B-23215, FEBRUARY 26, 1942, 21 COMP. GEN. 813

B-23215: Feb 26, 1942

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CONTRACTS - COST-PLUS - SUBCONTRACTING OF WORK REQUIRED TO BE PERFORMED BY PRIME CONTRACTOR A COST-PLUS-A-FIXED-FEE ARCHITECT-ENGINEER CONTRACTOR OBLIGATED BY ITS CONTRACT TO MAKE SUCH CUSTOMARY FIELD AND LABORATORY TESTS OF MATERIAL USED IN THE PROJECT AS ARE REQUIRED BY THE CONTRACTING OFFICER MAY NOT BE REIMBURSED AMOUNTS PAID TO A SUBCONTRACTOR FOR MAKING TESTS UNDER A SUBCONTRACT APPROVED BY THE CONTRACTING OFFICER AS BEING MORE ECONOMICAL TO THE GOVERNMENT UNLESS IT BE ESTABLISHED BY COMPETENT EVIDENCE THAT THE CONTRACTOR'S FEE WAS FIXED IN CONTEMPLATION OF THE TESTS BEING PERFORMED UNDER A SUBCONTRACT. YOUR ADVANCE DECISION IS REQUESTED ON THE QUESTION HEREINAFTER PRESENTED IN THE ATTACHED REIMBURSEMENT VOUCHER NO.

B-23215, FEBRUARY 26, 1942, 21 COMP. GEN. 813

CONTRACTS - COST-PLUS - SUBCONTRACTING OF WORK REQUIRED TO BE PERFORMED BY PRIME CONTRACTOR A COST-PLUS-A-FIXED-FEE ARCHITECT-ENGINEER CONTRACTOR OBLIGATED BY ITS CONTRACT TO MAKE SUCH CUSTOMARY FIELD AND LABORATORY TESTS OF MATERIAL USED IN THE PROJECT AS ARE REQUIRED BY THE CONTRACTING OFFICER MAY NOT BE REIMBURSED AMOUNTS PAID TO A SUBCONTRACTOR FOR MAKING TESTS UNDER A SUBCONTRACT APPROVED BY THE CONTRACTING OFFICER AS BEING MORE ECONOMICAL TO THE GOVERNMENT UNLESS IT BE ESTABLISHED BY COMPETENT EVIDENCE THAT THE CONTRACTOR'S FEE WAS FIXED IN CONTEMPLATION OF THE TESTS BEING PERFORMED UNDER A SUBCONTRACT, OR UNLESS AN APPROPRIATE ADJUSTMENT BE MADE IN THE FIXED FEE IN AN AMOUNT AT LEAST EQUAL TO THE SUBCONTRACTOR'S PROFIT.

COMPTROLLER GENERAL WARREN TO LT. COL. HUGH WHITT, UNITED STATES ARMY, FEBRUARY 26, 1942:

THERE HAS BEEN RECEIVED, BY REFERENCE FROM THE SECRETARY OF WAR, YOUR LETTER OF DECEMBER 31, 1941, AS FOLLOWS:

1. UNDER AUTHORITY OF THE ACT OF JULY 31, 1894 (28 STAT. 208), YOUR ADVANCE DECISION IS REQUESTED ON THE QUESTION HEREINAFTER PRESENTED IN THE ATTACHED REIMBURSEMENT VOUCHER NO. E-89 TO BLACK AND VEATCH, ARCHITECT- ENGINEERS, CAMP CHAFFEE, FORT SMITH, ARKANSAS, IN THE AMOUNT OF $1,571.62, WHICH HAS BEEN PRESENTED TO ME FOR PAYMENT AS A DISBURSING OFFICER OF THE UNITED STATES.

2. THE CHARGES CARRIED IN THIS VOUCHER ARE MADE PURSUANT TO AN ACCEPTED BID BY THE MISSISSIPPI TESTING LABORATORIES OF JACKSON, MISSISSIPPI, DATED SEPTEMBER 6, WHEREIN CERTAIN INSPECTION AND TESTING OF VARIOUS CONSTRUCTION ITEMS WAS TO BE MADE AT UNIT PRICES (COPY ENCLOSED).

3. THE FIRM OF BLACK AND VEATCH ARE THE ARCHITECT-ENGINEERS ON THE CAMP CHAFFEE PROJECT AT FORT SMITH, ARKANSAS, UNDER COST-PLUS-A-FIXED FEE CONTRACT NO. W 7032 QM-12 WHICH CARRIES A FIXED FEE OF $75,000 AND A PROVISION IN THE CONTRACT AS FOLLOWS:

TITLE II-A. I

"THE ARCHITECT-ENGINEER SHALL PERFORM THE FOLLOWING SERVICES: (E) MAKE SUCH CUSTOMARY FIELD AND LABORATORY TESTS OF CONCRETE AND CONCRETE AGGREGATES AND ALL OTHER MATERIALS AT THE SITE OR AT ANY TIME OR PLACE AS THE CONTRACT OFFICER MAY REQUIRE. HE SHALL INSPECT AND REPORT TO THE CONTRACTING OFFICER IN WRITING AS TO THE CONFORMITY OR NONCONFORMITY OF THE WORKMANSHIP AND MATERIALS TO SPECIFICATIONS; AND ON THE PROGRESS OF THE PROJECT.'

4. THIS MATTER HAS BEEN HERETOFORE SUBMITTED TO THE OFFICE OF THE QUARTERMASTER GENERAL, AND THE INTERPRETATION OF THE OBLIGATIONS OF BLACK AND VEATCH UNDER THEIR CONTRACT IS SET FORTH IN THE 4TH INDORSEMENT OF THE ENCLOSED COPY OF CORRESPONDENCE FILE, WHICH INFORMATION WAS FURNISHED THE CONSTRUCTING QUARTERMASTER AT CAMP CHAFFEE.

5. SUBSEQUENT THERETO ON DECEMBER 23, 1941, THE SUBJECT VOUCHER WAS PRESENTED TO THIS OFFICE FOR PAYMENT.

6. THIS OFFICE IS IN DOUBT AS TO THE VALIDITY OF THE CHARGES IN VIEW OF THE PROVISIONS OF THE OBLIGATIONS CONTAINED IN THE ARCHITECT ENGINEER CONTRACT AND THE INTERPRETATION PLACED THEREON BY THE OFFICE OF THE QUARTERMASTER GENERAL. THEREFORE, YOUR ADVANCE DECISION IN CONNECTION THEREWITH IS RESPECTFULLY REQUESTED.

THE VOUCHER IS SUPPORTED BY A RECEIPTED INVOICE SHOWING PAYMENT OF THE AMOUNT INVOLVED BY THE PRIME CONTRACTOR TO THE MISSISSIPPI TESTING LABORATORIES, HAS BEEN AUDITED AND VERIFIED BY THE FIELD AUDITOR, AND IS APPROVED FOR PAYMENT BY THE PROJECT ENGINEER WHO, AS THE CONSTRUCTING QUARTERMASTER, IS THE CONTRACTING OFFICER'S REPRESENTATIVE. EXPLANATION OF THE BASIS FOR THE LATTER OFFICIAL'S APPROVAL OF THE SUBLETTING OF THE SERVICES INVOLVED IS CONTAINED IN HIS LETTER OF OCTOBER 6, 1941, TO YOU, IN PERTINENT PART, AS FOLLOWS:

1. TRANSMITTED HEREWITH IS A COPY OF A LETTER FROM BLACK AND VEATCH, JUSTIFYING THE ATTACHED BID FORM. AFTER CONSULTATION WITH THIS OFFICE IT WAS DECIDED THAT CERTAIN PHASES OF THE INSPECTION OF MATERIALS ON THIS PROJECT COULD BE DONE MORE ECONOMICALLY BY A REGULAR TESTING LABORATORY, THEREFORE, THE ATTACHED BID FORM WAS TRANSMITTED TO SEVERAL OF THE LARGE TESTING LABORATORIES IN THE NEAR VICINITY OF FORT SMITH, ARKANSAS. THE LOW BIDDER WAS THE MISSISSIPPI TESTING LABORATORY AT JACKSON, MISSISSIPPI. THE PRICES WHICH THEY OFFER ARE FELT TO BE MORE ECONOMICAL THAN IT WOULD BE FOR BLACK AND VEATCH TO DO THE SAME WORK BY INCREASING THEIR OWN PERSONNEL, FURTHERMORE, IT IS EXTREMELY DIFFICULT TO OBTAIN THE TYPE OF MEN REQUIRED FOR THE NECESSARY TESTING FOR THIS PROJECT.

THE LETTER, REFERRED TO THEREIN, FROM THE GENERAL CONTRACTOR, BLACK AND VEATCH, IS DATED OCTOBER 3, 1941, AND, IN PERTINENT PART, IS AS FOLLOWS:

3. THE MISSISSIPPI TESTING LABORATORIES ARE ABLE TO HANDLE THE TESTING AND INSPECTION MUCH MORE ECONOMICALLY THAN WE CAN WITH OUR OWN FORCES, AS FOR EXAMPLE IN THE TESTING OF VITRIFIED CLAY SEWER PIPE AND CONCRETE CULVERT PIPE AT THE MANUFACTURING PLANT IT WOULD BE NECESSARY THAT WE HAVE MEN STATIONED AT THE VARIOUS LOCATIONS FROM WHICH THE PIPE WAS BEING SHIPPED TO THE PROJECT. THIS WOULD ENTAIL QUITE AN EXPENSE IN THE MATTER OF TRANSPORTATION FOR THESE MEN OR REQUIRE THE FULL TIME RESIDENCE OF AN INSPECTOR AT THESE VARIOUS PLANTS DURING THE TIME OF PIPE SHIPMENTS; THIS, OF COURSE, IS NOT THE CASE WITH THE TESTING LABORATORIES AS THEY HAVE MEN STATIONED IN VARIOUS PLACES THROUGHOUT THE COUNTRY, AS WELL AS CONNECTIONS WITH OTHER INSPECTION AGENCIES.

4.THE PRICE OF 9 CENTS PER CUBIC YARD FOR COMPLETE INSPECTION ON PROPORTIONING AND MIXING OF CONCRETE, INCLUDING TESTING OF CEMENT AND AGGREGATE, IS CHEAPER THAN IT COULD BE DONE BY OUR OWN FORCE.

5. IF WE ATTEMPTED TO HANDLE ALL TESTING AND INSPECTION IT WOULD BE NECESSARY THAT THE GOVERNMENT PROVIDE US WITH A CRUSHER MACHINE FOR TESTING CYLINDERS, ALSO, A COMPLETELY EQUIPPED LABORATORY FOR RUNNING TESTS ON ASPHALT, PORTLAND CEMENT CONCRETE, AGGREGATE, AND VARIOUS OTHER MATERIALS ON WHICH IT IS NECESSARY TO RUN TESTS.

6. IF WE WERE TO DO THE TESTING AND INSPECTION IT WOULD ALSO BE NECESSARY THAT A MACHINE BE FURNISHED FOR THE TESTING OF REINFORCING STEEL AS TO ITS TENSILE STRENGTH.

7. ALL OF THESE ITEMS OF EQUIPMENT, WHETHER RENTED OR PURCHASED, ARE REIMBURSABLE UNDER OUR CONTRACT AS SET OUT IN ARTICLE III-C.--- EQUIPMENT AND SERVICES TO BE FURNISHED BY THE GOVERNMENT.

10. FROM THE ABOVE INFORMATION YOU CAN READILY UNDERSTAND WHY IT WOULD BE MUCH MORE ECONOMICAL FOR THE ARCHITECT-ENGINEER TO EMPLOY A TESTING LABORATORY FOR INSPECTION AND TESTING SERVICES OF A HIGHLY TECHNICAL NATURE WHEN SUCH SERVICES ARE AT A VERY ECONOMICAL COST. IF THE ARCHITECT -ENGINEER WAS REQUIRED TO DO 100 PERCENT OF THE INSPECTION AND TESTING THE RENTAL OR PURCHASE OF LABORATORY EQUIPMENT FOR CARRYING OUT THIS WORK WOULD MORE THAN LIKELY AMOUNT TO MORE THAN THE TOTAL COST OF THE TESTING. IN ADDITION TO ALL THE EQUIPMENT IT WOULD REQUIRE IT WOULD ALSO BE NECESSARY TO RETAIN THE SERVICES OF HIGHLY SPECIALIZED PERSONNEL IN LABORATORY WORK. IT IS OUR OPINION THAT IF WE ATTEMPTED TO DO 100 PERCENT OF THE TESTING AND INSPECTION IT WOULD REQUIRE AT LEAST A COST OF DOUBLE THAT WHICH WE WILL BE PAYING THE MISSISSIPPI TESTING LABORATORIES FOR THE SAME WORK.

11. A COPY OF THE BID OF THE MISSISSIPPI TESTING LABORATORIES FOR THE VARIOUS ITEMS OF TESTING AND INSPECTION HAS BEEN SUBMITTED TO YOU FOR YOUR FILE.

CONTRACT NO. W 7032 QM-12, DATED MAY 5, 1941, ENTERED INTO ON A COST PLUS -A-FIXED-FEE BASIS, PROVIDES, GENERALLY, FOR THE FURNISHING OF ARCHITECTURAL-ENGINEERING SERVICES IN CONNECTION WITH THE CONSTRUCTION OF A TRIANGULAR DIVISION CAMP AT FORT SMITH, ARK., IN CONSIDERATION FOR WHICH THE CONTRACTOR IS TO RECEIVE REIMBURSEMENT OF COSTS, AS DEFINED IN THE CONTRACT, PLUS STIPULATED FIXED FEES OF $50,000 AND $25,000 FOR THE SERVICES REQUIRED UNDER TITLES I AND II, RESPECTIVELY. INCLUDED AMONG THE SERVICES TO BE PERFORMED BY THE CONTRACTOR, AS SET FORTH UNDER TITLE II, ARTICLE II-A, SECTION E OF THE CONTRACT, IS THE REQUIREMENT THAT IT SHALL-

MAKE SUCH CUSTOMARY FIELD AND LABORATORY TESTS OF CONCRETE AND CONCRETE AGGREGATES AND ALL OTHER MATERIALS AT THE SITE OR AT ANY TIME OR PLACE AS THE CONTRACTING OFFICER MAY REQUIRE. HE SHALL INSPECT AND REPORT TO THE CONTRACTING OFFICER IN WRITING AS TO THE CONFORMITY OR NONCONFORMITY OF THE WORKMANSHIP AND MATERIALS TO SPECIFICATIONS; AND ON THE PROGRESS OF THE PROJECT.

THE VIEWS OF THE OFFICE OF THE QUARTERMASTER GENERAL, REFERRED TO IN YOUR LETTER OF DECEMBER 31, 1941, WITH RESPECT TO THE OBLIGATIONS OF THE CONTRACTOR UNDER THE ABOVE-QUOTED SECTION OF THE CONTRACT, ARE SET FORTH IN FOURTH INDORSEMENT OF NOVEMBER 8, 1941, TO THE OFFICE, CHIEF OF FINANCE, AS FOLLOWS:

1. WITH REFERENCE TO THE PROPOSAL OF BLACK AND VEATCH TO SUBCONTRACT FOR CERTAIN INSPECTION AND TESTING SERVICES IN CONNECTION WITH THE ARCHITECTURAL-ENGINEERING WORK AT CAMP CHAFFEE, FORT SMITH, ARKANSAS, THE ARCHITECT-ENGINEER IS REQUIRED BY ARTICLE II-A, SECTION E, OF CONTRACT NO. W-7032 QM-12 TO PERFORM THE FOLLOWING SERVICES:

"E. MAKE SUCH CUSTOMARY FIELD AND LABORATORY TESTS OF CONCRETE AND CONCRETE AGGREGATES AND ALL OTHER MATERIALS AT THE SITE OR AT ANY TIME OR PLACE AS THE CONTRACTING OFFICER MAY REQUIRE. HE SHALL INSPECT AND REPORT TO THE CONTRACTING OFFICER IN WRITING AS TO THE CONFORMITY OR NONCONFORMITY OF THE WORKMANSHIP AND MATERIALS TO SPECIFICATIONS; AND ON THE PROGRESS OF THE PROJECT.'

2. UNDER THE FOREGOING CONTRACT PROVISION, THE ARCHITECT-ENGINEER IS EXPECTED TO PERFORM THOSE TESTS AT THE SITE WHICH ARE CUSTOMARY AND IN ACCORDANCE WITH GENERAL ARCHITECTURAL-ENGINEERING PRACTICE. THE CUSTOMARY TESTS BY THE ARCHITECT-ENGINEER AT THE SITE INCLUDE THE INSPECTION AND DESIGN OF THE CONCRETE MIX AND THE ASCERTAINING THAT PIPE, LUMBER, AND OTHER MATERIALS ARE OF GOOD QUALITY, SOUND AND ADAPTABLE TO THE PROPOSED USE. CONCRETE MIXED AT A NEARBY CENTRAL PLANT AND PURCHASED BY THE CONSTRUCTION CONTRACTOR ALREADY MIXED IS USUALLY INSPECTED BY THE ARCHITECT-ENGINEER FOR PROPORTION, TIME OF MIXING, ETC. PORTLAND CEMENT IS GENERALLY SHIPPED FROM GOVERNMENT TESTING BINS AND IN SUCH CASES SHOULD NOT REQUIRE ADDITIONAL INSPECTION BY A TESTING LABORATORY. INASMUCH AS THE ABOVE-MENTIONED TESTING AND INSPECTION SERVICES ARE CUSTOMARILY PROVIDED BY THE ARCHITECT-ENGINEER AT THE SITE, NO ITEM OF FEE SHOULD BE INCLUDED IN ANY SUBCONTRACT THEREFOR.

3. HOWEVER, IN ADDITION TO THE CUSTOMARY INSPECTION AT THE SITE OF THE WORK BY THE ARCHITECT-ENGINEER, IT IS USUAL TO ENGAGE TESTING LABORATORIES TO MAKE THE SPECIALIZED TESTS AS TO THE STRENGTH OF SAMPLES OF VITRIFIED CLAY AND CONCRETE SEWER PIPE AS WELL AS CONCRETE CYLINDERS WHICH ARE MADE AT THE SITE OF THE ARCHITECT-ENGINEER. BITUMINOUS MATERIAL AND BITUMINOUS AGGREGATE FOR PAVING ARE USUALLY TESTED AND INSPECTED BY A TESTING LABORATORY FROM SAMPLES FURNISHED BY THE ARCHITECT-ENGINEER OR BY MAINTAINING A REPRESENTATIVE AT THE MIXING PLANT. CREOSOTED MATERIAL MAY BE INSPECTED AT THE POINT OF MANUFACTURE BY A REPRESENTATIVE OF THE TESTING LABORATORY OR ANALYZED FROM SAMPLES SENT TO THE TESTING LABORATORY. PAINT IS USUALLY ANALYZED BY TESTING LABORATORIES FROM SAMPLES SENT BY THE ARCHITECT ENGINEER.

4. WHERE, AS INDICATED ABOVE, THE SERVICES OF A TESTING LABORATORY ARE USUALLY NECESSARY, THIS OFFICE IS OF THE OPINION THAT SUCH SERVICES DO NOT COMPRISE THOSE CUSTOMARY TESTS WHICH ARE REQUIRED BY THE TERMS OF THE ABOVE-QUOTED CONTRACT PROVISION TO BE MADE BY THE ARCHITECT ENGINEER AT THE SITE OF THE WORK, AND THAT IN SUCH INSTANCES THE ARCHITECT-ENGINEER IS PROPERLY ENTITLED TO COMPENSATION UNDER ARTICLE III-D OF THE CONTRACT RELATING TO REIMBURSEMENT.

BY INDORSEMENT OF NOVEMBER 14, 1941, THE CHIEF OF FINANCE CONCURRED IN THE ABOVE INDORSEMENT OF THE QUARTERMASTER GENERAL.

CONSIDERED IN THE LIGHT OF THAT INTERPRETATION OF THE DUTIES IMPOSED ON THE PRIME CONTRACTOR BY THE CONTRACT REQUIREMENT THAT IT "MAKE SUCH CUSTOMARY FIELD AND LABORATORY TESTS * * *," IT APPEARS THAT THE EXPENDITURE HERE INVOLVED MAY HAVE INCLUDED PAYMENT FOR A PORTION OF THE WORK WHICH IT WAS INTENDED WOULD BE PERFORMED BY THE CONTRACTOR WITH ITS OWN FORCES. WHILE IT IS EVIDENT THAT THE CONTRACT CONTEMPLATES THAT SOME PART OF THE WORK MAY BE SUBCONTRACTED AND NO SPECIFIC LIMITATION IS PLACED THEREON, EXCEPT THAT IT MEET WITH THE APPROVAL OF THE CONTRACTING OFFICER, IN RECOGNITION OF THE FACT THAT, UNDER THIS TYPE OF CONTRACT, THE FIXED FEE IS DETERMINED AND ESTABLISHED AFTER ASCERTAINING, DURING THE INITIAL NEGOTIATIONS, THE CLASS OR CLASSES OF THE WORK TO BE PERFORMED BY THE CONTRACTOR AND THAT TO BE SUBCONTRACTED BY IT, AND THAT, AS STATED IN 20 COMP. GEN. 533, 537,"* * * THE SUBCONTRACTING OF WORK, NOT CONTEMPLATED TO BE SO PERFORMED WHEN THE CONTRACT WAS MADE AND THE CONTRACTOR'S FEE WAS FIXED, WILL RESULT IN AN INCREASE IN THE COST TO THE GOVERNMENT BY REASON OF AN UNANTICIPATED PYRAMIDING OF PROFITS," THE PRIME CONTRACTOR IS NOT AUTHORIZED TO PROCURE SUCH SERVICES FROM OTHER SOURCES ON OTHER THAN AN ACTUAL EXPENSE BASIS, EXCLUSIVE OF ANY ADDITIONAL FEE FOR OVERHEAD AND PROFIT, OR, UNLESS AN EQUITABLE DEDUCTION BE MADE IN THE AMOUNT OF THE FIXED FEE. SINCE, IN THE PRESENT CASE, IT REASONABLY MAY BE ASSUMED THAT THE FIXED PRICE PAID TO THE MISSISSIPPI TESTING LABORATORIES INCLUDED ELEMENTS OF OVERHEAD AND PROFIT, I FIND NO LEGAL BASIS FOR REIMBURSING THE CONTRACTOR FOR THE AMOUNT CLAIMED IN THE ABSENCE OF EVIDENCE SUFFICIENT TO ESTABLISH THAT THE CONTRACTOR'S FEE OF $75,000 WAS FIXED WITH THE UNDERSTANDING THAT SUCH SERVICES WOULD BE PERFORMED UNDER A SUBCONTRACT OR UNLESS AN APPROPRIATE ADJUSTMENT BE MADE IN THE AMOUNT OF THE FIXED FEE--- THAT IS, BY REDUCING SAID FEE BY AN AMOUNT AT LEAST EQUAL TO THE AMOUNT OF THE SUBCONTRACTOR'S PROFIT. ACCORDINGLY, THE VOUCHER, TOGETHER WITH THE ACCOMPANYING PAPERS, IS RETURNED HEREWITH, AND YOU ARE ADVISED THAT, ON THE PRESENT RECORD, PAYMENT THEREON IS NOT AUTHORIZED.