B-39636, FEBRUARY 25, 1944, 23 COMP. GEN. 621

B-39636, FEBRUARY 25, 1944, 23 COMP. GEN. 621

CONTRACTS - COST-PLUS - MILITARY SEVERANCE PAY TO EMPLOYEES ENTERING MILITARY SERVICE IN THE ABSENCE OF SPECIFIC CONTRACTUAL PROVISIONS TO THE CONTRARY, AMOUNTS PAID BY A COST-PLUS-A-FIXED-FEE CONTRACTOR TO ITS EMPLOYEES AS MILITARY SEVERANCE PAY, UPON THEIR ENTRY INTO THE ARMED SERVICES OF THE UNITED STATES, PURSUANT TO THE PROVISIONS OF A COLLECTIVE BARGAINING AGREEMENT BETWEEN THE CONTRACTOR AND THE EMPLOYEES' TRADE UNION, WHICH AGREEMENT WAS APPROVED BY THE NATIONAL WAR LABOR BOARD, MAY PROPERLY BE REIMBURSED AS ITEMS OF COST UNDER THE CONTRACT.

COMPTROLLER GENERAL WARREN TO THE CHAIRMAN, UNITED STATES MARITIME COMMISSION, FEBRUARY 25, 944:

REFERENCE IS MADE TO YOUR LETTER OF JANUARY 24, 1944, REQUESTING A DECISION AS TO THE PROPRIETY OF USING FUNDS APPROPRIATED TO THE MARITIME COMMISSION FOR REIMBURSEMENT TO THE NEW ENGLAND SHIPBUILDING CORPORATION OF AMOUNTS PAID ITS EMPLOYEES AS MILITARY SEVERANCE PAY UPON THEIR ENTRY INTO THE ARMED SERVICES OF THE UNITED STATES. IT IS ASSUMED THAT THE QUESTION HAS ARISEN IN CONNECTION WITH THE DETERMINATION OF PERFORMANCE COSTS PROPERLY REIMBURSABLE TO SAID CORPORATION UNDER ONE OR MORE OF ITS SEVERAL COST-PLUS-A-FIXED-FEE CONTRACTS WITH THE UNITED STATES FOR THE CONSTRUCTION OF CERTAIN SHIPYARD FACILITIES AND VESSELS.

IT APPEARS FROM YOUR LETTER THAT A CONTROVERSY OVER WAGES AND WORKING CONDITIONS BETWEEN THE NEW ENGLAND SHIPBUILDING CORPORATION AND LOCAL NO. 50 OF THE INDUSTRIAL UNION OF MARINE AND SHIPBUILDING WORKERS OF AMERICA WAS HEARD BY THE NATIONAL WAR LABOR BOARD, AND THAT THE LATTER AGENCY ON NOVEMBER 24, 1943, ISSUED ITS FINAL ORDER IN THE MATTER, EFFECTIVE AS OF FEBRUARY 6, 1943, BY WHICH, INTER ALIA, APPROVAL WAS EXTENDED TO THE FOLLOWING PROVISION OF A COLLECTIVE BARGAINING AGREEMENT BETWEEN THE PARTIES:

ANY EMPLOYEE WHO SHALL ENTER THE SERVICE OF THE UNITED STATES ARMED SERVICES OR ANY AUXILIARY THERETO, WHEN LEAVING HIS POSITION WITH THE COMPANY SHALL RECEIVE FOR ONE MONTH'S EMPLOYMENT ONE FULL DAY'S PAY AT HIS REGULAR RATE; TWO MONTHS' EMPLOYMENT--- THREE DAYS' PAY AT HIS REGULAR ATE; AND FOR THREE MONTHS' OR MORE EMPLOYMENT--- FIVE DAYS' PAY AT HIS REGULAR RATE, PLUS ANY ACCUMULATED VACATION PAY.

YOU STATE THAT OPPOSITION OF THE MARITIME COMMISSION TO REIMBURSEMENT OF EXPENDITURES FOR MILITARY SEVERANCE PAY IS BASED ON THE FOLLOWING CONSIDERATIONS:

1. CONGRESS HAD MADE PROVISION FOR THE COMPENSATION OF MEMBERS OF THE ARMED FORCES, AND IN MAKING ITS DECISION CONGRESS CONSIDERED THE ENTIRE ECONOMIC SITUATION OF THE INDIVIDUAL WHO IS REQUIRED TO LEAVE HIS JOB IN CIVIL LIFE TO ENTER THE ARMED FORCES. THIS IS BORNE OUT IN THE RELAXATIONS MADE IN THE INCOME TAX REQUIREMENTS, PROVISIONS RESPECTING JUDGMENTS AND DEBTS OWED BY INDUCTEES, ALLOWANCES FOR FAMILIES, ETC.

2. IN VIEW OF THE FACT THAT CONGRESS HAD SO ACTED, IT IS QUESTIONABLE AS TO WHETHER IT WOULD BE PROPER TO EXPEND FUNDS APPROPRIATED TO THE MARITIME COMMISSION TO FURTHER TAKE CARE OF THE INDIVIDUAL FOR SUCH PURPOSES.

3. THE MARITIME COMMISSION DEFINITELY FEELS THAT THE ALLOWANCE OF EXPENDITURES TO MEET THE REQUIREMENTS OF THE WAR LABOR BOARD'S ORDER WITH RESPECT TO MILITARY SEVERANCE PAY WILL INCREASE THE COSTS OF PRODUCTION OF SHIPS AT THE COMPANY'S PLANT AND MAY CREATE A PRECEDENT OF EVEN BROADER APPLICATION.

AN EXAMINATION OF THE VARIOUS STATUTES ENACTING PROVISIONS SUCH AS REFERRED TO BY YOU, INCLUDING APPROPRIATION ACTS FOR THE MARITIME COMMISSION, FAILS TO DISCLOSE ANY LANGUAGE WHICH, EITHER EXPLICITLY OR BY NECESSARY IMPLICATION, PROHIBITS REIMBURSEMENT FOR EXPENSES OF THE CHARACTER IN QUESTION AS ITEMS OF COST UNDER COST-PLUS-A-FIXED-FEE CONTRACTS ENTERED INTO BY THE COMMISSION, NOR IS SUCH A RESTRICTION IMPOSED BY ANY OTHER PROVISION OF LAW WHICH HAS COME TO MY ATTENTION. APPEARS, THEREFORE, THAT, WHILE THE CONSIDERATIONS ABOVE MENTIONED MIGHT WELL HAVE WARRANTED THE NATIONAL WAR LABOR BOARD IN REFUSING TO APPROVE THE AGREEMENT PROVIDING FOR SUCH PAYMENTS, THE PROPRIETY OF REIMBURSEMENT TO THE NEW ENGLAND SHIPBUILDING CORPORATION FOR SUCH EXPENDITURES IS DETERMINABLE SOLELY BY REFERENCE TO THE PROVISIONS OF THE PARTICULAR CONTRACT INVOLVED; AND SINCE NO SPECIFIC CONTRACT HAS BEEN CITED, THE QUESTION MAY BE ANSWERED ONLY IN GENERAL TERMS.

BY ITS VERY NATURE, ONE OF THE BASIC PRINCIPLES OF A COST-PLUS-A FIXED- FEE CONTRACT IS REIMBURSEMENT TO THE CONTRACTOR FOR COSTS NECESSARILY INCURRED, INCLUDING SUCH LABOR COSTS AS MAY BE REQUISITE TO PROPER PERFORMANCE UNDER THE CONTRACT. THE TERM "LABOR COSTS" ORDINARILY IS UNDERSTOOD TO INCLUDE, IN ADDITION TO COMPENSATION AT A FIXED RATE FOR TIME ACTUALLY WORKED, CERTAIN OTHER AMOUNTS FOR WHICH NO CORRESPONDING SERVICES ARE PERFORMED, AS FOR EXAMPLE, VACATION AND SICK LEAVE PAY, AND PENSION AND RETIREMENT BENEFITS. A GENERAL CRITERION OF REIMBURSABILITY FOR LABOR COSTS WOULD APPEAR TO BE A SHOWING THAT THE SERVICES INVOLVED WERE NECESSARY TO PERFORMANCE OF THE CONTRACT AND THAT THE EXPENDITURES FOR WHICH REIMBURSEMENT IS SOUGHT WERE REASONABLY REQUIRED TO SECURE SUCH SERVICES.

IN THE PRESENT CASE IT IS CLEAR THAT THE CONTRACTOR DID NOT ACCEDE TO THE ABOVE-QUOTED PROVISION OF THE COLLECTIVE BARGAINING AGREEMENT IMPROVIDENTLY, BUT ONLY AFTER APPROVAL OF THE AGREEMENT BY THE NATIONAL WAR LABOR BOARD, AN AGENCY OF THE GOVERNMENT AUTHORIZED TO HEAR AND DECIDE THE LABOR DISPUTE INVOLVED ON ITS MERITS. UNDER THE CIRCUMSTANCES IT IS APPARENT THAT THE CONTRACTOR HAD NO CHOICE IN THE MATTER BUT TO PAY ITS EMPLOYEES THE COMPENSATION STIPULATED BY THE COLLECTIVE BARGAINING AGREEMENT IN ORDER TO SECURE THE LABOR NECESSARY FOR PERFORMANCE OF ITS CONTRACTS.

ACCORDINGLY, IN THE ABSENCE OF SPECIFIC CONTRACTUAL PROVISIONS TO THE CONTRARY, YOU ARE ADVISED THAT MILITARY SEVERANCE PAYMENTS MADE BY THE NEW ENGLAND SHIPBUILDING CORPORATION TO ITS EMPLOYEES, IN CONFORMITY WITH THE APPROVED PROVISIONS OF SUCH COLLECTIVE BARGAINING AGREEMENT, WOULD APPEAR TO BE PROPERLY REIMBURSABLE AS ITEMS OF COST UNDER A COST REIMBURSEMENT CONTRACT.