B-19726, B-19052, JANUARY 20, 1942, 21 COMP. GEN. 682

B-19052,B-19726: Jan 20, 1942

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THE TELEGRAPH COMPANIES ARE INFORMED AT THE TIME MESSAGES ARE FILED THAT PAYMENT WILL BE MADE FROM GOVERNMENT FUNDS. 1942: I HAVE YOUR LETTER OF DECEMBER 13. AS FOLLOWS: REFERENCE IS MADE TO THE DECISIONS OF THE U.S. WHICH HELD THAT THE COST-PLUS-A-FIXED-FEE CONTRACTORS WITH THE UNITED STATES ARE LIABLE FOR STATE SALES TAXES AND. INDICATED THAT IN THE FORMER CASE THE CONTRACTOR MAY HAVE BEEN ACTING IN A LOOSE AND GENERAL SENSE FOR THE GOVERNMENT IN MAKING ITS PURCHASES. IT WAS HELD IN THE LATTER CASE THAT "THE CONTRACTORS. IN PURCHASING AND BRINGING THE BUILDING MATERIAL INTO THE STATE AND IN APPROPRIATING IT TO THEIR CONTRACT WITH THE GOVERNMENT WERE NOT AGENTS OR INSTRUMENTALITIES OF THE GOVERNMENT.

B-19726, B-19052, JANUARY 20, 1942, 21 COMP. GEN. 682

CONTRACTS - COST-PLUS - TELEGRAMS - GOVERNMENT RATE APPLICABILITY WHERE A COST-PLUS-A-FIXED- FEE CONTRACTOR ACTS DIRECTLY IN BEHALF OF AND AS AGENT FOR THE GOVERNMENT PURSUANT TO SPECIFIC AUTHORITY TO PLEDGE THE GOVERNMENT'S CREDIT FOR PAYMENT OF THE COST OF SENDING TELEGRAMS PERTAINING TO THE CONTRACT WORK, AND THE TELEGRAPH COMPANIES ARE INFORMED AT THE TIME MESSAGES ARE FILED THAT PAYMENT WILL BE MADE FROM GOVERNMENT FUNDS, PAYMENTS MADE BY THE GOVERNMENT SHOULD BE AT THE GOVERNMENT RATE, BUT WHERE NO SUCH AUTHORITY HAS BEEN GIVEN THE CONTRACTOR, PAYMENT SHOULD BE MADE AT THE COMMERCIAL RATE, WHETHER MADE BY THE CONTRACTOR OR DIRECTLY BY THE GOVERNMENT. PRIOR DECISIONS MODIFIED, AND PAYMENTS FOR PRIOR TELEGRAPHIC SERVICES MAY BE ADJUSTED ACCORDINGLY.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, JANUARY 20, 1942:

I HAVE YOUR LETTER OF DECEMBER 13, 1941, AS FOLLOWS:

REFERENCE IS MADE TO THE DECISIONS OF THE U.S. SUPREME COURT ON NOVEMBER 10, 1941, IN THE CASES OF ALABAMA VS. KING AND BOOZER, AND CURRY VS. UNITED STATES, WHICH HELD THAT THE COST-PLUS-A-FIXED-FEE CONTRACTORS WITH THE UNITED STATES ARE LIABLE FOR STATE SALES TAXES AND, IN THAT CONNECTION, INDICATED THAT IN THE FORMER CASE THE CONTRACTOR MAY HAVE BEEN ACTING IN A LOOSE AND GENERAL SENSE FOR THE GOVERNMENT IN MAKING ITS PURCHASES. IT WAS HELD IN THE LATTER CASE THAT "THE CONTRACTORS, IN PURCHASING AND BRINGING THE BUILDING MATERIAL INTO THE STATE AND IN APPROPRIATING IT TO THEIR CONTRACT WITH THE GOVERNMENT WERE NOT AGENTS OR INSTRUMENTALITIES OF THE GOVERNMENT; AND THEY ARE NOT RELIEVED OF THE TAX TO WHICH THEY WOULD OTHERWISE BE SUBJECT BY REASON OF THE FACT THAT THEY ARE GOVERNMENT CONTRACTORS.'

SINCE THE SUPREME COURT OF THE UNITED STATES REVERSED THE DECISION OF THE SUPREME COURT OF ALABAMA IN THE CASE OF KING AND BOOZER, UPON WHICH YOUR DECISIONS OF JULY 31, AUGUST 30, AND SEPTEMBER 25, 1941, HAD BEEN LARGELY PREDICATED, IT IS REQUESTED THAT YOU RECONSIDER YOUR OPINIONS WITH RESPECT TO THE QUESTIONS TO WHICH REFERENCE IS HEREINAFTER MADE.

IT WOULD APPEAR AS THE RESULT OF THESE DECISIONS OF THE SUPREME COURT THAT NO RECOVERY FROM THE TELEGRAPH COMPANIES CAN BE HAD OF THE AMOUNTS HERETOFORE PAID IN EXCESS OF GOVERNMENT RATES BY COST-PLUS-A FIXED-FEE CONTRACTORS FOR TELEGRAMS. ACCORDINGLY, YOUR OPINION IS REQUESTED WHETHER IT IS NECESSARY FOR THE WAR DEPARTMENT TO TAKE ANY FURTHER STEPS LOOKING TO THE COLLECTION OR RECOUPMENT OF ANY PART OF THE FULL COMMERCIAL RATES HERETOFORE PAID BY SUCH CONTRACTORS TO THE TELEGRAPH COMPANIES, AS REFERRED TO IN YOUR DECISION OF SEPTEMBER 25, 1941. IT IS THE RECOMMENDATION OF THIS DEPARTMENT THAT NO SUCH FURTHER STEPS BE TAKEN, AND THAT THE TELEGRAPH COMPANIES BE PAID THE AMOUNTS OF ANY SUCH EXCESSES WHICH MAY HAVE BEEN DEDUCTED BY THE GOVERNMENT AS AN OFF-SET FROM MONIES OTHERWISE DUE SUCH COMPANIES.

FOLLOWING THE DECISION OF JULY 31, 1941, P AND C GENERAL DIRECTIVE NO. 28, DATED AUGUST 11, 1941 (COPY ENCLOSED) WAS ISSUED, REQUIRING THE DIRECT PAYMENT BY THE GOVERNMENT AT GOVERNMENT RATES FOR TELEGRAMS SENT BY COST- PLUS-A-FIXED-FEE CONTRACTORS PERTAINING TO THOSE CONTRACTS. THE QUESTION HAS BEEN RAISED WHETHER THE DIRECT PAYMENT FOR THESE MESSAGES ENTITLED THEM TO THE GOVERNMENT RATE. ACCORDINGLY, YOUR OPINION IS REQUESTED WHETHER TELEGRAMS SENT BY COST-PLUS-A-FIXED FEE CONTRACTORS ON BUSINESS CONNECTED WITH THE CONTRACTS AND WHICH ARE PAID FOR DIRECTLY BY THE GOVERNMENT AT GOVERNMENT RATES, ARE ENTITLED TO BE SO PAID.

YOUR OPINION IS ALSO REQUESTED WHETHER THE WAR DEPARTMENT MAY NOW PAY TELEGRAPH COMPANIES FOR TELEGRAMS SENT BY COST-PLUS-A-FIXED-FEE CONTRACTORS BUT PAID FOR DIRECTLY BY THE GOVERNMENT AT GOVERNMENT RATES, THE DIFFERENCE BETWEEN THE COMMERCIAL AND GOVERNMENT RATES, WHICH DIFFERENCE HAS HERETOFORE BEEN WITHHELD, PURSUANT TO WAR DEPARTMENT P AND C GENERAL DIRECTIVE NO. 28, OF AUGUST 11, 1941, AND YOUR RULINGS OF JULY 31, 1941 (B-19052), OF AUGUST 30, 1941 (B-19726) AND OF SEPTEMBER 25, 1941 (B-19726; B-19052).

THE WAR DEPARTMENT IS ISSUING A NEW DIRECTIVE (COPY ENCLOSED) SUPERSEDING THE P AND C GENERAL DIRECTIVE NO. 28, OF AUGUST 11, 1941, AUTHORIZING THE AMENDMENT OF COST-PLUS-A-FIXED-FEE CONTRACTS BY INSERTION THEREIN OF PROVISIONS CONSTITUTING SUCH CONTRACTORS AGENTS OF THE GOVERNMENT FOR THE TRANSMISSION OF TELEGRAMS IN CONNECTION WITH SUCH CONTRACTS. THIS DIRECTIVE IS UNDERSTOOD TO BE IN CONFORMITY WITH YOUR RULINGS UPON THE SUBJECT.

FOR YOUR INFORMATION THERE IS ENCLOSED A COPY OF A LETTER OF DECEMBER 2, 1941, FROM THE FIRST VICE PRESIDENT OF THE WESTERN UNION TELEGRAPH COMPANY, AND A COPY OF A LETTER OF DECEMBER 1, 1941, FROM THE EXECUTIVE VICE PRESIDENT OF THE POSTAL TELEGRAPH-CABLE COMPANY, UPON THE SUBJECT.

AN EARLY REPLY WILL BE APPRECIATED.

WHETHER THE TELEGRAMS HERE INVOLVED ARE PROPERLY FOR TRANSMISSION AT GOVERNMENT RATES DEPENDS UPON THE INTERPRETATION OF SECTION 5266, REVISED STATUTES, 47 U.S.C. 3, AS AMENDED BY SECTION 601 OF THE ACT OF JUNE 19, 1934, 48 STAT. 1101, 47 U.S.C. 601. THE AMENDED SECTION PROVIDES:

TELEGRAMS BETWEEN THE SEVERAL DEPARTMENTS OF THE GOVERNMENT AND THEIR OFFICERS AND AGENTS, IN THEIR TRANSMISSION OVER THE LINES OF ANY TELEGRAPH COMPANY TO WHICH HAS BEEN GIVEN THE RIGHT-OF-WAY, TIMBER, OR STATION LANDS FROM THE PUBLIC DOMAIN SHALL HAVE PRIORITY OVER ALL OTHER BUSINESS, AT SUCH RATES AS THE FEDERAL COMMUNICATIONS COMMISSION SHALL ANNUALLY FIX. AND NO PART OF ANY APPROPRIATION FOR THE SEVERAL DEPARTMENTS OF THE GOVERNMENT SHALL BE PAID TO ANY COMPANY WHICH NEGLECTS OR REFUSES TO TRANSMIT SUCH TELEGRAMS IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION.

WHILE THE QUOTED STATUTE REFERS ONLY TO TELEGRAMS "BETWEEN THE SEVERAL DEPARTMENTS OF THE GOVERNMENT AND THEIR OFFICERS AND AGENTS," IT HAS BEEN HELD THAT THE GOVERNMENT RATE-- THAT IS, THE RATE FIXED IN ACCORDANCE WITH THE STATUTE--- IS APPLICABLE TO TELEGRAMS TRANSMITTED FOR A GOVERNMENT CONTRACTOR WHO WAS ACTING AS AN AGENT OF THE UNITED STATES, FOR CERTAIN PURPOSES, IN THE PERFORMANCE OF HIS CONTRACT WORK. WESTERN UNION TELEGRAPH CO. V. UNITED STATES, 66 CT.CLS. 38. THE CONTRACT INVOLVED IN THAT CASE PROVIDED THAT THE CONTRACTOR WAS "AUTHORIZED TO MAKE, AS AGENT FOR THE UNITED STATES OF AMERICA, ALL CONTRACTS FOR SERVICES, LABOR, SUPPLIES, MATERIAL, EQUIPMENT AND FACILITIES," AND THAT IT SHOULD "MAKE ALL CONTRACTS, PURCHASES, AND OTHER ARRANGEMENTS FOR THE PERFORMANCE OF THIS CONTRACT IN ITS CAPACITY, AS AGENT FOR THE UNITED STATES OF AMERICA, AND WITHOUT LIABILITY ON THE PART OF THE CONSTRUCTION MANAGER OR SPECIAL DIRECTOR UNDER ANY CONTRACTS OR PURCHASES SO MADE.' IN ITS OPINION IN THAT CASE, THE COURT OF CLAIMS SAID (PP. 50-51 OF 66 CT.CLS.):

A VERY SIMPLE TEST WILL DETERMINE THE QUESTION HERE INVOLVED. EITHER THE THOMPSON-1STARRETT COMPANY WAS LIABLE FOR THE EXPENSE OF THESE TELEGRAMS; OR THE GOVERNMENT, BY REASON OF THE TELEGRAMS HAVING BEEN SENT IN ITS BEHALF, BY ITS AGENT, AND SOLELY IN ITS INTEREST AND UPON ITS RESPONSIBILITY, WAS LIABLE. IF THIS DOES NOT ESTABLISH SUCH AN AGENCY AS TO ENTITLE THE DEFENDANT TO THE GOVERNMENT RATE IT IS DIFFICULT TO SEE WHAT WOULD. THERE IS NO CLAIM THAT THE THOMPSON 1STARRETT COMPANY WAS LIABLE AND THE AGENCY OF THIS COMPANY WAS SUCH AS TO ENTITLE THE DEFENDANT TO THE GOVERNMENT RATE * * *.

IT WILL BE PERCEIVED THAT THE CONCLUSION REACHED BY THE COURT DID NOT ENLARGE UPON THE STATUTE, BUT MERELY APPLIED THE FAMILIAR RULE THAT ACTS PERFORMED THROUGH AN AGENT WILL BE REGARDED, IN LAW, AS ACTS OF THE PRINCIPAL.

THE LEGAL RELATIONSHIP EXISTING BETWEEN THE UNITED STATES AND GOVERNMENT CONTRACTORS ENGAGED UPON COST-PLUS-A-FIXED-FEE CONTRACTS OF THE TYPE HERE INVOLVED WAS CONSIDERED BY THE SUPREME COURT OF ALABAMA IN KING AND BOOZER V. ALABAMA, DECIDED ON OR ABOUT JULY 29, 1941. IN THAT CASE, THE STATE HAD ASSESSED A TAX ON THE SALE OF CERTAIN LUMBER PURCHASED FROM THE DEFENDANTS IN CONNECTION WITH PERFORMANCE BY DUNN CONSTRUCTION CO. AND JOHN S. HODGSON AND CO. OF A COST-PLUS-A-FIXED-FEE CONTRACT FOR CONSTRUCTION OF A TENT CAMP FOR THE UNITED STATES. THE ALABAMA COURT, IN HOLDING THAT THE TAX WAS NOT APPLICABLE TO THE TRANSACTION, SAID, IN PART:

THE CONTRACTOR HERE WAS ACTING FOR THE GOVERNMENT IN THE ACCOMPLISHMENT OF A GOVERNMENTAL PURPOSE. HIS ACTS WERE ALL UNDER THE IMMEDIATE AND DIRECT SUPERVISION OF THE GOVERNMENTAL AUTHORITIES. HIS CONTRACT PARTAKES OF THE NATURE IN SOME RESPECTS OF AN INDEPENDENT CONTRACTOR, AND IN SOME OF AN AGENCY OF THE GOVERNMENT. IT IS NOT NECESSARY HERE TO DEFINE THE EXACT STATUS IN RESPECT TO ALL HIS DEALINGS, WHETHER AN INDEPENDENT CONTRACTOR OR AN AGENCY UNDER EMPLOYMENT OF THE UNITED STATES. * * *

UNDER THE CONTRACT HERE INVOLVED, THE GOVERNMENT WAS TO, AND DID,ACQUIRE THE TITLE TO THE THINGS DESIRED FOR ITS GOVERNMENTAL PURPOSES. THE CONTRACTOR TOOK FOR THE GOVERNMENT AN ESSENTIAL STEP IN THE TRANSACTION BY WHICH SUCH TITLE WAS ACQUIRED. THE CONTRACTOR WAS NOT ACTING FOR HIMSELF IN DOING SO, THOUGH HE WAS IN NAME THE PURCHASER, AND THOUGH INDEBTED FOR THE AGREED PRICE. HE HAD NO POWER OF DISPOSITION OF THE PROPERTY, BUT TO USE IT ON THIS PROJECT. HE DID NOT USE IT AS HIS OWN PROPERTY, BUT AS THE PROPERTY OF THE GOVERNMENT, WHICH WAS TO PAY HIM THE EXACT AMOUNT OF ITS PURCHASE PRICE WHICH HE PAID, OR WAS OBLIGATED TO PAY. * * *

THE CONCLUSION IS INESCAPABLE THAT THE BURDEN OF THE TAX IN THE INSTANT CASE FALLS DIRECTLY AND IMMEDIATELY UPON THE GOVERNMENT. THE ADDITION OF THE TAX RAISES THE COST OF CONSTRUCTION WHICH THE GOVERNMENT IS BOUND TO PAY. IT IN NO WISE AFFECTS THE FIXED FEE OF THE CONTRACTOR. * * *

THUS, WHILE THE ALABAMA COURT FOUND THAT THE CONTRACTOR WAS THE NOMINAL PURCHASER OF THE LUMBER AND INDEBTED FOR THE PRICE THEREOF, ITS DECISION IS TO THE EFFECT THAT THE REAL PURCHASER WAS THE GOVERNMENT, AND THAT, THEREFORE, THE CONTRACTOR WAS ACTING FOR THE GOVERNMENT, RATHER THAN AS AN INDEPENDENT CONTRACTOR. IN OTHER WORDS, THE COURT CONSIDERED THE RELATIONSHIP BETWEEN THE CONTRACTOR AND THE GOVERNMENT AS CONTROLLED NOT BY THE STRICTLY LEGAL EFFECT OF THE TRANSACTION BETWEEN THE CONTRACTOR AND THE SUPPLIER, BUT BY THE EFFECT OF THE TRANSACTION UPON THE GOVERNMENT, THE BENEFICIARY OF THE PURCHASE REQUIRED TO BEAR THE COST THEREOF. VIEW OF THE TENDENCY REFLECTED BY THE OPINION OF THE COURT IN THE ALABAMA CASE IT WAS HELD, IN THE DECISION 21 COMP. GEN. 186, TO WHICH YOUR LETTER REFERS, THAT COST-PLUS A-FIXED-FEE CONTRACTORS SHOULD BE REGARDED AS ACTING DIRECTLY IN BEHALF OF THE FEDERAL GOVERNMENT, SO AS TO REQUIRE THE TRANSMISSION AT GOVERNMENT RATES OF TELEGRAMS PERTAINING TO WORK UNDER SUCH CONTRACTS, REGARDLESS OF WHETHER THE COST OF SUCH TELEGRAMS BE PAID TO THE CONTRACTOR BY WAY OF REIMBURSEMENT OF HIS EXPENSES, OR WHETHER IT BE PAID BY THE GOVERNMENT DIRECTLY TO THE TELEGRAPH COMPANY. HOWEVER, THE DECREE OF THE SUPREME COURT OF ALABAMA WAS REVERSED IN ALABAMA V. KING AND BOOZER, 314 U.S. 1, 86 L.1ED 1, DECIDED NOVEMBER 10, 1941, THE SUPREME COURT OF THE UNITED STATES REJECTING THE CONTENTION THAT THE CONTRACTOR WAS SO ACTING AS TO PLACE THE GOVERNMENT IN THE ROLE OF A PURCHASER OF THE LUMBER AND CONCLUDING THAT THE LEGAL EFFECT OF THE TRANSACTION WAS TO OBLIGATE THE CONTRACTOR TO PAY FOR THE LUMBER. IN SUPPORT OF ITS CONCLUSION, THE COURT POINTED OUT THAT THE CONTRACT CONTEMPLATED THAT THE CONTRACTORS WERE TO PURCHASE IN THEIR OWN NAMES AND ON THEIR OWN CREDIT ALL THE MATERIALS REQUIRED; THAT THE MATERIALS THERE INVOLVED WERE PURCHASED BY THE CONTRACTORS AND FOR THE ACCOUNT OF THE CONTRACTORS, AND UNDER A PURCHASE ORDER WHICH EXPRESSLY STATED THAT IT WAS NOT BINDING UPON THE UNITED STATES. IN THE COMPANION CASE, CURRY V. UNITED STATES, ET AL., 314 U.S. 14, 86 L.1ED. ( ADV. OPS.) 6, DECIDED THE SAME DAY, THE COURT HELD, FOR THE REASONS STATED IN ITS OPINION IN THE KING AND BOOZER CASE, THAT THE SAME CONTRACTORS, IN PURCHASING AND BRINGING INTO THE STATE CERTAIN BUILDING MATERIALS FOR USE IN CONNECTION WITH THE CONTRACT, WERE NOT AGENTS OR INSTRUMENTALITIES OF THE GOVERNMENT.

IT SEEMS CLEAR FROM THE DECISIONS OF THE SUPREME COURT OF THE UNITED STATES IN THE ABOVE-CITED CASES THAT COST-PLUS-A-FIXED-FEE CONTRACTORS MAY NOT BE REGARDED AS AGENTS OF THE GOVERNMENT WHERE THE LEGAL EFFECT OF THEIR TRANSACTIONS IS TO BIND THEMSELVES, RATHER THAN THE GOVERNMENT. HOWEVER, THOSE DECISIONS DO NOT APPEAR TO ESTABLISH THAT SUCH COST-PLUS-A- FIXED-FEE CONTRACTORS MAY NOT BE CONSIDERED AS ACTING AS AGENTS OF THE GOVERNMENT WHERE THE EFFECT OF THEIR ACTS IS TO BIND THE GOVERNMENT TO MAKE PAYMENT DIRECTLY TO A THIRD PARTY FOR SUPPLIES OR SERVICES WHICH THE CONTRACTORS MAY ORDER FROM SUCH THIRD PARTIES FOR THE ACCOUNT OF THE GOVERNMENT.

THE COPY OF P AND C GENERAL DIRECTIVE NO. 28, DATED AUGUST 11, 1941, TRANSMITTED WITH YOUR LETTER, IS, IN PERTINENT PART, AS FOLLOWS:

3. THE TELEGRAPH COMPANIES HAVE TAKEN THE POSITION, OPPOSITE TO THAT OF THE WAR DEPARTMENT, THAT TELEGRAMS SENT BY CONTRACTORS ON COST-PLUS-A- FIXED-FEE CONTRACTS ARE NOT ON GOVERNMENT BUSINESS AND ARE PROPERLY CHARGEABLE AT FULL COMMERCIAL RATES. THIS OFFICE HAS RECENTLY CONFERRED WITH SENIOR OFFICERS OF THE TELEGRAPH COMPANIES AND IT HAS BEEN AGREED THAT THE QUESTION MUST EVENTUALLY BE DETERMINED BY APPEAL TO THE FEDERAL COMMUNICATIONS COMMISSION OR BY DECISION OF THE PROPER COURT. IN THE MEANTIME, AS A WORKING BASIS AND IN ORDER TO AVOID CONFUSION AND DISPUTE IN THE FIELD, THE FOLLOWING PROCEDURE FOR THE HANDLING OF SUCH MESSAGES IS PRESCRIBED FOR THE GUIDANCE OF WAR DEPARTMENT PROCUREMENT AGENCIES ADMINISTERING COST-PLUS-A-FIXED-FEE CONTRACTS. 4. ALL TELEGRAMS SENT BY CONTRACTORS OR THEIR REPRESENTATIVES WHICH ARE NECESSARY IN CONNECTION WITH COST-PLUS-A FIXED-FEE CONTRACTS (INCLUDING COST-PLUS-A-FIXED-FEE SUBCONTRACTS) WILL BEAR A CERTIFICATE SIGNED BY AN AUTHORIZED OFFICER OR EMPLOYEE OF THE UNITED STATES AS FOLLOWS:

" I CERTIFY THAT THIS MESSAGE IS ON OFFICIAL BUSINESS, IS NECESSARY IN THE PUBLIC SERVICE, AND WILL BE PAID FOR FROM UNITED STATES FUNDS.'

IN CASES WHERE AN AUTHORIZED OFFICER OR EMPLOYEE OF THE UNITED STATES IS NOT AVAILABLE AT THE TIME OF SENDING A TELEGRAM, THE SENDER SHOULD BE INSTRUCTED TO MARK ON THE TELEGRAM," GOVERNMENT BUSINESS, CONTRACT NO. -- .' THE SENDER SHOULD THEN IMMEDIATELY FORWARD A COPY OF THE TELEGRAM TO THE OFFICER IN CHARGE OF THE PROJECT, AND SUCH OFFICER WILL EXECUTE THE ABOVE FORM OF CERTIFICATE ON THE DUPLICATE AND RETURN IT IMMEDIATELY TO THE OFFICE OF THE TELEGRAPH COMPANY FROM WHICH THE ORIGINAL TELEGRAM WAS TRANSMITTED. IRRESPECTIVE OF THE METHOD BY WHICH THE TELEGRAPH COMPANY MAY COMPUTE THE MONTHLY BILL, THE GOVERNMENT WILL, FOR THE PRESENT AT LEAST, MAKE DIRECT PAYMENT FOR SUCH MESSAGES AT GOVERNMENT RATES AND WITHOUT PAYMENT OF FEDERAL TAX.

5. THE TREASURY DEPARTMENT HAS RULED THAT THE MESSAGES DESCRIBED IN THE PRECEDING PARAGRAPH ARE EXEMPT FROM FEDERAL TAX, PROVIDED THE PROCEDURE OUTLINED IN THE PRECEDING PARAGRAPH IS FOLLOWED.

THE ABOVE-QUOTED PORTION OF THE DIRECTIVE OF AUGUST 11, 1941, CLEARLY CONTEMPLATES THAT THE COST-PLUS-A-FIXED-FEE CONTRACTORS BE AUTHORIZED TO PLEDGE THE GOVERNMENT'S CREDIT FOR PAYMENT OF THE COST OF THE TELEGRAMS; THAT THE TELEGRAPH COMPANIES BE INFORMED AT THE TIME OF FILING OF THE MESSAGES THAT PAYMENT THEREFOR WILL BE MADE FROM GOVERNMENT FUNDS; AND THAT THE GOVERNMENT MAKE PAYMENT OF THE CHARGES DIRECTLY TO THE TELEGRAPH COMPANIES. IT IS APPARENT THAT THE PROCEDURE THUS OUTLINED DIFFERS IN EVERY MATERIAL RESPECT FROM THE COURSE FOLLOWED BY THE CONTRACTOR IN THE KING AND BOOZER CASE, SUPRA, AND THAT THE STEPS DESCRIBED BY THE DIRECTIVE ARE SUCH AS TO WARRANT THE CONCLUSION THAT THE CONTRACTOR WAS ACTING DIRECTLY IN BEHALF OF AND AS AGENT FOR THE GOVERNMENT. IT WOULD SEEM, THEREFORE, THAT THE GOVERNMENT, RATHER THAN THE CONTRACTOR, WOULD BE OBLIGATED TO PAY THE COST OF TRANSMITTING TELEGRAMS FILED IN ACCORDANCE WITH SUCH PROCEDURE, AND THAT PAYMENT OF THE GOVERNMENT RATE WOULD DISCHARGE THE GOVERNMENT'S OBLIGATION. WESTERN UNION TELEGRAPH CO. V. UNITED STATES, SUPRA.

EVEN PRIOR TO THE ISSUANCE OF THE DIRECTIVE OF AUGUST 11, 1941, IT APPEARS THAT THE WAR DEPARTMENT WAS OF THE VIEW THAT THE GOVERNMENT RATE SHOULD APPLY TO TELEGRAMS FILED BY COST-PLUS-A-FIXED-FEE CONTRACTORS. SEE PARAGRAPH 21 OF FIXED FEE LETTER NO. 1, ISSUED SEPTEMBER 21, 1940, BY THE OFFICE OF THE QUARTERMASTER GENERAL QUOTED IN 21 COMP. GEN. 186, 187. WHILE IN SOME INSTANCES THE GOVERNMENT MADE PAYMENT DIRECTLY TO THE TELEGRAPH COMPANIES FOR TELEGRAMS FILED BY THE CONTRACTORS, IN OTHERS THE CONTRACTORS PAID THE TELEGRAPH COMPANIES AND WERE REIMBURSED BY THE GOVERNMENT--- EVEN IN CASES WHERE THE CONTRACTORS HAD PAID THE FULL COMMERCIAL RATES--- THUS AFFORDING A STRONG INFERENCE THAT BOTH THE CONTRACTORS AND THE GOVERNMENT CONSIDERED THAT THE CONTRACTORS WERE PRIMARILY LIABLE FOR THE COST OF TRANSMITTING THE MESSAGES. UNDER SUCH CIRCUMSTANCES, AND IN LINE WITH THE REASONING IN THE DECISION OF THE SUPREME COURT OF THE UNITED STATES IN THE KING AND BOOZER CASE, SUPRA, THE MERE FACT THAT THE GOVERNMENT, IN CERTAIN INSTANCES, MADE PAYMENT DIRECTLY TO THE TELEGRAPH COMPANIES WOULD NOT JUSTIFY THE APPLICATION OF THE GOVERNMENT RATE, THE DETERMINING FACTOR BEING WHETHER THE GOVERNMENT ACTUALLY AND LEGALLY WAS DIRECTLY OBLIGATED TO THE TELEGRAPH COMPANIES. CF. THE WESTERN UNION TELEGRAPH CO. CASE, SUPRA. AND IN THIS CONNECTION IT IS NOTED THAT NO DEFINITE ACTION APPEARS TO HAVE BEEN TAKEN, PRIOR TO AUGUST 11, 1941, TO AUTHORIZE THE INVOLVED CONTRACTORS TO PLEDGE THE GOVERNMENT'S CREDIT FOR THE COST OF TRANSMITTING TELEGRAMS IN CONNECTION WITH WORK UNDER THEIR CONTRACTS.

IN VIEW OF THE FOREGOING, AND IN THE ABSENCE OF A JUDICIAL DETERMINATION OF THE PRECISE QUESTION HERE INVOLVED, I HAVE TO ADVISE THAT PAYMENT FOR TELEGRAMS FILED IN CONFORMITY WITH THE PROCEDURE CONTEMPLATED BY THE ABOVE -QUOTED PORTION OF THE DIRECTIVE OF AUGUST 11, 1941, SHOULD BE MADE AT THE GOVERNMENT RATE, ONLY; AND THAT ANY AMOUNTS WITHHELD FROM THE TELEGRAPH COMPANIES AS THE DIFFERENCE BETWEEN THE GOVERNMENT AND THE COMMERCIAL RATE ON TELEGRAMS FILED IN ACCORDANCE WITH SUCH PROCEDURE MAY NOT NOW BE PAID. HOWEVER, IN INSTANCES WHERE THE FILING OF TELEGRAMS WAS NOT IN ACCORDANCE WITH SUCH PROCEDURE--- THAT IS, WHERE THE CONTRACTOR WAS NOT SPECIFICALLY AUTHORIZED TO PLEDGE THE GOVERNMENT'S CREDIT FOR PAYMENT OF THE TELEGRAPH TOLLS AND DID NOT PURPORT TO DO SO--- THE CONTRACTOR MAY BE REIMBURSED FOR PAYMENTS MADE AT THE COMMERCIAL RATE; AND AMOUNTS HERETOFORE WITHHELD OR COLLECTED FROM THE TELEGRAPH COMPANIES AS THE DIFFERENCE BETWEEN THE GOVERNMENT AND THE COMMERCIAL RATE ON TELEGRAMS FILED UNDER THESE CIRCUMSTANCES AND BILLED AT COMMERCIAL RATES NOW MAY BE PAID OR REFUNDED, NOTWITHSTANDING THAT THE ORIGINAL PAYMENT OF THE GOVERNMENT RATE MAY HAVE BEEN MADE BY THE GOVERNMENT. THE DECISIONS OF THIS OFFICE TO WHICH YOUR LETTER REFERS (21 COMP. GEN. 2; ID. 186; AND B-19726, B 19052, SEPTEMBER 25, 1941) ARE MODIFIED ACCORDINGLY.

WITH RESPECT TO THE PROPOSED DIRECTIVE PROVIDING FOR AMENDMENT OF THE CONTRACTS TO CONSTITUTE THE CONTRACTORS AGENTS OF THE GOVERNMENT FOR THE TRANSMISSION OF TELEGRAMS, IT MAY BE STATED THAT THE DESIGNATION OF THE CONTRACTORS AS AGENTS OF THE GOVERNMENT WOULD NOT NECESSARILY BE CONTROLLING UPON THE QUESTION OF AGENCY. SEE J. B. MCCRARY ENGINEERING COMPANY V. WHITE COAL POWER COMPANY, 35 F./2D) 142, 146, AND YOUNG V. FOSBURG LUMBER COMPANY, 60 S.E. 654, 16 L.R.A. ( N.S.) 255, TO THE EFFECT THAT THE RELATIONSHIP BETWEEN THE PARTIES TO A CONTRACT IS FOR DETERMINATION LARGELY UPON THE BASIS OF THEIR ACTIONS, AND NOT SOLELY UPON THE BASIS OF CONCLUSIONS OF LAW WHICH MAY BE EXPRESSED IN THE TERMS OF THE CONTRACT. SIMILARLY, IT MAY BE OBSERVED THAT IN THE KING AND BOOZER CASE, SUPRA, THE SUPREME COURT OF THE UNITED STATES DID NOT CONTENT ITSELF WITH AN EXAMINATION OF THE TERMS OF THE CONTRACT, BUT GAVE FULL CONSIDERATION TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND STATED THAT "THE COURSE OF BUSINESS FOLLOWED IN THE PURCHASE OF THE LUMBER CONFORM IN EVERY MATERIAL RESPECT TO THE CONTRACT.' HOWEVER, AN AMENDMENT DESIGNATING THE CONTRACTOR AS AN AGENT OF THE GOVERNMENT WOULD CONSTITUTE EVIDENCE OF THE INTENTION OF THE PARTIES IN THAT RESPECT AND STRENGTHEN THE GOVERNMENT'S CONTENTION. CONSEQUENTLY, THIS OFFICE PERCEIVES NO OBJECTION TO THE ISSUANCE OF THE PROPOSED DIRECTIVE WHICH, ALSO, CONTINUES IN EFFECT THE PROCEDURE CONTEMPLATED BY THE DIRECTIVE OF AUGUST 11, 1941, DISCUSSED ABOVE.