B-38642, DECEMBER 15, 1943, 23 COMP. GEN. 439

B-38642: Dec 15, 1943

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WHERE DEFENSE OF CIVIL SUITS BY EMPLOYEES FOR OVERTIME BENEFITS UNDER THE FAIR LABOR STANDARDS ACT OF 1938 IS ADMINISTRATIVELY DETERMINED TO BE MORE ADVANTAGEOUS TO THE GOVERNMENT THAN PAYMENT OF SUCH OVERTIME CLAIMS. PROPERLY SUBSTANTIATED AND APPROVED PAYMENTS MADE PURSUANT TO AGREEMENTS BY COST-PLUS-A-FIXED-FEE CONTRACTORS IN SETTLEMENT OF EMPLOYEES' CLAIMS ASSERTED UNDER THE PENALTY PROVISIONS OF SECTION 16 (B) OF THE FAIR LABOR STANDARDS ACT OF 1938 FOR NONPAYMENT OF APPLICABLE OVERTIME BENEFITS UNDER SECTION 7 OF THE ACT MAY BE REIMBURSED IF LESS THAN THE AMOUNTS WHICH WOULD HAVE BEEN RECOVERABLE IN COURT PROCEEDINGS IN THE EVENT OF ADVERSE JUDGMENTS. THE DECISION SETS FORTH THE EVIDENCE WHICH WILL BE REQUIRED IN SUPPORT OF THE INVOLVED PAYMENTS.

B-38642, DECEMBER 15, 1943, 23 COMP. GEN. 439

CONTRACTS - COST-PLUS - EXPENSES OF LITIGATION OR SETTLEMENT OF OVERTIME CLAIMS UNDER FAIR LABOR STANDARDS ACT UNDER COST-PLUS-A-FIXED-FEE CONTRACTS OBLIGATING THE GOVERNMENT TO REIMBURSE THE CONTRACTOR FOR ALL LABOR COSTS AND FOR LOSSES AND EXPENSES ACTUALLY SUSTAINED OR INCURRED IN CONNECTION WITH THE CONTRACT WORK, WHERE DEFENSE OF CIVIL SUITS BY EMPLOYEES FOR OVERTIME BENEFITS UNDER THE FAIR LABOR STANDARDS ACT OF 1938 IS ADMINISTRATIVELY DETERMINED TO BE MORE ADVANTAGEOUS TO THE GOVERNMENT THAN PAYMENT OF SUCH OVERTIME CLAIMS, CONTRACTORS MAY BE REIMBURSED REASONABLE AND NECESSARY COSTS AND EXPENSES- -- INCLUDING ATTORNEYS' FEES IF NECESSARILY INCURRED--- ATTRIBUTABLE TO THE SUITS. 22 COMP. GEN. 993, AMPLIFIED. PROPERLY SUBSTANTIATED AND APPROVED PAYMENTS MADE PURSUANT TO AGREEMENTS BY COST-PLUS-A-FIXED-FEE CONTRACTORS IN SETTLEMENT OF EMPLOYEES' CLAIMS ASSERTED UNDER THE PENALTY PROVISIONS OF SECTION 16 (B) OF THE FAIR LABOR STANDARDS ACT OF 1938 FOR NONPAYMENT OF APPLICABLE OVERTIME BENEFITS UNDER SECTION 7 OF THE ACT MAY BE REIMBURSED IF LESS THAN THE AMOUNTS WHICH WOULD HAVE BEEN RECOVERABLE IN COURT PROCEEDINGS IN THE EVENT OF ADVERSE JUDGMENTS, IRRESPECTIVE OF WHETHER ACTION ACTUALLY HAS BEEN COMMENCED, OR WHETHER THE SETTLEMENTS NECESSITATE ADJUSTMENT OF DISPUTED QUESTIONS PERTAINING TO THE APPLICATION OF THE ACT OR THE AMOUNTS OF OVERTIME INVOLVED. THE DECISION SETS FORTH THE EVIDENCE WHICH WILL BE REQUIRED IN SUPPORT OF THE INVOLVED PAYMENTS.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, DECEMBER 15, 1943:

I HAVE YOUR LETTER OF NOVEMBER 26, 1943, AS FOLLOWS:

REFERENCE IS MADE TO YOUR LETTER TO ME B-33727, APRIL 27, 1943, 22 COMP. GEN. 993, IN REPLY TO MY LETTER OF APRIL 7, 1943, RAISING THE QUESTION OF WHETHER REIMBURSEMENT COULD PROPERLY BE MADE TO WAR DEPARTMENT COST-PLUS-A -FIXED-FEE CONTRACTORS FOR AMOUNTS PAID IN SATISFACTION OF JUDGMENTS RENDERED AGAINST THEM IN PROCEEDINGS UNDER THE FAIR LABOR STANDARDS ACT ( ACT OF JUNE 25, 1938, 52 STAT. 1060, 29 U.S.C. 201-19) AND FOR THE REASONABLE AND NECESSARY COSTS AND EXPENSES OF THE LITIGATION.

SECTION 7 OF THE FAIR LABOR STANDARDS ACT PROHIBITS AN EMPLOYER FROM EMPLOYING ANY OF HIS EMPLOYEES WHO ARE ENGAGED IN COMMERCE OR IN THE PRODUCTION OF GOODS FOR COMMERCE FOR A WORKWEEK LONGER THAN FORTY HOURS UNLESS THE EMPLOYEE RECEIVES COMPENSATION FOR HIS EMPLOYMENT IN EXCESS OF FORTY HOURS AT A RATE OF NOT LESS THAN ONE AND ONE-HALF TIMES THE REGULAR RATE AT WHICH HE IS EMPLOYED. SECTION 16 OF THE ACT PROVIDES IN PARAGRAPH (B) THEREOF THAT ANY EMPLOYER WHO VIOLATES THE PROVISIONS OF SECTION 7 SHALL BE LIABLE TO THE EMPLOYEE FOR (1) THE AMOUNT OF HIS "UNPAID OVERTIME COMPENSATION," (2) "AN ADDITIONAL EQUAL AMOUNT AS LIQUIDATED DAMAGES," AND (3) "A REASONABLE ALLOWANCE FOR ATTORNEYS' FEE * * * AND COSTS OF THE ACTION.'

SINCE WRITING YOU ON APRIL 7, 1943, THERE HAS BEEN AN INCREASING NUMBER OF CLAIMS ASSERTED AGAINST WAR DEPARTMENT CONTRACTORS FOR UNPAID OVERTIME, AND IN A NUMBER OF CASES ACTIONS HAVE BEEN COMMENCED. THESE CLAIMS AND SUITS ARISE OUT OF WORK PERFORMED BY CONTRACTORS DURING THE LAST TWO OR THREE YEARS UNDER WAR DEPARTMENT COST-PLUS-A FIXED-FEE CONTRACTS PROVIDING FOR THE CONSTRUCTION OF CAMPS AND OTHER MILITARY INSTALLATIONS, FOR THE CONSTRUCTION OF ORDNANCE AND OTHER MANUFACTURING PLANTS, AND FOR THE OPERATION OF SUCH PLANTS. THE CLAIMS FOR OVERTIME THUS ACTUALLY BEING ASSERTED AND POTENTIAL CLAIMS OF THE SAME NATURE INVOLVE VERY LARGE SUMS OF MONEY WHICH WILL CONSTITUTE REIMBURSABLE COSTS UNDER THE CONTRACTS INVOLVED. IN CONNECTION WITH THESE ASSERTED AND POTENTIAL CLAIMS, A NUMBER OF QUESTIONS HAVE ARISEN AS TO WHICH IT IS DEEMED NECESSARY TO OBTAIN THE ADVICE OF YOUR OFFICE, BOTH BECAUSE OF THE LARGE AMOUNTS OF MONEY INVOLVED, AND ALSO BECAUSE OF THE NECESSITY OF ENABLING THE CONTRACTORS TO HANDLE AND DISPOSE OF THE CLAIMS INVOLVED PROMPTLY AND WITH FINALITY.

IN MY LETTER TO YOU OF APRIL 7, 1943, IT WAS POINTED OUT THAT JUDGMENTS UNDER THE SECTION 16 (B) OF THE FAIR LABOR STANDARDS ACT WOULD INCLUDE NOT ONLY THE OVERTIME PAYMENTS, BUT ALSO ANY ADDITIONAL AMOUNTS AS DAMAGES, THE COSTS OF THE LITIGATION, AND AN ALLOWANCE FOR THE EMPLOYEES' ATTORNEYS' FEES, AND YOU IN YOUR REPLY OF APRIL 27, 1943, STATED THAT THE ENTIRE AMOUNT OF ANY SUCH JUDGMENT SUFFERED BY COST-PLUS-A-FIXED-FEE CONTRACTORS WOULD BE REIMBURSABLE WHERE THE DEFENSE OF THE ACTION HAS BEEN AUTHORIZED BY THE CONTRACTING OFFICER. CONTRACTORS HAVE BEEN ADVISED ACCORDINGLY.

YOUR LETTER RECOGNIZED THAT SUCH COST-PLUS-A-FIXED-FEE CONTRACTORS COULD ALSO BE REIMBURSED FOR THE REASONABLE AND NECESSARY COSTS AND EXPENSES OF THE LITIGATION AS APPROVED BY THE CONTRACTING OFFICER, INCLUDING A REASONABLE ATTORNEY'S FEE IN CASES WHERE THE CONTRACTOR WAS AUTHORIZED BY THE CONTRACTING OFFICER TO RETAIN PRIVATE COUNSEL IN LIEU OF HAVING THE CASE HANDLED BY GOVERNMENT LITIGATION OFFICERS, WHO ARE FREQUENTLY AVAILABLE TO DEFEND SUCH ACTIONS. HOWEVER, ON THE PART OF A NUMBER OF CONTRACTORS SOME DOUBT HAS ARISEN AS TO THIS PORTION OF YOUR OPINION, AS A RESULT OF A SUBSEQUENT DECISION B-36008, OF SEPTEMBER 2, 1943. THE LATTER CASE INVOLVED A COST-PLUS-A-FIXED-FEE CONSTRUCTION CONTRACTOR WITH THE WAR DEPARTMENT, AGAINST WHOM A PROCEEDING WAS PENDING, CHARGING UNFAIR LABOR PRACTICES IN VIOLATION OF SECTION 8 OF THE NATIONAL LABOR RELATIONS ACT (49 STAT. 449). ALTHOUGH THIS DEPARTMENT HAD TAKEN THE VIEW THAT IF IT WERE DETERMINED IN SUCH PROCEEDINGS THAT THE CONTRACTOR HAD NOT BEEN GUILTY OF ANY VIOLATION OF THE ACT, THE EXPENSE OF DEFENDING THE ACTION WOULD CONSTITUTE A REIMBURSABLE ITEM, YOUR OPINION ADVISED THAT IT WAS UNNECESSARY TO DETERMINE WHETHER THE CONTRACTOR WAS GUILTY OR INNOCENT OF A VIOLATION OF THE ACT SINCE

" * * * ATTORNEYS FEES AND THE OTHER COSTS INCURRED IN THE DEFENSE OR PROSECUTION OF SUITS ARISING IN THE COURSE OF THE PERFORMANCE OF COST-PLUS CONTRACTS ARE OVERHEAD EXPENSES, COMPENSATION FOR WHICH, IN THE ABSENCE OF A SPECIFIC PROVISION TO THE CONTRARY, IS TO BE ASSUMED TO BE INCLUDED IN THE FIXED FEE AND THUS NOT TO BE REIMBURSED AS A PART OF THE COST OF THE WORK.

THIS DECISION AND THE STATEMENT ABOVE QUOTED HAVE LED SOME COST PLUS-A- FIXED-FEE CONTRACTORS TO QUESTION THE APPLICABILITY OF YOUR EARLIER DECISION OF APRIL 27, 1943, B-33727 TO THE EFFECT THAT ATTORNEY'S FEES INCURRED IN THE DEFENSE OF ACTIONS UNDER THE FAIR LABOR STANDARDS ACT WOULD BE REIMBURSABLE WHEN SUCH DEFENSE HAS BEEN AUTHORIZED BY THE CONTRACTING OFFICER.

IT IS THE VIEW OF THIS DEPARTMENT THAT THE PRINCIPLES RECOGNIZED IN YOUR EARLIER DECISION, B-33727, ARE IN NO WAY IMPAIRED BY THE LATER OPINION, B- 36008. THE EARLIER DECISION INVOLVES COMPENSATION PAID AND LIABILITY OF THE CONTRACTOR UNDER THE FAIR LABOR STANDARDS ACT FOR OVERTIME SERVICES ACTUALLY PERFORMED, SUCH OVERTIME CONSTITUTING PART OF THE CONTRACT WORK AND BEING A REIMBURSABLE ITEM. THE ACTUAL PERFORMANCE OF SUCH OVERTIME WOULD WOULD BE A PREREQUISITE TO ANY LIABILITY OF THE CONTRACTOR. FURTHERMORE, THE SERVICES OF ATTORNEYS IN DEFENDING CLAIMS FOR SUCH OVERTIME ARE THOUGHT TO BE REIMBURSABLE AS TENDING TO BENEFIT THE GOVERNMENT EVEN THOUGH THE CLAIM MAY NOT ACTUALLY BE DEFEATED. OTHER DECISIONS OF YOUR OFFICE, SUCH AS 22 COMP. GEN. 109, B-31142, JANUARY 12, 1943, AND B-21516, NOVEMBER 21, 1941, RECOGNIZE THAT WHERE SERVICES OF ATTORNEYS HIRED BY THE CONTRACTOR DIRECTLY BENEFIT THE GOVERNMENT, AS FOR EXAMPLE, THROUGH REDUCING OR DEFEATING CLAIMS WHICH WOULD OTHERWISE BE REIMBURSABLE ITEMS, SUCH ATTORNEYS' FEES MAY PROPERLY BE REIMBURSED IF APPROVED BY THE CONTRACTING OFFICER. SEE CENTRAL CONSTRUCTION COMPANY V. UNITED STATES, 63 CT.1CLS. 290, 296. ON THE OTHER HAND, THE OPINION IN B 36008 INVOLVED SERVICES OF ATTORNEYS IN DEFENDING A PROCEEDING NOT BY EMPLOYEES TO RECOVER FOR SERVICES ACTUALLY PERFORMED BUT BY AN ADMINISTRATIVE BODY WHICH CHARGED THE CONTRACTOR WITH UNFAIR LABOR PRACTICES IN VIOLATION OF THE NATIONAL LABOR RELATIONS ACT. SUCH ALLEGED UNFAIR LABOR PRACTICES USUALLY CONSIST OF INTERFERENCE WITH THE RIGHTS OF EMPLOYEES TO SELF ORGANIZATION, DOMINATION OF A LABOR ORGANIZATION, AND DISCRIMINATION IN REGARD TO EMPLOYMENT; AND INSOFAR AS THE CONTRACTOR MAY BE REQUIRED BY THE NATIONAL LABOR RELATIONS BOARD TO PAY EMPLOYEES "BACK PAY" IT IS NOT BECAUSE OF SERVICES PERFORMED BY THE EMPLOYEES, BUT AS STATED IN THE STATUTE, A TYPE OF "AFFIRMATIVE ACTION, INCLUDING REINSTATEMENT OF EMPLOYEES WITH OR WITHOUT BACK PAY, AS WILL EFFECTUATE THE POLICIES OF THIS ACT;, WHILE IT IS THE VIEW OF THIS DEPARTMENT THAT EVEN IN THE CASES DEALING WITH UNFAIR LABOR PRACTICES EFFECT SHOULD BE GIVEN TO AN ADMINISTRATIVE DETERMINATION THAT IT IS IN THE INTEREST OF THE GOVERNMENT UNDER THE CONTRACT THAT THE CONTRACTOR DEFEND THE ACTION AND BE REIMBURSED THEREFOR, IT SEEMS CLEAR THAT WHATEVER VIEW BE TAKEN IN SUCH CASES SHOULD NOT AFFECT THE PRINCIPLES UNDERLYING THE DECISION IN B- 33727.

IN CONNECTION WITH THE ABOVE DESCRIBED ACTUAL AND THREATENED SUITS UNDER THE FAIR LABOR STANDARDS ACT, THERE ARE A NUMBER OF SITUATIONS IN WHICH COMPROMISES OR SETTLEMENTS, EITHER BEFORE OR AFTER COMMENCEMENT OF SUIT, MAY BE DESIRABLE, IN ORDER TO AVOID POSSIBLE GREATER LIABILITY OR TO AVOID THE DAMAGES OR OTHER COSTS OF LITIGATION WHICH MAY BE INCLUDED IN UNFAVORABLE FINAL JUDGMENTS. IN SOME SITUATIONS IT MAY BE ADMINISTRATIVELY DETERMINED TO BE IN THE BEST INTERESTS OF THE GOVERNMENT TO AUTHORIZE THE CONTRACTOR TO SETTLE FOR ALL OR PART OF THE UNPAID OVERTIME COMPENSATION, AND IN SUCH CASES IT SEEMS CLEAR THAT THE AMOUNTS PAID IN SETTLEMENT, IF APPROVED BY THE CONTRACTING OFFICER, MAY BE REIMBURSED TO THE CONTRACTOR IN ACCORDANCE WITH YOUR DECISION, B-28624, SEPTEMBER 28, 1942. SEE ALSO B-33727, APRIL 27, 1943, AND B-21516, NOVEMBER 21, 1941. HOWEVER, THERE MAY BE CASES WHERE IT IS IMPOSSIBLE TO SETTLE OR COMPROMISE THE CLAIM WITHOUT PAYMENT OF SOME ADDITIONAL AMOUNT IN LIEU OF DAMAGES, ATTORNEYS' FEES, AND COSTS WHICH MIGHT BE RECOVERED IN AN ACTION UNDER SECTION 16(B) OF THE ACT, AND WHERE IT NEVERTHELESS MAY BE TO THE ADVANTAGE OF THE GOVERNMENT TO HAVE SUCH A SETTLEMENT EFFECTED. IS THE VIEW OF THE WAR DEPARTMENT THAT, AS INDICATED IN YOUR ABOVE- MENTIONED OPINIONS, SUCH SETTLEMENTS, INVOLVING MORE THAN THE FULL AMOUNT OF THE OVERTIME, MAY BE REIMBURSED TO THE CONTRACTOR WHERE MADE IN GOOD FAITH WITH THE APPROVAL OF THE CONTRACTING OFFICER, IT HAVING BEEN DETERMINED THAT IT IS IN THE BEST INTEREST OF THE GOVERNMENT TO ACCEPT SUCH A SETTLEMENT RATHER THAN CONTEST THE CLAIM FURTHER. YOUR CONFIRMATION OF THIS VIEW WOULD BE OF MATERIAL ASSISTANCE IN ENABLING THE CONSUMMATION OF SUCH SETTLEMENTS WHERE NECESSARY.

IT ALSO APPEARS THAT IN DEALING WITH THE CLAIMS NOW BEING ASSERTED AGAINST WAR DEPARTMENT CONTRACTORS, THERE ARE MANY DOUBTFUL FACTORS WHICH ENTER INTO SETTLEMENTS OF THE NATURE ABOVE DESCRIBED. THE PRINCIPAL CLASSES OF QUESTIONS INVOLVED ARE, FIRST, LEGAL QUESTIONS AS TO COVERAGE BY THE ACT, AND, SECOND, FACTUAL QUESTIONS AS TO THE ACTUAL AMOUNT OF OVERTIME THE EMPLOYEE MAY HAVE WORKED. AS TO THE FIRST, THERE ARISE MANY QUESTIONS AS TO WHETHER THE TYPE OF WORK INVOLVED IS SUCH AS TO BRING THE EMPLOYMENT UNDER THE ACT. FOR EXAMPLE, IT MAY BE CONTENDED THAT SINCE THE CONTRACT CALLED FOR CONSTRUCTION WORK THE EMPLOYMENT WAS NOT ONE INVOLVING COMMERCE OR THE PRODUCTION OF GOODS FOR COMMERCE UNDER THE PROVISIONS OF SECTION 7 OF THE ACT. THERE MAY ALSO BE INVOLVED QUESTIONS AS TO WHETHER THE EMPLOYEE HAS BEEN PROPERLY CLASSIFIED AS AN ,EXECUTIVE," "ADMINISTRATIVE," OR "PROFESSIONAL" WORKER AND THEREFORE WHETHER HIS EMPLOYMENT IS AFFECTED BY THE ACT. ANOTHER QUESTION WHICH ARISES FREQUENTLY IS AS TO WHETHER THE TIME SPENT IN CHANGING TO WORK CLOTHES OR UNDERGOING INSPECTION, TIME CONSUMED IN REST PERIODS, LUNCH PERIODS, ETC. CONSTITUTE WORKING TIME. INNUMERABLE DOUBTFUL MATTERS OF THIS TYPE ARE INVOLVED IN DETERMINING WHETHER OR NOT THE EMPLOYER IS REQUIRED TO PAY EXTRA COMPENSATION FOR OVERTIME. THE SITUATION IS FURTHER CONFUSED BY THE FACT THAT THE ACT HAS NOT BEEN EXTENSIVELY INTERPRETED BY THE COURTS UNTIL QUITE RECENTLY, AND THEREFORE OPINIONS AS TO THE EXTENT OF THE COVERAGE OF THE ACT HAVE UNDERGONE SUBSTANTIAL CHANGES WITHIN THE PERIOD OF WAR DEPARTMENT CONTRACTING DURING THE LAST TWO OR THREE YEARS. FURTHERMORE, THERE HAVE BEEN SOME INSTANCES WHERE RULINGS OF THE WAGE-HOUR DIVISION OF THE LABOR DEPARTMENT HAVE BEEN MODIFIED OR CHANGED, AND WHERE THE RULINGS OF REGIONAL OFFICES OF THE WAGE-HOUR DIVISION HAVE NOT BEEN SUBSEQUENTLY FOLLOWED BY LATER OFFICIAL RULINGS OF THE WASHINGTON OFFICE.

IN ADDITION TO DEALING WITH LEGAL QUESTIONS OF THIS NATURE, IT IS ALSO NECESSARY TO COMPROMISE DISPUTED QUESTIONS OF FACT. FOR EXAMPLE, IF IT BE DETERMINED THAT THE TIME SPENT IN CHANGING UNIFORMS OR IN UNDERGOING INSPECTION IS TO BE INCLUDED IN THE WORKING TIME OF THE EMPLOYEE, IT OFTEN DEVELOPS THAT THE EMPLOYER HAS NO ACCURATE RECORD OF THE TIME SPENT IN THESE ACTIVITIES. ACCORDINGLY, IN ORDER TO SETTLE SUCH CLAIMS IT IS NECESSARY TO ESTIMATE AND AGREE AS TO THE TIME ACTUALLY CONSUMED IN SUCH ACTIVITIES. SIMILARLY, WHERE EMPLOYEES WERE THOUGHT TO BE OF AN EXECUTIVE, ADMINISTRATIVE OR PROFESSIONAL NATURE, SUCH EMPLOYEES WERE USUALLY PAID ON A WEEKLY BASIS AND THERE IS FREQUENTLY NO RECORD OF THE ACTUAL AMOUNT OF OVERTIME WORKED. THUS, A DETERMINATION OF THE APPROXIMATE AMOUNT OF TIME WORKED IS AN ELEMENT IN ANY SETTLEMENT OR COMPROMISE.

IT IS THE VIEW OF THE WAR DEPARTMENT NOT ONLY THAT SUCH SETTLEMENTS AS ARE HEREIN DESCRIBED, COMPROMISING BOTH QUESTIONS OF LAW AND OF FACT, WHEN APPROVED BY THE CONTRACTING OFFICERS, ARE PROPERLY REIMBURSABLE UNDER COST -PLUS-A-FIXED-FEE CONTRACTS, BUT ALSO THAT THIS PROCEDURE OF HANDLING SUCH CLAIMS IS NECESSARY AS A PRACTICAL MATTER AND IN THE LONG RUN WILL RESULT IN SUBSTANTIAL SAVINGS TO THE GOVERNMENT. THE ANTICIPATED VOLUME OF CLAIMS IS SO LARGE AND THE COMPLEXITIES AND HAZARDS OF SUCH LITIGATION ARE SO GREAT THAT TO REQUIRE THE ESTABLISHMENT OF LIABILITY THROUGH ENTRY OF FINAL JUDGMENT WOULD IMPOSE ON CONTRACTORS, AND, IN TURN, ON THE WAR DEPARTMENT, A VERY HEAVY ADMINISTRATIVE BURDEN AND EXPENSE, AND MIGHT WELL SUBJECT THEM TO LIABILITIES IN AMOUNTS FAR IN EXCESS OF THOSE RESULTING FROM SETTLEMENT. IN ORDER THAT SUCH SETTLEMENTS MAY BE MADE WITH FINALITY, IT IS ESSENTIAL THAT THIS DEPARTMENT SHOULD BE IN A POSITION TO ADVISE ITS CONTRACTORS WHETHER OR NOT SUCH SETTLEMENTS, COMPROMISING BOTH QUESTIONS OF LAW AND OF FACT, WHEN APPROVED BY THE CONTRACTING OFFICER AS IN THE BEST INTERESTS OF THE GOVERNMENT, WILL BE ACCEPTED AS DETERMINATIVE OF THE CONTRACTOR'S LIABILITY AND WHETHER THE AMOUNTS THEREOF WILL BE REIMBURSED. ACCORDINGLY, YOUR ADVICE WOULD BE APPRECIATED AS TO THE FOLLOWING THREE QUESTIONS:

1. MAY COST-PLUS-A-FIXED-FEE CONTRACTORS BE REIMBURSED THE REASONABLE AND NECESSARY COSTS AND EXPENSES OF LITIGATION, INCLUDING ATTORNEYS' FEES, INCURRED BY THEM IN THE DEFENSE OF LITIGATION UNDER SECTION 16 (B) OF THE FAIR LABOR STANDARDS ACT WHERE THE DEFENSE OF THE ACTION, THE EMPLOYMENT OF PRIVATE ATTORNEYS IN LIEU OF UTILIZING THE SERVICES OF GOVERNMENT LITIGATION OFFICERS, AND THE AMOUNT OF THE COMPENSATION HAVE ALL BEEN APPROVED BY THE CONTRACTING OFFICER, REGARDLESS OF WHETHER OR NOT THE LITIGATION TERMINATES FAVORABLY OR UNFAVORABLY TO THE CONTRACTOR?

2. WILL SETTLEMENTS MADE BY CONTRACTORS OF CLAIMS ASSERTED AGAINST THEM UNDER SECTION 16 (B) OF THE FAIR LABOR STANDARDS ACT BE REIMBURSABLE, REGARDLESS OF WHETHER OR NOT ANY ACTION OR SUIT HAS BEEN COMMENCED AND REGARDLESS OF THE AMOUNT OF THE SETTLEMENT, SO LONG AS IT IS LESS THAN THE AMOUNT AN ADVERSE JUDGMENT WOULD HAVE BEEN IF THE ALLEGED CLAIM HAD BEEN ESTABLISHED, AND SO LONG AS IT HAS BEEN APPROVED BY THE CONTRACTING OFFICER?

3. WILL SUCH SETTLEMENTS MADE BY CONTRACTORS AND APPROVED BY THE CONTRACTING OFFICER BE REIMBURSABLE, EVEN THOUGH IN ARRIVING AT THE SETTLEMENT IT HAS BEEN NECESSARY TO COMPROMISE OR ADJUST DISPUTED QUESTIONS OF LAW OR OF FACT?

AS YOU POINT OUT, YOUR FIRST QUESTION WAS DECIDED IN THE AFFIRMATIVE BY THE DECISION OF APRIL 27, 1943, 22 COMP. GEN. 993. HOWEVER, IT NOW APPEARS THAT NUMEROUS COST-PLUS-A-FIXED-FEE CONTRACTORS WITH THE WAR DEPARTMENT ENTERTAIN SOME DOUBT AS TO THE EXTENT OF THE APPLICATION OF THAT DECISION IN VIEW OF THE SUBSEQUENT DECISION OF SEPTEMBER 2, 1943, B- 36008, TO THE EFFECT THAT ATTORNEYS' FEES INCURRED BY A "COST-PLUS" CONTRACTOR IN THE DEFENSE OF AN ACTION CHARGING UNFAIR LABOR PRACTICES IN VIOLATION OF SECTION 8 OF THE NATIONAL LABOR RELATIONS ACT, 49 STAT. 449, 452, MAY NOT BE REIMBURSED AS A PART OF THE COST OF THE CONTRACT WORK.

THERE IS, OF COURSE, A MARKED DISTINCTION BETWEEN THE TWO DECISIONS. THE FORMER, IT WAS RECOGNIZED THAT, SINCE THE GOVERNMENT GENERALLY IS OBLIGATED TO REIMBURSE "COST-PLUS" CONTRACTORS FOR ALL LABOR COSTS AND FOR LOSSES AND EXPENSES ACTUALLY SUSTAINED OR INCURRED IN CONNECTION WITH THE WORK COVERED BY THEIR CONTRACTS, CASES WELL MIGHT ARISE WHERE IT WOULD BE MORE ADVANTAGEOUS TO THE GOVERNMENT TO BEAR THE COST OF RESISTING CIVIL SUITS BROUGHT AGAINST THE CONTRACTORS FOR RECOVERY OF THE PENALTIES PRESCRIBED IN SECTION 16 (B) OF THE FAIR LABOR STANDARDS ACT OF 1938, 52 STAT. 1060, 1069, THAN IT WOULD BE TO PAY THE OVERTIME BENEFITS PROVIDED BY SECTION 7 OF THE ACT, 52 STAT. 1063. CONSEQUENTLY, IT WAS HELD THAT WHERE THERE FIRST HAS BEEN A BONA FIDE ADMINISTRATIVE DETERMINATION THAT DEFENSE OF THE SUITS WOULD BE TO THE BEST INTEREST OF THE UNITED STATES NO OBJECTION WOULD BE RAISED TO OTHERWISE PROPER REIMBURSEMENT FOR REASONABLE COSTS DIRECTLY ATTRIBUTABLE TO THE SUITS, INCLUDING ATTORNEY'S FEES IF NECESSARILY INCURRED. IN SUPPORT OF THE CONCLUSION THUS REACHED THERE WAS CITED THE CASE OF CENTRAL CONSTRUCTION CORPORATION V. THE UNITED STATES, 63 C.1CLS. 290, 296, WHEREIN, WITH RESPECT TO THE REIMBURSEMENT OF ATTORNEYS' FEES TO A ,COST-PLUS" CONTRACTOR, THE COURT OF CLAIMS OF THE UNITED STATES STATED:

ORDINARILY WE WOULD NOT HOLD THAT FEES TO COUNSEL WERE NECESSARILY A PART OF COST OF THE WORK CONTEMPLATED IN CONTRACTS OF THIS CHARACTER. BUT IN THIS CASE THE PLAINTIFF WAS REQUESTED BY THE CONTRACTING OFFICER TO PERFORM CERTAIN SERVICES FOR THE BENEFIT OF THE GOVERNMENT, AND IN THE COURSE OF THE WORK UNDER THE CONTRACT THESE SERVICES COULD NOT BE PROPERLY PERFORMED IN THE INTEREST OF THE GOVERNMENT WITHOUT THE EMPLOYMENT OF AGENCIES EQUIPPED FOR THEIR EFFECTIVE PERFORMANCE. THE PLAINTIFF HAD TO EMPLOY SUCH AGENCIES AND WAS, IN EFFECT, AUTHORIZED TO DO SO, AND HAVING EMPLOYED THEM AND PAID THEM THEIR REASONABLE CHARGES, THE PLAINTIFF SHOULD BE REIMBURSED THE AMOUNT SO PAID * * *.

HOWEVER, AS DISTINGUISHED FROM THOSE CASES CONSIDERED IN THE FORMER DECISION, THERE APPEARED NOTHING IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHICH WAS THE SUBJECT OF THE LATER DECISION--- INVOLVING AS IT DID A QUESTION OF LABOR REPRESENTATION--- FROM WHICH IT REASONABLY COULD BE SAID THAT THE OUTCOME OF THE ACTION WOULD HAVE ANY DIRECT RELATIONSHIP TO THE COST OF THE CONTRACT WORK AND, THEREFORE, WOULD BE SUCH A MATTER OF INTEREST TO THE UNITED STATES IN ITS CONTRACTING CAPACITY AS LEGALLY WOULD JUSTIFY A DEPARTURE FROM THE GENERAL RULE THAT ATTORNEYS' FEES INCURRED IN THE PERFORMANCE OF "COST-PLUS" CONTRACTS DO NOT CONSTITUTE ALLOWABLE ITEMS OF COST THEREUNDER.

IT IS, THEREFORE, CLEARLY EVIDENT THAT THE DECISION OF SEPTEMBER 2, 1943, WAS NOT INTENDED TO DELIMIT THE APPLICATION OF THE FORMER IN ANY MANNER WHATEVER AND IT SHOULD NOT BE SO CONSTRUED.

YOUR SECOND AND THIRD QUESTIONS PRESENT A PROBLEM SOMEWHAT SIMILAR TO THAT CONSIDERED IN 22 COMP. GEN. 993, SUPRA. SEE, ALSO, 22 COMP. GEN. 277. IN OTHER WORDS, FOR THE REASONS SET FORTH IN YOUR LETTER, IT READILY IS APPARENT THAT CASES MIGHT ARISE WHERE CERTAIN "COST-PLUS" CONTRACT EMPLOYEES HAVE BEEN WITHIN THE COVERAGE OF THE FAIR LABOR STANDARDS ACT, SUPRA, DURING PERIODS OF THEIR EMPLOYMENT WITHOUT HAVING RECEIVED THE OVERTIME BENEFITS TO WHICH THEY WERE ENTITLED UNDER SECTION 7 OF THE ACT, AND THAT, IN VIEW OF THE CONTRACTOR'S AND, A FORTIORI, THE GOVERNMENT-S, RESULTING LIABILITY FOR THE ADDITIONAL PENALTIES IMPOSED BY SECTION 16 (B) OF THE ACT, IT WOULD BE TO THE GOVERNMENT'S ADVANTAGE TO SETTLE SUCH CASES BY AGREEMENTS PROVIDING FOR PAYMENT OF AMOUNTS LESS THAN THE TOTAL AMOUNTS WHICH WOULD BE REQUIRED TO BE PAID IN THE EVENT ADVERSE JUDGMENTS WERE OBTAINED. IN VIEW THEREOF THIS OFFICE WILL NOT BE REQUIRED TO OBJECT TO PAYMENTS MADE PURSUANT TO SUCH SETTLEMENT AGREEMENTS, IRRESPECTIVE OF WHETHER THE AGGRIEVED EMPLOYEES ACTUALLY MAY NOT HAVE INSTITUTED SUITS UNDER THE ACT, OR WHETHER THE CONSUMMATION OF THE AGREEMENTS NECESSITATED ADJUSTMENT OF DISPUTED QUESTIONS PERTAINING TO THE APPLICATION OF THE ACT AS WELL AS TO THE AMOUNTS OF OVERTIME INVOLVED.

OF COURSE, THE VOUCHERS COVERING THE SAID PAYMENTS SHOULD BE SUPPORTED BY EVIDENCE SETTING FORTH THE BASIS FOR THE ADMINISTRATIVE DETERMINATION THAT THE SETTLEMENT IN EACH INSTANCE WAS FULLY WARRANTED AS BEING TO THE BEST INTEREST OF THE GOVERNMENT. IN THIS CONNECTION, IT WOULD APPEAR THAT ANY QUESTIONS OF LAW WITH RESPECT TO THE APPLICATION OF THE ACT PROPERLY SHOULD BE DETERMINED BY THE CONTRACTING OFFICER ONLY AFTER THOROUGH CONSIDERATION HAS BEEN GIVEN THE MATTER BY COMPETENT GOVERNMENT ATTORNEYS OR BY THE PRIVATE ATTORNEYS ENGAGED TO REPRESENT THE CONTRACTORS IF THE FORMER ARE NOT AVAILABLE, AND A SHOWING TO THAT EFFECT SHOULD BE MADE A PART OF THE EVIDENCE SUBMITTED WITH THE VOUCHERS. ALSO, THE REASONABLENESS OF AMOUNTS PAID ON THE VOUCHERS SHOULD BE ESTABLISHED BY SATISFACTORY EVIDENCE OR AUTHORITATIVE DETERMINATIONS, AND SUCH EVIDENCE OR DETERMINATIONS SHOULD BE FURNISHED WITH THE VOUCHERS.