECESSARY IMPLICATION, AUTHORIZES THE AWARDING OF BONUSES TO SUCH EMPLOYEES FOR MERITORIOUS SERVICES. IT WOULD SEEM CLEAR THAT IF SUCH BONUSES CANNOT BE PAID TO PRIVATE EMPLOYEES DIRECTLY THEN THEY MAY NOT BE PAID INDIRECTLY, IN THE MANNER PROPOSED, UNDER THE GUIDE OF AN UNENFORCEABLE CONTRACT MODIFICATIONS.

INSOFAR AS THE PROPOSED PLAN CONTEMPLATES THE MODIFICATION OF CONTRACTS IT WOULD APPEAR THAT SUCH MODIFICATION WOULD BE OF NO LEGAL EFFECT BECAUSE LACKING IN ALL THE ESSENTIAL ELEMENTS OF A CONTRACT. NEITHER THE CONTRACTOR NOR THE GOVERNMENT WOULD BE BOUND AND NEITHER WOULD HAVE ANY ENFORCIBLE RIGHTS. UNDER THE PLAN THE BONUSES WHICH WOULD BE PAID WOULD APPEAR TO BE PAYABLE TO SUCH CONTRACTORS, AT SUCH INTERVALS AND IN SUCH AMOUNTS AS YOU MIGHT DESIRE, BUT THE MODIFIED CONTRACTS WOULD NOT BIND YOU TO PAY ANY CONTRACTOR ANY AMOUNT AT ANY TIME. CONSEQUENTLY ANY BONUSES PAID WOULD BE NOTHING MORE THAN GRATUITIES OR REWARDS, FOR THE PAYMENT OF WHICH THE APPROPRIATION IN QUESTION IS NOT AVAILABLE.

IF IT BE CONSIDERED NECESSARY AND IN THE INTERESTS OF NATIONAL DEFENSE TO ADOPT SUCH A PLAN AS THAT PROPOSED THEN THE MATTER WOULD APPEAR PROPERLY FOR THE CONSIDERATION OF THE CONGRESS IN ORDER THAT FUNDS BE MADE AVAILABLE THEREFOR. IN THE MEANTIME THIS OFFICE WOULD INTERPOSE NO OBJECTION TO PROCEEDING WITH THE PLAN, IF IT BE UNDERSTOOD BY ALL PARTIES INVOLVED THAT THE PAYING OF THE BONUSES AS CONTEMPLATED WILL BE CONTINGENT UPON OBTAINING SPECIFIC STATUTORY AUTHORITY THEREFOR.