B-19726, AUGUST 30, 1941, 21 COMP. GEN. 186

B-19726, AUGUST 30, 1941, 21 COMP. GEN. 186

CONTRACTS - COST-PLUS - TELEGRAMS - GOVERNMENT RATE APPLICABILITY WAR DEPARTMENT COST-PLUS-A-FIXED-FEE CONTRACTORS SHOULD BE REGARDED AS ACTING DIRECTLY IN BEHALF OF THE FEDERAL GOVERNMENT IN SENDING TELEGRAMS PERTAINING TO THE CONTRACT WORK, AND, THEREFORE, PAYMENT FOR SUCH TELEGRAMS SHOULD BE MADE AT GOVERNMENT RATES, WHETHER THE COST OF THE TELEGRAMS IS PAID TO THE CONTRACTOR BY WAY OF REIMBURSEMENT OR WHETHER IT IS PAID DIRECTLY TO THE TELEGRAPH COMPANY IN ACCORDANCE WITH THE RIGHT RESERVED IN THE CONTRACT.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF WAR, AUGUST 30, 1941:

BY INDORSEMENT OF AUGUST 11, 1941, THE OFFICE OF THE CHIEF OF ENGINEERS REFERRED TO THIS OFFICE FOR DECISION AN INCOMPLETE VOUCHER SUBMITTED BY THE UNITED STATES ENGINEER OFFICE AT SAVANNAH, GA., WITH AN INDORSEMENT OF JULY 11, 1941, AS FOLLOWS:

1. THERE IS TRANSMITTED HEREWITH, IN DUPLICATE, FOR FORWARDING TO THE GENERAL ACCOUNTING OFFICE FOR PRE-AUDIT, UNNUMBERED VOUCHER 1034, " STANDARD VOUCHER FOR PURCHASES AND SERVICES OTHER THAN PERSONAL" TO GOODE CONSTRUCTION CORPORATION, SAVANNAH AIR BASE. THIS VOUCHER AMOUNTS TO $59.90, AND IS FORWARDED IN COMPLIANCE WITH FOURTH INDORSEMENT ABOVE AND PARAGRAPH 769.1 OF ORDERS AND REGULATIONS.

2. THE ABOVE VOUCHER REPRESENTS TELEGRAPH SERVICES BILLED AT COMMERCIAL RATES THAT WERE RENDERED AT SAVANNAH AIR BASE DURING THE MONTH OF MARCH, 1941, WHERE THE ABOVE-MENTIONED FIRM HELD COST-PLUS-A FIXED-FEE CONSTRUCTION CONTRACT NO. W-819-ENG 778, UNDER THIS OFFICE. THIS BILL SHOULD BE $30.18, TAX EXCLUDED, IF COMPUTED AT GOVERNMENT RATES.

3. IT MUST BE NOTED THAT THE GOODE CONSTRUCTION CORPORATION HAS NOT PAID THE WESTERN UNION TELEGRAPH COMPANY AND THEREFORE, THE GOVERNMENT IS NOT YET AUTHORIZED TO PAY THE ABOVE BILL. PENDING CLARIFICATION OF THE QUESTION IN POINT, ALL COST-PLUS-A-FIXED-FEE CONTRACTORS EMPLOYED UNDER THIS OFFICE ARE WITHHOLDING PAYMENTS TO THE TELEGRAPH COMPANIES.

IT IS NOTED THAT THE GOODE CONSTRUCTION CORPORATION HAS NOT PAID THE WESTERN UNION TELEGRAPH CO. FOR THE TELEGRAMS COVERED BY THE VOUCHER AND THAT, UNDER THE TERMS OF THE CONTRACT IN QUESTION, REIMBURSEMENT MAY NOT BE MADE TO THE CONTRACTOR EITHER AT THE COMMERCIAL OR GOVERNMENT RATE UNTIL THE CONTRACTOR SHALL HAVE PAID SUCH INVOICES. PAYMENT BY THE CONTRACTOR APPARENTLY HAS BEEN HELD IN ABEYANCE BECAUSE OF DOUBT WHETHER THE GOVERNMENT OR COMMERCIAL RATE SHOULD BE APPLIED TO TELEGRAMS PERTAINING TO THE WORK COVERED BY THE CONTRACT.

WITH RESPECT TO PAST PROCEDURE IN MAKING PAYMENT FOR TELEGRAMS FILED BY COST-PLUS-A-FIXED-FEE CONTRACTORS THE DISTRICT ENGINEER IN A LETTER OF APRIL 24, 1941, TO THE CHIEF OF ENGINEERS, MAKES THE FOLLOWING STATEMENT:

1. AT THE TIME THIS OFFICE TOOK OVER CONSTRUCTION OF THE SAVANNAH AIR BASE FROM THE CONSTRUCTING QUARTERMASTER, IT WAS THE PRACTICE IN THAT OFFICE TO CONSOLIDATE STATEMENTS OF TELEGRAPH SERVICE FURNISHED TO THE C.Q.M., AND ALL THE CONTRACTORS ON ONE STATEMENT, WHICH WAS PAID BY THE FINANCE OFFICER TO THE TELEGRAPH COMPANY AT GOVERNMENT RATES. THIS WAS IN ACCORDANCE WITH PARAGRAPH 21, FIXED FEE LETTER NO. 1, SEPTEMBER 21, 1940, OFFICE OF THE QUARTERMASTER GENERAL. THIS OFFICE CONTINUED THE PRACTICE.

2. EFFECTIVE MARCH 1, 1941, WESTERN UNION TELEGRAPH COMPANY HAS REFUSED TO RECOGNIZE THIS PRACTICE AND HAS SUBMITTED SEPARATE STATEMENTS TO THE GOVERNMENT AND TO THE VARIOUS CONTRACTORS, THE LATTER AT COMMERCIAL RATES. THE LOCAL OFFICE OF THE TELEGRAPH COMPANY STATES THAT THEY CAN DO NOTHING ABOUT IT SINCE THEIR INSTRUCTIONS CAME FROM THEIR SUPERIOR OFFICES.

3. IN VIEW OF THE INSTRUCTIONS CONTAINED IN FIXED FEE LETTER NO. 1, O.Q.M.G., MENTIONED ABOVE, AND THE FACT THAT IN EFFECT THE GOVERNMENT WILL BE PAYING COMMERCIAL RATES FOR TELEGRAPH SERVICE IF ITS COST PLUS FIXED FEE CONTRACTORS ARE REQUIRED TO PAY SUCH RATES AND BE REIMBURSED, INFORMATION IS REQUESTED AS TO WHETHER THE STATEMENTS SHOULD BE PAID BY THE CONTRACTORS AND REIMBURSED BY THE GOVERNMENT. IF NOT, ADVICE IS REQUESTED AS TO THE PROPER COURSE OF ACTION.

PARAGRAPH 21 OF FIXED FEE LETTER NO. 1, DATED SEPTEMBER 21, 1940, TO WHICH REFERENCE IS MADE IN THE ABOVE-QUOTED COMMUNICATION, IS AS FOLLOWS:

ARRANGEMENTS FOR TELEPHONE SERVICE MUST BE MADE THROUGH POST OR CORPS AREA SIGNAL OFFICER. YOUR FUNDS WILL BE USED TO PAY FOR ALL TELEPHONE AND TELEGRAPH SERVICE USED BY YOU AND YOUR CONTRACTOR. GOVERNMENT RATES WILL PREVAIL FOR BOTH USES.

AS REGARDS THE RATES TO BE APPLIED TO GOVERNMENT TELEGRAMS SECTION 5266, REVISED STATUTES, AS AMENDED BY SECTION 601 OF THE ACT OF JUNE 19, 1934, 48 STAT. 1101, 47 U.S.C. 3, PROVIDES THAT---

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.

IN INTERPRETING THE ABOVE-CITED LAW IT WAS SAID BY AN ATTORNEY GENERAL OF THE UNITED STATES (14 OP. ATTY. GEN. 278) THAT THE ONLY LIMITATION ON ITS APPLICABILITY IS THAT THE TELEGRAPHING MUST BE IN CASES WHERE THE RATES ARE PAYABLE OUT OF PUBLIC MONEYS OR ARE TO BE ACCOUNTED FOR TO THE GOVERNMENT BY THE OFFICER MAKING THE EXPENDITURE. IN CONSIDERING WHETHER GOVERNMENT RATES WERE APPLICABLE TO MESSAGES TRANSMITTED FOR THE EMERGENCY FLEET CORPORATION, UNITED STATES SHIPPING BOARD, THE SUPREME COURT OF THE UNITED STATES IN EMERGENCY FLEET CORPORATION V. WESTERN UNION TELEGRAPH COMPANY, 275 U.S. 415, NOTED THAT NO DISTINCTION HAS EVER BEEN MADE IN THE EXTENSION OF PRIORITY AND LOWER RATES BETWEEN MESSAGES SENT TO PERSONS WITHIN THE DEPARTMENTS AND THOSE OUTSIDE. IN DECIDING THAT THE GOVERNMENT RATES APPLIED TO SUCH MESSAGES, IT WAS POINTED OUT BY THE COURT THAT THE FLEET CORPORATION WAS A PRIVATE CORPORATION IN FORM BUT WAS ENGAGED IN BUSINESS ON BEHALF OF THE UNITED STATES AND THAT APPROPRIATIONS WERE MADE FROM THE FEDERAL TREASURY FOR ITS OPERATION SO THAT ANY INCREASED COSTS OF TRANSMITTING TELEGRAMS AT THE COMMERCIAL RATE WOULD BE BORNE, ALTHOUGH INDIRECTLY, BY THE UNITED STATES. ALSO, IT WAS HELD IN WESTERN UNION TELEGRAPH COMPANY V. UNITED STATES, 66 CT.1CLS. 38, THAT THE GOVERNMENT RATE APPLIED TO TELEGRAMS TRANSMITTED FOR A GOVERNMENT CONTRACTOR WHO WAS ACTING UNDER THE TERMS OF HIS CONTRACT AS AN AGENT OF THE UNITED STATES FOR THAT AMONG OTHER PURPOSES.

THE TERMS OF CONTRACT NO. W-819-ENG-778, HERE INVOLVED, PROVIDE FOR THE REIMBURSEMENT TO THE CONTRACTOR OF AMOUNTS EXPENDED FOR SUCH LABOR, MATERIALS, TOOLS, MACHINERY, EQUIPMENT, FACILITIES, AND SUPPLIES REQUIRED IN CONNECTION WITH THE CONSTRUCTION OF A COMPLETE AIRPORT AT SAVANNAH, GA., AS SHALL NOT BE FURNISHED BY THE GOVERNMENT, TOGETHER WITH ALL NECESSARY EXPENSES, PLUS A STIPULATED FIXED FEE FOR HIS SERVICES; AND THAT THE GOVERNMENT AGREES TO REIMBURSE THE CONTRACTOR FOR, AMONG OTHER THINGS, THE COST OF TELEGRAMS, BUT RESERVES THE RIGHT "TO PAY DIRECTLY TO THE PERSONS CONCERNED ALL SUMS DUE FROM THE CONTRACTOR FOR LABOR, MATERIALS, OR OTHER CHARGES.' IT SHOULD BE NOTED AS PERTINENT IN THIS MATTER THAT THE UNITED STATES HAS THE RIGHT UNDER THE TERMS OF THE CONTRACT TO ADD OR OMIT WORK; THAT TITLE TO ALL WORK COMPLETED OR IN THE COURSE OF CONSTRUCTION AND TO ALL MATERIALS, TOOLS, MACHINERY, EQUIPMENT AND SUPPLIES, WHICH HAVE BEEN DELIVERED UPON THE SITE AND ACCEPTED BY THE CONTRACTING OFFICER, SHALL BE IN THE GOVERNMENT; THAT NO SUBCONTRACTS SHALL BE MADE EXCEPT UPON THE WRITTEN APPROVAL OF THE CONTRACTING OFFICER; AND THAT THE WORK SHALL BE PERFORMED SUBJECT IN EVERY DETAIL TO THE SUPERVISION, DIRECTION, AND INSTRUCTION OF THE CONTRACTING OFFICER.

IT APPEARS THAT BY REASON OF THOSE CONSIDERATIONS THE BUREAU OF INTERNAL REVENUE, TREASURY DEPARTMENT, HAS RULED THAT TELEPHONE AND TELEGRAPH SERVICE IN CONNECTION WITH COST-PLUS-A-FIXED-FEE CONTRACTS ARE EXEMPT FROM THE FEDERAL TAX IMPOSED BY SECTION 3465 OF THE INTERNAL REVENUE CODE, AS A SERVICE OR FACILITY FURNISHED TO THE UNITED STATES WITHIN THE MEANING OF SECTION 3466 THEREOF; AND HAS SO ADVISED THE QUARTERMASTER GENERAL, WAR DEPARTMENT, IN A LETTER OF FEBRUARY 1, 1941, IN PERTINENT PART, AS FOLLOWS:

IT APPEARS THAT UNDER THE COST-PLUS-FIXED-FEE CONTRACT THE CONTRACTOR TO A CERTAIN EXTENT IS DEEMED TO BE AN AGENT OF THE GOVERNMENT. IT IS STATED IN YOUR LETTER OF JANUARY 29, 1941, THAT ALL TELEGRAPH, CABLE AND RADIO DISPATCHES ARE PREPARED ON STANDARD GOVERNMENT FORMS AND CERTIFIED BY THE CONTRACTING OFFICER OR HIS REPRESENTATIVE AS BEING USED FOR AN EXCLUSIVE GOVERNMENTAL PURPOSE. ALL TELEPHONE, TELEGRAPH, CABLE OR RADIO MESSAGES WILL BE PAID FOR DIRECTLY BY THE GOVERNMENT. WHENEVER POSSIBLE THE TELEPHONE OR TELEGRAPH COMPANY FURNISHING THE SERVICES WILL BE REQUESTED TO BILL THE GOVERNMENT DIRECT FOR SUCH SERVICES. IT APPEARS THAT REPRESENTATIVES OF THE FEDERAL COMMUNICATIONS COMMISSION HAVE EXPRESSED THE OPINION INFORMALLY THAT THE TELEGRAPH MESSAGES SHOULD BE BILLED AT GOVERNMENT RATES.

UNDER THE CIRCUMSTANCES, THE CHARGES PAID DIRECTLY BY THE GOVERNMENT FOR TELEPHONE, TELEGRAPH, RADIO, OR CABLE SERVICES UTILIZED IN CONNECTION WITH THE CONSTRUCTION WORK DONE UNDER THE COST-PLUS-FIXED FEE CONTRACTS ARE EXEMPT FROM TAX BY REASON OF THE PROVISIONS OF SECTION 3466 OF THE INTERNAL REVENUE CODE.

IN CONNECTION WITH A CONTRACT SIMILAR TO THE ONE HERE INVOLVED, THE SUPREME COURT OF ALABAMA IN THE RECENT CASE OF KING AND BOOZER V. ALABAMA, DECIDED ON OR ABOUT JULY 29, 1941, IN HOLDING THAT AN ALABAMA PRIVILEGE OR LICENSE TAX WAS NOT APPLICABLE TO PURCHASES OF A COST-PLUS A-FIXED-FEE CONTRACTOR, THE COST OF WHICH WAS TO BE BORNE BY THE FEDERAL GOVERNMENT, CONCLUDED THAT THE CONTRACTOR WAS ACTING FOR THE GOVERNMENT IN THE ACCOMPLISHMENT OF A GOVERNMENTAL PURPOSE AND THAT HIS ACTS WERE ALL UNDER THE IMMEDIATE AND DIRECT SUPERVISION OF THE GOVERNMENTAL AUTHORITIES, SO THAT THE BURDEN OF THE TAX FELL DIRECTLY AND IMMEDIATELY UPON THE FEDERAL GOVERNMENT.

IN LINE WITH THE FOREGOING IT WOULD APPEAR THAT THE CONTRACTOR HERE INVOLVED SHOULD BE REGARDED AS ACTING DIRECTLY IN BEHALF OF THE FEDERAL GOVERNMENT SO AS TO REQUIRE THE TRANSMISSION OF SUCH TELEGRAMS AS MAY PERTAIN TO THE WORK IN QUESTION AT GOVERNMENT RATES RATHER THAN AT COMMERCIAL RATES. CONSEQUENTLY, WHETHER THE COST OF SUCH TELEGRAMS IS PAID TO THE CONTRACTOR BY WAY OF REIMBURSEMENT OF HIS EXPENSES OR WHETHER IT IS PAID DIRECTLY TO THE TELEGRAPH COMPANY IN ACCORDANCE WITH THE RIGHT RESERVED IN ARTICLE II, PARAGRAPH 5, OF THE CONTRACT, AS TO WHICH SEE DECISION OF JULY 31, 1941, B-19052, 21 COMP. GEN. 92, TO YOU, THE PAYMENT OF ANY AMOUNT IN EXCESS OF THE ESTABLISHED GOVERNMENT RATE ON SUCH TELEGRAMS IS NOT AUTHORIZED.