B-18974, AUGUST 16, 1941, 21 COMP. GEN. 149

B-18974: Aug 16, 1941

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IF A CONTRACTOR IS NOT CHARGEABLE WITH ANY BREACH OF HIS CONTRACTUAL DUTIES AND OBLIGATIONS. THE CONTRACTOR WERE HIMSELF FREE FROM FAULT. THE RIGHT OF SUCH CONTRACTOR TO REIMBURSEMENT FROM THE GOVERNMENT FOR LOSS OR DAMAGE SO INCURRED WOULD BE GOVERNED BY THE SAME PRINCIPLES AS ARE APPLICABLE TO HIS RIGHT TO REIMBURSEMENT FOR LOSSES CAUSED BY THE NEGLIGENCE OF HIS OWN EMPLOYEES. IF THE CONTRACTOR WERE AT FAULT IN CONNECTION WITH LOSS OR DAMAGE TO PARTICULAR PROPERTY BUT THE GOVERNMENT THROUGH ITS EMPLOYEES WERE CHARGEABLE WITH CONTRIBUTORY NEGLIGENCE. THAT IS. 1941: I HAVE YOUR LETTER OF JULY 19. COPIES OF WHICH ARE ENCLOSED HEREWITH. VARIOUS CONTRACTORS OPERATING UNDER THE AFOREMENTIONED FORMS OF CONTRACT HAVE SUSTAINED LOSSES RESULTING FROM THE NEGLIGENCE OF ONE OR MORE OF THEIR OWN EMPLOYEES.

B-18974, AUGUST 16, 1941, 21 COMP. GEN. 149

CONTRACTS - COST-PLUS - LOSS OR DAMAGE DUE TO NEGLIGENCE OF EMPLOYEES THE GOVERNMENT'S OBLIGATION TO REIMBURSE A COST-PLUS-A-FIXED-FEE CONTRACTOR FOR LOSS OR DAMAGE CAUSED BY THE NEGLIGENCE OF THE EMPLOYEES OF THE CONTRACTOR MUST NECESSARILY BE GOVERNED BY THE TERMS OF THE PARTICULAR CONTRACT INVOLVED AS APPLIED TO A GIVEN SITUATION, BUT IT MAY BE STATED BROADLY THAT, UNDER THE TERMS OF CONTRACT FORMS " C.P.F.F. FORM NO. 1" AND " F.F. FORM NO. 1-REV., , IF A CONTRACTOR IS NOT CHARGEABLE WITH ANY BREACH OF HIS CONTRACTUAL DUTIES AND OBLIGATIONS, INCLUDING THE DUTY TO EXERCISE DUE DILIGENCE TO EMPLOY AND RETAIN COMPETENT, TRUSTWORTHY AND CAREFUL PERSONNEL, HE MAY BE REIMBURSED FOR SUCH LOSS OR DAMAGE AS AN ELEMENT OF HIS ACTUAL COSTS, IF NOT OTHERWISE EXCLUDED BY THE CONTRACT. IF BY THE TERMS OF THE SUBCONTRACT, A COST-PLUS-A-FIXED-FEE CONTRACTOR COULD NOT OBTAIN COMPENSATION FROM A SUBCONTRACTOR FOR LOSS OR DAMAGE CAUSED BY THE NEGLIGENCE OF THE EMPLOYEES OF THE SUBCONTRACTOR, AND THE CONTRACTOR WERE HIMSELF FREE FROM FAULT, THE RIGHT OF SUCH CONTRACTOR TO REIMBURSEMENT FROM THE GOVERNMENT FOR LOSS OR DAMAGE SO INCURRED WOULD BE GOVERNED BY THE SAME PRINCIPLES AS ARE APPLICABLE TO HIS RIGHT TO REIMBURSEMENT FOR LOSSES CAUSED BY THE NEGLIGENCE OF HIS OWN EMPLOYEES. UNDER A COST-PLUS-A-FIXED-FEE FORM OF CONTRACT, IF THE CONTRACTOR WERE AT FAULT IN CONNECTION WITH LOSS OR DAMAGE TO PARTICULAR PROPERTY BUT THE GOVERNMENT THROUGH ITS EMPLOYEES WERE CHARGEABLE WITH CONTRIBUTORY NEGLIGENCE, THE PARTIES SHOULD BE LEFT IN STATUS QUO, THAT IS, THE OWNER OF THE PROPERTY, WHETHER GOVERNMENT OR CONTRACTOR, SHOULD SUFFER THE LOSS.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, AUGUST 16, 1941:

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

UNDER AUTHORITY OF PUBLIC ACT 703, 76TH CONGRESS, APPROVED JULY 2, 1940, THE WAR DEPARTMENT HAS ENTERED INTO NUMEROUS COST-PLUS-A-FIXED FEE CONTRACTS ON C.P.F.F. FORM NO. 1, APPROVED BY THE ASSISTANT SECRETARY OF WAR JULY 12, 1940, AND F.F. FORM NO. 1-REV. JUNE 19, 1941, APPROVED BY THE UNDER SECRETARY OF WAR JUNE 19, 1941, COPIES OF WHICH ARE ENCLOSED HEREWITH.

DURING THE ADMINISTRATION OF THE CONSTRUCTION PROJECTS, VARIOUS CONTRACTORS OPERATING UNDER THE AFOREMENTIONED FORMS OF CONTRACT HAVE SUSTAINED LOSSES RESULTING FROM THE NEGLIGENCE OF ONE OR MORE OF THEIR OWN EMPLOYEES. TOOLS HAVE BEEN LOST; BUILDINGS HAVE BEEN DESTROYED BY FIRE; PAYROLL FUNDS HAVE BEEN MISCARRIED; SUBCONTRACTORS' EQUIPMENT HAS BEEN DAMAGED, AND SO ON. THE LIABILITY OF THE GOVERNMENT TO REIMBURSE THE CONTRACTOR FOR SUCH LOSSES HAS NOT BEEN DEFINITELY SETTLED. THE NEED FOR AN EARLY DETERMINATION IS APPARENT. ACCORDINGLY, YOU ARE REQUESTED TO RENDER AN ADVANCE OPINION ON THE QUESTION:

UNDER C.P.F.F. FORM NO. 1 AND F.F. FORM NO. 1-REV., IS THE GOVERNMENT OBLIGATED TO REIMBURSE THE CONTRACTOR FOR LOSSES CAUSED BY THE NEGLIGENCE OF THE CONTRACTOR'S OR SUBCONTRACTOR'S EMPLOYEES?

IF THE DEGREE OF NEGLIGENCE OR THE CONTRIBUTORY NEGLECT OF A GOVERNMENT EMPLOYEE WILL AFFECT THE LIABILITY OF THE GOVERNMENT, WILL YOU DISCUSS THESE FACTORS IN YOUR DECISION?

AS FAR AS THIS OFFICE KNOWS, THE PROBLEM IS ONE OF FIRST IMPRESSION. IS TRUE THAT YOUR OFFICE IN ITS DECISION OF APRIL 14, 1941, B-15593, DISCUSSED THE MATTER GENERALLY. HOWEVER, IN THE SPECIFIC CASE BEFORE YOU THE LOSS RESULTED FROM THE NEGLIGENCE OF A GOVERNMENT EMPLOYEE. THEREFORE, IT APPEARS THAT THE LANGUAGE OF YOUR DECISION, ALTHOUGH PERSUASIVE, IS NOT DIRECTED TO AND DOES NOT DISPOSE OF THE PARTICULAR QUESTION HEREIN POSED.

ALTHOUGH IT IS EVIDENT FROM SAID DECISION OF APRIL 14, 1941, THAT YOUR OFFICE IS FAMILIAR WITH THE BACKGROUND OF COST-PLUS-A-FIXED-FEE CONTRACTS, IT MAY BE THAT OTHER INFORMATION RELATING TO THE EMERGENCY CHARACTER OF THE WORK, THE PRACTICAL DIFFICULTIES AND HAZARDS FACING THE CONTRACTOR, OR THE FORMULA EMPLOYED TO FIX THE FEE WILL BE OF ASSISTANCE. IF SO, THIS OFFICE, UPON REQUEST, WILL PROMPTLY FURNISH THESE AND ALL OTHER ESSENTIAL DETAILS.

THE GENERAL CHARACTER OF THE QUESTION SUBMITTED, WITHOUT A STATEMENT OF THE MATERIAL FACTS IN PARTICULAR CASES, PERMITS A REPLY IN GENERAL TERMS ONLY. YOU ASK WHETHER UNDER CERTAIN FORMS OF COST-PLUS-A-FIXED FEE CONTRACTS THE GOVERNMENT IS OBLIGATED TO REIMBURSE THE CONTRACTOR FOR LOSSES CAUSED BY THE NEGLIGENCE OF THE EMPLOYEES OF A CONTRACTOR OR OF A SUBCONTRACTOR. THE SHORT ANSWER IS THAT IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE PARTICULAR CASE IN RELATION TO THE RESPECTIVE RIGHTS AND OBLIGATIONS OF THE GOVERNMENT AND THE CONTRACTOR EXPRESSED OR CONTEMPLATED BY THE CONTRACT.

IN THE DECISION OF APRIL 14, 1941, 20 COMP. GEN. 632, MENTIONED IN YOUR LETTER, THE MATTER WAS DISCUSSED IN RELATION TO A LOSS ARISING FROM THE DESTRUCTION OF CERTAIN OF THE CONTRACTOR'S HEAVY CONSTRUCTION EQUIPMENT IN A RAIL COLLISION AT RARITAN ARSENAL CAUSED BY THE NEGLIGENCE OF THE CONDUCTOR OF THE ARSENAL SWITCHING CREW, A GOVERNMENT EMPLOYEE. AFTER QUOTING VARIOUS PROVISIONS OF THE CONTRACT ( C.P.F.F. FORM NO. 1) MATERIAL TO THE QUESTION, IT WAS SAID:

READING THESE PROVISIONS TOGETHER SHOWS THAT THE CONTRACT BASICALLY CONTEMPLATES THAT THE ACTUAL COST OF THE WHOLE WORK AND THE RISK THEREOF ARE TO BE ASSUMED BY THE GOVERNMENT; THAT IS, THAT THE CONTRACTOR IS TO COME OUT WHOLE, REGARDLESS OF CONTINGENCIES, IN PERFORMING THE WORK IN ACCORDANCE WITH THE CONTRACT AND THE DIRECTIONS AND INSTRUCTIONS OF THE CONTRACTING OFFICER, PLUS ONLY A LIMITED FIXED FEE AS COMPENSATION FOR SERVICES, GENERAL OVERHEAD, USE OF THE CONTRACTOR'S OWN OR BORROWED MONEY, AND PROFIT. IN ADDITION TO THE PROVISIONS EXPRESSLY STATING WHAT THE FIXED FEE IS TO COVER, THE COMPARATIVELY SMALL AMOUNT OF SUCH FIXED FEE IN THIS CONTRACT, $20,000 OR LESS THAN 5 PERCENT, IN RELATION TO THE ESTIMATED COST OF THE WORK, $467,000, SHOWS THAT THERE IS NO MARGIN INCLUDED IN SUCH FEE TO COMPENSATE THE CONTRACTOR FOR THE RISKS AND CONTINGENCIES OF WORK OF SUCH CHARACTER AND MAGNITUDE WHICH ORDINARILY ARE ASSUMED BY A CONTRACTOR AND COVERED BY THE CONTRACT PRICE. THE PROVISION IN ARTICLE II 1 (J) THAT THE GOVERNMENT WILL REIMBURSE THE CONTRACTOR FOR PREMIUMS ON BONDS AND INSURANCE POLICIES WHICH THE CONTRACTING OFFICER MAY REQUIRE FOR THE PROTECTION OF THE GOVERNMENT OR MAY APPROVE AS REASONABLY NECESSARY FOR THE PROTECTION OF THE CONTRACTOR, INDIRECTLY IMPOSES THE COST OF SUCH RISKS ON THE GOVERNMENT, AND FURTHER DEMONSTRATES THAT THE GOVERNMENT AND NOT THE CONTRACTOR IS TO BEAR THE RISKS INVOLVED IN THE PERFORMANCE OF THE CONTRACT. THE EXPRESS INCLUSION IN SUCH PROVISION OF PUBLIC LIABILITY, EMPLOYER'S LIABILITY, AND FIDELITY INSURANCE SHOWS THAT THE GOVERNMENT IS THUS INDIRECTLY TO ASSUME EVEN THE RISK OF INSURABLE LOSSES RESULTING FROM THE NEGLIGENCE OR DEFALCATIONS OF THE CONTRACTOR'S EMPLOYEES. TO MAKE CERTAIN THAT THE CONTRACTOR DOES COME OUT WHOLE, REGARDLESS OF CONTINGENCIES, THE CONTRACT EXPRESSLY PROVIDES IN SUBPARAGRAPHS 1 (K) AND (P) OF ARTICLE II THAT THE CONTRACTOR SHALL BE REIMBURSED--- IN ADDITION TO THE NUMEROUS ITEMS SPECIFIED IN DETAIL IN OTHER SUBPARAGRAPHS--- FOR " LOSSES AND EXPENSES, NOT COMPENSATED BY INSURANCE OR OTHERWISE * * * ACTUALLY SUSTAINED BY THE CONTRACTOR IN CONNECTION WITH THE WORK," AND FOR " SUCH OTHER ITEMS AS SHOULD, IN THE OPINION OF THE CONTRACTING OFFICER, BE INCLUDED IN THE COST OF THE WORK.' THE PURPOSE, OF COURSE, IS BY THUS ASSUMING THE RISKS AND, IN EFFECT, GUARANTEEING THE CONTRACTOR AGAINST LOSS, TO PROCURE THE WORK FOR THE UNITED STATES AT ACTUAL COST, PLUS ONLY SUCH A COMPARATIVELY SMALL FIXED FEE FOR THE CONTRACTOR'S SERVICES, ETC., AS WOULD BE APPROPRIATE UNDER SUCH CONDITIONS. SUCH PROVISIONS ARE THUS OF THE ESSENCE OF "COST-PLUS-A FIXED-FEE" CONTRACTS, THE USE OF WHICH IS EXPRESSLY SANCTIONED BY THE ACT OF JULY 2, 1940, SUPRA, AND SO ARE NOT CONTRARY TO THE PRINCIPLES OF THE DECISION, 18 COMP. GEN. 285, CITED IN YOUR LETTER, THAT CONTRACT STIPULATIONS WHICH MAY INCREASE THE COST OF PERFORMANCE ARE UNAUTHORIZED UNLESS REASONABLY REQUISITE TO THE ACCOMPLISHMENT OF THE LEGISLATIVE PURPOSES OF THE CONTRACT APPROPRIATION INVOLVED, OR UNLESS SUCH STIPULATIONS ARE AUTHORIZED BY STATUTE.

THE GENERAL STATEMENT THAT SUCH CONTRACTS BASICALLY CONTEMPLATE THAT THE ACTUAL COST OF THE WHOLE WORK AND THE RISK THEREOF ARE TO BE ASSUMED BY THE GOVERNMENT AND THAT THE CONTRACTOR IS TO COME OUT WHOLE REGARDLESS OF CONTINGENCIES, PLUS ONLY A LIMITED FIXED FEE AS COMPENSATION FOR HIS SERVICES, GENERAL OVERHEAD, ETC., DOES NOT MEAN THAT THE GOVERNMENT IS TO ASSUME THE RISK OF THE CONTRACTOR'S OWN FAULT OR FOLLY, OR THAT THE CONTRACTOR IS TO COME OUT WHOLE REGARDLESS OF CARELESS CONDUCT OF THE WORK OR OTHER DISREGARD OF HIS CONTRACTUAL DUTIES. WHILE SUCH CONTRACTS IN EFFECT GUARANTEE THE CONTRACTOR A LIMITED FIXED FEE FOR HIS SERVICES IN ADDITION TO REIMBURSEMENT OF THE ACTUAL COST OF THE WORK, THE FEE IS PAID TO OBTAIN THE COMPETENT AND FAITHFUL SERVICES OF THE CONTRACTOR; AND THE PROVISIONS FOR REIMBURSEMENT OF ACTUAL COSTS ARE NOT TO BE TAKEN AS A SHIELD FOR INCOMPETENCE OR AN EXCUSE FOR CARELESSNESS. NOR IS IT TO BE INFERRED FROM SUCH BASIC CONCEPT OF THIS TYPE OF CONTRACT THAT THE GOVERNMENT IS TO ASSUME ANY RISKS OR BEAR ANY LOSSES WHICH THE CONTRACTOR HAS EXPRESSLY OR IMPLIEDLY AGREED TO ASSUME OR BEAR UNDER PARTICULAR PROVISIONS OF THE CONTRACT. THUS IT WAS POINTED OUT IN THE DECISION OF APRIL 14, 1941, SUPRA, THAT THE CONTRACTOR WOULD NOT BE ENTITLED TO REIMBURSEMENT FOR THE LOSS OR DAMAGE OF EQUIPMENT NOT CAUSED BY THE NEGLIGENCE OF THE GOVERNMENT WHERE THE CONTRACTOR WAS BEING PAID ON A RENTAL BASIS FOR THE USE OF SUCH EQUIPMENT AT RATES "IN CONFORMITY WITH SIMILAR RATES OF RENTAL CHARGED IN THE PARTICULAR TERRITORY," FOR THE REASON THAT SUCH RATES NORMALLY INCLUDE A MARGIN TO COMPENSATE THE OWNER FOR THE RISK OF LOSS AND DAMAGE EXCEPT THAT RESULTING FROM THE NEGLIGENCE OF THE BAILEE.

VARIOUS PROVISIONS IN C.P.F.F. FORM NO. 1 BEARING ON THE PROBLEM ARE SET FORTH BELOW. IDENTICAL OR SUBSTANTIALLY SIMILAR PROVISIONS ARE CONTAINED IN F.F. FORM NO. 1.

ARTICLE I--- STATEMENT OF WORK.

1. THE CONTRACTOR SHALL, IN THE SHORTEST POSSIBLE TIME, FURNISH THE LABOR, MATERIALS, TOOLS, MACHINERY, EQUIPMENT, FACILITIES, SUPPLIES NOT FURNISHED BY THE GOVERNMENT, AND SERVICES, AND DO ALL THINGS NECESSARY FOR THE COMPLETION OF THE FOLLOWING WORK: IN ACCORDANCE WITH THE DRAWINGS AND SPECIFICATIONS OR INSTRUCTIONS CONTAINED IN APPENDIX "A" HERETO ATTACHED AND MADE A PART HEREOF, OR TO BE FURNISHED HEREAFTER BY THE CONTRACTING OFFICER AND SUBJECT IN EVERY DETAIL TO HIS SUPERVISION, DIRECTION, AND INSTRUCTIONS.

IN CONSIDERATION FOR HIS UNDERTAKING UNDER THIS CONTRACT THE CONTRACTOR SHALL RECEIVE THE FOLLOWING:

(A) REIMBURSEMENT FOR EXPENDITURES AS PROVIDED IN ARTICLE II.

(B) RENTAL FOR CONTRACTOR'S EQUIPMENT AS PROVIDED IN ARTICLE II.

(C) A FIXED FEE IN THE AMOUNT OF ........ DOLLARS (?......) WHICH SHALL CONSTITUTE COMPLETE COMPENSATION FOR THE CONTRACTOR'S SERVICES, INCLUDING PROFIT AND ALL GENERAL OVERHEAD EXPENSES.

3. THE TITLE TO ALL WORK, COMPLETED OR IN THE COURSE OF CONSTRUCTION, SHALL BE IN THE GOVERNMENT. LIKEWISE, UPON DELIVERY AT THE SITE OF THE WORK OR AT AN APPROVED STORAGE SITE AND UPON INSPECTION AND ACCEPTANCE IN WRITING BY THE CONTRACTING OFFICER, TITLE TO ALL MATERIALS, TOOLS, MACHINERY, EQUIPMENT, AND SUPPLIES, FOR WHICH THE CONTRACTOR SHALL BE ENTITLED TO BE REIMBURSED UNDER ARTICLE II, SHALL VEST IN THE GOVERNMENT. THESE PROVISIONS AS TO TITLE BEING VESTED IN THE GOVERNMENT SHALL NOT OPERATE TO RELIEVE THE CONTRACTOR FROM ANY DUTIES IMPOSED UNDER THE TERMS OF THIS CONTRACT.

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

ARTICLE II--- COST OF THE WORK.

REIMBURSEMENT FOR CONTRACTOR'S EXPENDITURES.

1. THE CONTRACTOR SHALL BE REIMBURSED IN THE MANNER HEREINAFTER DESCRIBED FOR SUCH OF HIS ACTUAL EXPENDITURES IN THE PERFORMANCE OF THE WORK AS MAY BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER AND AS ARE INCLUDED IN THE FOLLOWING ITEMS:

(A) ALL LABOR, MATERIAL, TOOLS, MACHINERY, EQUIPMENT, SUPPLIES, SERVICES, POWER, AND FUEL NECESSARY FOR EITHER TEMPORARY OR PERMANENT USE FOR THE BENEFIT OF THE WORK. ALL ARTICLES OF MACHINERY OR EQUIPMENT VALUED AT $300 OR LESS SHALL BE CLASSED AS TOOLS AND SHALL BE CHARGED DIRECTLY TO THE WORK. TITLE THERETO SHALL THEREUPON PASS TO THE GOVERNMENT.

(D) LOADING AND UNLOADING AT THE SITE OF THE WORK OF CONSTRUCTION PLANT, OWNED OR RENTED BY THE CONTRACTOR; * * * THE INSTALLATION AND DISMANTLING THEREOF, AND SUCH REPAIRS AND SPARE PARTS AS ARE NOT INCLUDED IN THE RENTAL; PROVIDED SUCH REPAIRS OR SPARE PARTS ARE NOT MADE NECESSARY BY DEFECTS IN SUCH PLANT, OR PARTS THEREOF, OR BY THE FAULT OR NEGLIGENCE OF THE CONTRACTOR OR HIS EMPLOYEES; * * *

(G) "SALARIES OF RESIDENT ENGINEERS, SUPERINTENDENTS, TIMEKEEPERS, FOREMEN, AND OTHER FIELD EMPLOYEES OF THE CONTRACTOR IN CONNECTION WITH THE WORK. * * * NO PERSON SHALL BE ASSIGNED TO SERVICE BY THE CONTRACTOR AS SUPERINTENDENT OF CONSTRUCTION, CHIEF ENGINEER, CHIEF PURCHASING AGENT, CHIEF ACCOUNTANT, OR SIMILAR POSITION IN THE CONTRACTOR'S FIELD ORGANIZATION, OR AS PRINCIPAL ASSISTANT TO ANY SUCH PERSON, UNTIL THERE HAS BEEN SUBMITTED TO AND APPROVED BY THE CONTRACTING OFFICER A STATEMENT OF THE QUALIFICATIONS AND EXPERIENCE OF THE PERSON PROPOSED FOR SUCH ASSIGNMENT.' * * *

(I) BUILDINGS AND EQUIPMENT REQUIRED FOR NECESSARY FIELD OFFICES, COMMISSARY, HOSPITAL, AND OTHER FACILITIES * * *.

(J) PREMIUMS ON SUCH BONDS AND INSURANCE POLICIES AS THE CONTRACTING OFFICER MAY REQUIRE FOR THE PROTECTION OF THE GOVERNMENT; THE COST OF ALL PUBLIC LIABILITY, EMPLOYER'S LIABILITY, WORKMEN'S COMPENSATION, FIDELITY, FIRE, THEFT, BURGLARY, AND OTHER INSURANCE THAT THE CONTRACTING OFFICER MAY APPROVE AS REASONABLY NECESSARY FOR THE PROTECTION OF THE CONTRACTOR.

(K) LOSSES AND EXPENSES, NOT COMPENSATED BY INSURANCE OR OTHERWISE (INCLUDING SETTLEMENTS 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. (L) THE COST OF RECONSTRUCTING AND REPLACING ANY OF THE WORK DESTROYED OR DAMAGED, AND NOT COVERED BY INSURANCE, BUT EXPENDITURES UNDER THIS ITEM MUST HAVE THE WRITTEN AUTHORIZATION OF THE CONTRACTING OFFICER IN ADVANCE.

(P) SUCH OTHER ITEMS AS SHOULD, IN THE OPINION OF THE CONTRACTING OFFICER, BE INCLUDED IN THE COST OF THE WORK. WHEN SUCH AN ITEM IS ALLOWED BY THE CONTRACTING OFFICER, IT SHALL BE SPECIFICALLY CERTIFIED AS BEING ALLOWED UNDER THIS PARAGRAPH.

GENERAL.

7. NO SALARIES OF THE CONTRACTOR'S EXECUTIVE OFFICERS, NO PART OF THE EXPENSE INCURRED IN CONDUCTING THE CONTRACTOR'S MAIN OFFICE OR REGULARLY ESTABLISHED BRANCH OFFICES, AND NO OVERHEAD EXPENSES OF ANY KIND, EXCEPT AS SPECIFICALLY AUTHORIZED IN SECTION 1 OF THIS ARTICLE, SHALL BE INCLUDED IN THE COST OF THE WORK; NOR SHALL ANY INTEREST ON CAPITAL EMPLOYED OR ON BORROWED MONEY BE INCLUDED IN THE COST OF THE WORK.

8. * * * IN DETERMINING THE ACTUAL NET COST OF ARTICLES AND MATERIALS OF EVERY KIND REQUIRED FOR THE PURPOSE OF THIS CONTRACT, THERE SHALL BE DEDUCTED FROM THE GROSS COST THEREOF ALL CASH AND TRADE DISCOUNTS, REBATES, ALLOWANCES, CREDITS, SALVAGE, COMMISSIONS, AND BONDIFICATIONS WHICH HAVE ACCRUED TO THE BENEFIT OF THE CONTRACTOR OR WOULD HAVE SO ACCRUED EXCEPT FOR THE FAULT OR NEGLECT OF THE CONTRACTOR. * * *

ARTICLE V--- SPECIAL REQUIREMENTS.

1. THE CONTRACTOR HEREBY AGREES THAT HE WILL:

(A) PROCURE AND THEREAFTER MAINTAIN SUCH BONDS AND INSURANCE IN SUCH FORMS AND IN SUCH AMOUNTS AND FOR SUCH PERIODS OF TIME AS THE CONTRACTING OFFICER MAY APPROVE OR REQUIRE. * * *

(F) THE CONTRACTING OFFICER MAY REQUIRE THE CONTRACTOR TO DISMISS FROM THE WORK SUCH EMPLOYEE AS THE CONTRACTING OFFICER DEEMS INCOMPETENT, CARELESS, INSUBORDINATE, OR OTHERWISE OBJECTIONABLE.

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

WHILE NO GENERALLY APPLICABLE RULE AS TO THE GOVERNMENT'S OBLIGATION TO REIMBURSE THE CONTRACTOR FOR LOSSES CAUSED BY THE NEGLIGENCE OF THE EMPLOYEES OF THE CONTRACTOR OR OF A SUBCONTRACTOR CAN BE DRAWN FROM THESE QUOTED PROVISIONS, CERTAIN LIMITATIONS ARE EVIDENT.

ARTICLE II 1 (D) EXPRESSLY PROVIDES THAT THE CONTRACTOR WILL BE REIMBURSED FOR EXPENDITURES FOR SUCH REPAIRS AND SPARE PARTS OF CONSTRUCTION PLANT, OWNED OR RENTED BY THE CONTRACTOR, AS ARE NOT INCLUDED IN THE RENTAL, PROVIDED SUCH REPAIRS OR SPARE PARTS ARE NOT MADE NECESSARY BY DEFECTS IN SUCH PLANT, OR PARTS THEREOF,"OR BY THE FAULT OR NEGLIGENCE OF THE CONTRACTOR OR HIS EMPLOYEES.' CLEARLY, UNDER THIS PROVISION, THE CONTRACTOR ASSUMES THE RISK OF DAMAGE TO HIS OWN OR RENTED CONSTRUCTION PLANT CAUSED BY THE FAULT OR NEGLIGENCE OF HIS OWN EMPLOYEES AND, CONSEQUENTLY, MAY NOT BE REIMBURSED FOR THE EXPENSE OF REPAIRING SUCH DAMAGE. THAT THE CONTRACTOR IS NOT NECESSARILY TO COME OUT WHOLE REGARDLESS OF NEGLIGENCE IS FURTHER SHOWN BY THE PROVISIONS OF ARTICLE II 8 WHICH, IN EFFECT, CHARGE THE CONTRACTOR WITH ALL DISCOUNTS, REBATES, ALLOWANCES, ETC., ACCRUING TO THE CONTRACTOR OR WHICH "WOULD HAVE SO ACCRUED EXCEPT FOR THE FAULT OR NEGLECT OF THE CONTRACTOR.'

ARTICLE II 1 (J) PROVIDES THAT THE CONTRACTOR WILL BE REIMBURSED FOR PREMIUMS ON SUCH BONDS AND INSURANCE POLICIES AS THE CONTRACTING OFFICER MAY REQUIRE FOR THE PROTECTION OF THE GOVERNMENT OR MAY APPROVE AS REASONABLY NECESSARY FOR THE PROTECTION OF THE CONTRACTOR; AND THE CONTRACTOR EXPRESSLY AGREES IN ARTICLE V 1 (A) THAT HE WILL PROCURE AND MAINTAIN SUCH BONDS AND INSURANCE AS THE CONTRACTING OFFICER MAY APPROVE OR REQUIRE. SHOULD THE CONTRACTOR BE REMISS IN FULFILLING HIS OBLIGATION TO PROCURE AND MAINTAIN BONDS AND INSURANCE REQUIRED OR APPROVED BY THE CONTRACTING OFFICER, HE WOULD NOT BE ENTITLED TO REIMBURSEMENT FOR LOSSES WHICH COULD HAVE BEEN COVERED THEREBY.

AS WAS POINTED OUT IN THE DECISION OF APRIL 14, 1941, THE EXPRESS INCLUSION IN SUCH PROVISION RESPECTING INSURANCE OF PUBLIC LIABILITY, EMPLOYER'S LIABILITY, AND FIDELITY INSURANCE "SHOWS THAT THE GOVERNMENT IS THUS INDIRECTLY TO ASSUME EVEN THE RISK OF INSURABLE LOSSES RESULTING FROM THE NEGLIGENCE OR DEFALCATIONS OF THE CONTRACTOR'S EMPLOYEES.' THE BROADER QUESTION HERE IS WHETHER THIS IS THE LIMIT OF THE GOVERNMENT'S OBLIGATION IN SUCH RESPECTS, OR WHETHER THE CONTRACT CONTEMPLATES THAT LOSSES OF SUCH CHARACTER NOT COVERED BY INSURANCE MAY, ALSO, BE REIMBURSED, AND, IF SO, TO WHAT EXTENT AND UNDER WHAT CONDITIONS. THAT THE INSURANCE PROVISION IS NOT EXPECTED NECESSARILY TO COVER ALL POSSIBLE LOSSES AND DAMAGES WHICH MAY OCCUR IS SHOWN BY THE PROVISIONS OF SUBPARAGRAPHS 1 (K) AND (L) OF ARTICLE II THAT THE CONTRACTOR WILL BE REIMBURSED FOR " LOSSES AND EXPENSES, NOT COMPENSATED BY INSURANCE OR OTHERWISE," ACTUALLY SUSTAINED BY THE CONTRACTOR IN CONNECTION WITH THE WORK AND FOUND AND CERTIFIED BY THE CONTRACTING OFFICER TO BE JUST AND REASONABLE, AND FOR "THE COST OF RECONSTRUCTING AND REPLACING ANY OF THE WORK DESTROYED OR DAMAGED, AND NOT COVERED BY INSURANCE," WHERE EXPENDITURES ARE AUTHORIZED IN ADVANCE BY THE CONTRACTING OFFICER. THESE PROVISIONS ARE GENERAL AND DO NOT EXPRESSLY EXCLUDE LOSSES OR DAMAGES CAUSED BY THE NEGLIGENCE OF THE CONTRACTOR'S EMPLOYEES. IN THIS RESPECT SUCH PROVISIONS ARE IN MARKED CONTRAST WITH THE PROVISIONS CONCERNING REPAIRS OF THE CONTRACTOR'S CONSTRUCTION PLANT AND THE TAKING OF DISCOUNTS, ETC., WHICH EXPRESSLY EXCLUDE LOSSES DUE TO THE FAULT OR NEGLIGENCE OF THE CONTRACTOR OR HIS EMPLOYEES. THE OMISSION OF SIMILAR EXCEPTIONS IN SAID SUBPARAGRAPHS (K) AND (L) RAISES A REASONABLE INFERENCE THAT SUCH LIMITATIONS WERE NOT THERE CONTEMPLATED OR INTENDED; AND LOOKING TO THE BASIC PURPOSE AND DESIGN OF SUCH CONTRACTS TO OBTAIN THE WORK FOR THE GOVERNMENT AT ACTUAL COST PLUS ONLY A LIMITED FIXED FEE FOR THE SERVICES OF THE CONTRACTOR, I THINK IT MAY BE CONCLUDED THAT SUCH PROVISIONS FOR REIMBURSEMENT OF LOSSES AND DAMAGES INCURRED BY THE CONTRACTOR IN CONNECTION WITH THE WORK MAY INCLUDE THOSE DUE TO THE NEGLIGENCE OF HIS OWN EMPLOYEES, WHERE SUCH REIMBURSEMENT IS NOT OTHERWISE EXCLUDED AND WHERE THE CONTRACTOR IS NOT CHARGEABLE WITH ANY BREACH OF HIS CONTRACTUAL DUTIES AND OBLIGATIONS. SEE, IN THIS CONNECTION, THE CASE OF KING AND BOOZER V. STATE OF ALABAMA, NO. 3, DIV. 351, SPECIAL TERM 1941, - - ALA. --, WHERE THE SUPREME COURT OF ALABAMA IN DISCUSSING SUCH A FEDERAL COST-PLUS-A-FIXED-FEE CONTRACT IN RELATION TO STATE TAXATION SAID THAT SUCH CONTRACT "PARTAKES OF THE NATURE IN SOME RESPECTS OF AN INDEPENDENT CONTRACTOR, AND IN SOME OF AN AGENCY OF THE GOVERNMENT.'

ONE OF THE PRIMARY DUTIES AND OBLIGATIONS OF THE CONTRACTOR IS TO FURNISH AND MAINTAIN A FORCE OF COMPETENT AND CAREFUL EMPLOYEES. BY ARTICLE I 4 THE CONTRACTOR AGREES TO EXECUTE THE WORK IN THE BEST AND MOST WORKMANLIKE MANNER "BY QUALIFIED, CAREFUL, AND EFFICIENT WORKERS.' WHILE, UNDER ARTICLE II 1 (G) NO PERSON MAY BE ASSIGNED TO SERVICE BY THE CONTRACTOR AS SUPERINTENDENT OF CONSTRUCTION OR OTHER NAMED RESPONSIBLE ADMINISTRATIVE POSITIONS IN THE CONTRACTOR'S FIELD ORGANIZATION UNTIL THE CONTRACTING OFFICER HAS APPROVED A STATEMENT OF THE QUALIFICATIONS AND EXPERIENCE OF SUCH PERSON AND, UNDER ARTICLE V 1 (F), THE CONTRACTING OFFICER MAY REQUIRE THE CONTRACTOR TO DISMISS FROM THE WORK ANY EMPLOYEE WHOM THE CONTRACTING OFFICER DEEMS INCOMPETENT, CARELESS, INSUBORDINATE, OR OTHERWISE OBJECTIONABLE, SUCH PROVISIONS DO NOT RELIEVE THE CONTRACTOR OF PRIMARY RESPONSIBILITY FOR THE EXERCISE OF DUE CARE IN THE SELECTION AND RETENTION OF EMPLOYEE; AND IF THE CONTRACTOR IS REMISS IN THE PERFORMANCE OF SUCH OBLIGATION HE HAS NO BASIS TO CLAIM REIMBURSEMENT FOR LOSSES OR DAMAGES RESULTING FROM THE CARELESSNESS OR NEGLIGENCE OF THE EMPLOYEES INVOLVED. IF, KNOWINGLY OR WITHOUT APPROPRIATE INVESTIGATION, THE CONTRACTOR EMPLOYS A THIEF TO CARRY THE PAY ROLL OR AN INEBRIATE TO DRIVE A TRUCK OR KEEPS ON THE JOB A WORKER KNOWN TO BE CARELESS, HE TAKES THE RISK AND MUST BEAR THE CONSEQUENCES. ON THE OTHER HAND, EVEN THE MOST EXACTING CARE IN THE SELECTION OF A LARGE FORCE OF WORKMEN MAY AFFORD NO GUARANTEE AGAINST NEGLIGENT LOSSES. PERSONS HABITUALLY CAREFUL MAY ON OCCASION SUFFER LAPSES OF ATTENTION OR MOMENTARY INDECISION. UNDER STRESS OF EMOTION OR THROUGH OVERCONFIDENCE OR TEMPORARY CONFUSION IN AN UNUSUAL SITUATION THEY MAY TAKE CHANCES OR FALL INTO CONDUCT WHICH MAY BE BRANDED AS NEGLIGENCE WHEN MEASURED RETROSPECTIVELY AGAINST THE LEGAL STANDARD OF THE CONDUCT OF THE AVERAGE PRUDENT MAN UNDER SIMILAR CIRCUMSTANCES. ORDINARILY, OF COURSE, AS BETWEEN THE PARTY WHO ENGAGES AN INDEPENDENT CONTRACTOR TO DO CONSTRUCTION WORK AND SUCH CONTRACTOR, THE CONTRACTOR MUST BEAR THE RISK OF SUCH CONDUCT OR NEGLIGENCE ON THE PART OF HIS OWN EMPLOYEES. THOUGH UNAVOIDABLE ON THE PART OF THE CONTRACTOR IT IS A PART OF THE CONTRACTUAL RISK TO BE COVERED AS AN ELEMENT OF THE COST IN FIXING THE CONTRACT PRICE. BUT, UNDER THE FORM OF CONTRACT HERE INVOLVED, THERE IS NO CONTRACT PRICE FIXED TO COVER SUCH RISKS AS AN ELEMENT OF THE COST. INSTEAD THE GOVERNMENT IS TO REIMBURSE THE CONTRACTOR HIS ACTUAL COSTS, OF WHICH SUCH UNAVOIDABLE NEGLIGENT LOSSES ARE, OR MAY BE, AN ELEMENT. SUCH LOSSES ARE NOT REIMBURSED BY THE GOVERNMENT THEY MUST COME OUT OF THE CONTRACTOR'S FEE, AND IF THAT IS NOT SUFFICIENT, OUT OF HIS POCKET. BUT THE CONTRACT CONTEMPLATES THAT FOR FAITHFUL PERFORMANCE THE CONTRACTOR SHALL COME OUT WHOLE, PLUS THE STIPULATED FEE AS COMPENSATION FOR HIS SERVICES, ETC. IT FOLLOWS THAT WHILE THE CONTRACTOR MAY BE REIMBURSED SUCH LOSSES AS AN ELEMENT OF HIS ACTUAL COSTS, WHERE NOT OTHERWISE EXCLUDED BY THE CONTRACT, HE MAY NOT BE SO REIMBURSED IN CASES WHERE HE HAS FAILED TO EXERCISE REASONABLE CARE IN THE SELECTION AND EMPLOYMENT OF THE INDIVIDUAL WORKERS INVOLVED, OR WHERE SUCH PERSONS HAVE BEEN RETAINED AFTER THE CONTRACTOR HAS REASON TO KNOW THAT THEY ARE NOT TRUSTWORTHY AND CAREFUL. THAT IS, THE CONTRACTOR MAY NOT BE REIMBURSED FOR LOSSES WHERE HIS FAILURE TO PERFORM HIS CONTRACTUAL DUTIES AND OBLIGATIONS IS A PROXIMATE CAUSE OF THE LOSS.

WITH RESPECT TO LOSSES CAUSED BY THE NEGLIGENCE OF EMPLOYEES OF A SUBCONTRACTOR THE RIGHT OF THE CONTRACTOR TO REIMBURSEMENT BY THE GOVERNMENT WOULD APPEAR TO DEPEND PRIMARILY ON THE TERMS OF THE SUBCONTRACT AND THE LEGAL LIABILITY THEREUNDER AS BETWEEN THE CONTRACTOR AND THE SUBCONTRACTOR FOR A PARTICULAR LOSS. ORDINARILY THE SUBCONTRACT WOULD BE ON A LUMP-SUM BASIS AND THE SUBCONTRACTOR WOULD BE LIABLE THEREUNDER FOR ANY LOSSES OR DAMAGES CAUSED BY THE NEGLIGENCE OF HIS EMPLOYEES. THAT WOULD BE A MATTER FOR THE CONTRACTOR TO SETTLE WITH THE SUBCONTRACTOR AND ONLY IN EXCEPTIONAL CASES SHOULD THERE ARISE ANY QUESTION OF THE GOVERNMENT REIMBURSING THE CONTRACTOR. HOWEVER, IF THE CIRCUMSTANCES OF THE CASE WERE SUCH THAT COMPENSATION COULD NOT BE OBTAINED FROM THE SUBCONTRACTOR AND THE LOSS MUST OTHERWISE BE BORNE BY THE CONTRACTOR, THERE APPEARS NO REASON WHY THE CONTRACTOR, IF FREE OF FAULT, SHOULD NOT BE REIMBURSED, PURSUANT TO THE PRINCIPLES STATED ABOVE, UNDER THE PROVISIONS OF SAID ARTICLE II 1 (K) PROVIDING FOR THE REIMBURSEMENT OF " LOSSES AND EXPENSES, NOT COMPENSATED BY INSURANCE OR OTHERWISE * * * ACTUALLY SUSTAINED BY THE CONTRACTOR IN CONNECTION WITH THE WORK AND FOUND AND CERTIFIED BY THE CONTRACTING OFFICER TO BE JUST AND REASONABLE.'

YOU ASK WHAT EFFECT THE CONTRIBUTORY NEGLECT OF A GOVERNMENT EMPLOYEE WOULD HAVE ON THE GOVERNMENT'S LIABILITY IN SUCH CASES. WHILE THE IMPORT OF THIS QUESTION IS NOT ENTIRELY CLEAR, IT MAY BE NOTED GENERALLY THAT THE LAW, EXCEPT ADMIRALTY, WILL NOT APPORTION THE FAULT OR THE DAMAGES BETWEEN JOINT TORT-FEASORS AND THAT ONE WHO IS GUILTY OF NEGLIGENCE OR CONTRIBUTORY NEGLIGENCE WILL NOT BE ALLOWED COMPENSATION OR DAMAGES FROM OTHERS ALSO NEGLIGENT, BUT, AS BETWEEN THEMSELVES, THEY WILL BE LEFT WHERE THEIR OWN NEGLIGENCE OR CONTRIBUTORY NEGLIGENCE PLACED THEM. LITTLE V. HACKETT, 116 U.S. 366; BALTIMORE AND P.R. CO. V. JONES, 95 U.S. 439. WHILE THE GOVERNMENT IS NOT LIABLE FOR THE TORTS OF ITS OFFICERS, AGENTS OR EMPLOYEES, IT HAS BEEN HELD THAT THE GOVERNMENT MAY NOT RECOVER FOR NEGLIGENT INJURY WHERE ITS EMPLOYEES ARE GUILTY OF CONTRIBUTORY NEGLIGENCE. THAT IS, THE CONTRIBUTORY NEGLIGENCE OF THE GOVERNMENT EMPLOYEE MAY BE SET UP AS A DEFENSE AGAINST THE GOVERNMENT'S CLAIM. UNITED STATES V. MOSCOW-IDAHO SEED CO., 92 F./2D) 170. SEE, ALSO, UNITED STATES V. THE THEKLA, 266 U.S. 328; IN RE UNITED STATES STEEL PRODUCTS CO., 24 F./2D) 657. THESE PRINCIPLES WOULD APPEAR EQUALLY APPLICABLE WHERE THE OBLIGATION TO REIMBURSE FOR NEGLIGENT INJURY IS FOUNDED ON CONTRACT. SEE THE GULF TRANSIT CO. V. UNITED STATES, 43 CT.1CLS. 183; OSBORN V. CLINE, 263 N.Y. 434, 189 N.E. 483. IT WOULD FOLLOW THAT UNDER THE FORMS OF CONTRACT HERE INVOLVED IF THE CONTRACTOR WAS AT FAULT, AS DISCUSSED ABOVE, BUT THE GOVERNMENT, THROUGH ITS EMPLOYEES, IS CHARGEABLE WITH CONTRIBUTORY NEGLIGENCE IN CAUSING THE LOSS OR DAMAGE IN A PARTICULAR CASE, THE PARTIES SHOULD BE LEFT IN STATUS QUO, THAT IS, IF THE PROPERTY DAMAGED OR LOST WAS THAT OF THE CONTRACTOR THE GOVERNMENT WOULD NOT BE REQUIRED TO REIMBURSE HIM FOR THE LOSS OR FOR THE COST OF REPAIRING OR REPLACING SUCH PROPERTY, BUT IF THE PROPERTY BELONGED TO THE GOVERNMENT AND WAS LOST OR DAMAGED BY THE CONTRIBUTORY NEGLIGENCE OF THE GOVERNMENT'S EMPLOYEES, THE CONTRACTOR WOULD NOT BE REQUIRED TO REPAIR OR REPLACE SUCH PROPERTY AT HIS OWN EXPENSE, BUT WOULD BE ENTITLED TO REIMBURSEMENT OF EXPENDITURES ORDERED FOR THAT PURPOSE. AS INDICATED ABOVE, THE QUESTIONS RAISED CAN BE ANSWERED ONLY THUS GENERALLY ON THE BASIS OF YOUR PRESENT SUBMISSION, AND IT IS REALIZED THAT THE PRINCIPLES DISCUSSED MAY BE DIFFICULT OF APPLICATION TO THE FACTS AND CIRCUMSTANCES OF PARTICULAR CASES. HOWEVER, ANY PAYMENTS MADE UNDER SUCH FORMS OF CONTRACT IN REIMBURSEMENT OF LOSSES OR DAMAGES INVOLVING THE NEGLIGENCE OF THE EMPLOYEES OF A CONTRACTOR OR OF A SUBCONTRACTOR SHOULD BE SUPPORTED BY A SUFFICIENT SHOWING OF THE FACTS AS FOUND AND CERTIFIED BY THE CONTRACTING OFFICER TO BRING THE PAYMENT WITHIN THE PRINCIPLES HERE STATED; AND IF THERE BE SUBSTANTIAL DOUBT IN PARTICULAR CASES AS TO WHETHER REIMBURSEMENT IS AUTHORIZED, THE MATTER MAY, OF COURSE, BE SUBMITTED TO THIS OFFICE FOR AN ADVANCE DECISION.