B-41807, JULY 1, 1944, 24 COMP. GEN. 1

B-41807, JULY 1, 1944, 24 COMP. GEN. 1

CONTRACTS - COST-PLUS - ATTORNEYS' FEES THE COST OF LEGAL SERVICES RENDERED A COST-PLUS-A-FIXED-FEE CONTRACTOR, ALTHOUGH RELATING TO NEW AND NOVEL PROBLEMS IN CONNECTION WITH LABOR LAWS, LABOR MANAGEMENT, SUBCONTRACTS, ETC., ARISING BY REASON OF THE OVERSEAS LOCATION OF THE CONTRACT WORK, MUST BE CONSIDERED AS ONE TO BE ABSORBED FROM THE FIXED FEE STIPULATED AS COMPLETE COMPENSATION FOR THE CONTRACTOR'S SERVICES; AND, FURTHERMORE, THE COST OF SUCH LEGAL SERVICES, BEING SERVICES RELATING PRIMARILY TO THE MANAGEMENT, SUPERVISION OR CONDUCT OF THE CONTRACT, IS AN OVERHEAD EXPENSE REIMBURSEMENT OF WHICH IS PROHIBITED BY THE PROVISION OF THE CONTRACT THAT NO OVERHEAD EXPENSES OF ANY KIND SHALL BE INCLUDED IN THE COST OF THE WORK.

ACTING COMPTROLLER GENERAL YATES TO NEWFOUNDLAND BASE CONTRACTORS, JULY 1, 1944:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 17, 1944, REQUESTING REVIEW OF SETTLEMENT DATED MARCH 8, 1944, WHICH DISALLOWED YOUR CLAIM FOR $9,350, AS REIMBURSEMENT OF THE COST OF CERTAIN LEGAL SERVICES INCURRED BY YOU IN CONNECTION WITH COST-PLUS-A-FIXED-FEE CONTRACT NO. W 958-ENG-54, DATED FEBRUARY 8, 1941.

UNDER THE TERMS OF THE CONTRACT YOU AGREED TO FURNISH THE LABOR, MATERIALS, TOOLS, ETC., AND TO DO ALL THINGS NECESSARY FOR THE CONSTRUCTION OF AN OUTLYING DEFENSE BASE ON THE ISLAND OF NEWFOUNDLAND. IN CONSIDERATION OF YOUR UNDERTAKING, IT WAS PROVIDED IN ARTICLE I OF THE CONTRACT THAT, IN ADDITION TO BEING REIMBURSED FOR EXPENDITURES AS PROVIDED IN ARTICLE II AND OF THE PAYMENT TO YOU OF RENTAL FOR YOUR EQUIPMENT AS PROVIDED IN SAID ARTICLE I OF THE CONTRACT THAT, IN ADDITION TO BEING REIMBURSED FOR EXPENDITURES AS PROVIDED IN ARTICLE II AND OF THE PAYMENT TO YOU OF RENTAL FOR YOUR EQUIPMENT AS PROVIDED IN SAID ARTICLE II, YOU WOULD RECEIVE A FIXED FEE IN AN AMOUNT TO BE DETERMINED IN THE MANNER SPECIFIED THEREIN, WHICH FEE EXPRESSLY WAS STATED TO CONSTITUTE COMPLETE COMPENSATION FOR YOUR SERVICES "INCLUDING PROFIT AND ALL GENERAL OVERHEAD EXPENSES.' ARTICLE II OF THE CONTRACT, UNDER THE HEADING " GENERAL" PROVIDED, IN PERTINENT PART, AS FOLLOWS:

7. NO SALARIES OF THE CONTRACTOR'S EXECUTIVE OFFICERS, NO PART OF THE EXPENSE INCURRED IN CONDUCTING THE CONTRACTOR'S MAIN OFFICE OR REGULARLY ESTABLISHED BRANCH OFFICES, AND NO OVERHEAD EXPENSES OF ANY KIND, EXCEPT AS SPECIFICALLY AUTHORIZED IN SECTION 1 OF THIS ARTICLE, SHALL BE INCLUDED IN THE COST OF THE WORK; NOR SHALL ANY INTEREST ON CAPITAL EMPLOYED OR ON BORROWED MONEY BE INCLUDED IN THE COST OF THE WORK.

IT APPEARS FROM THE ITEMIZED INVOICE OF NEVIUS, BRETT AND KELLOGG, ATTORNEYS AND COUNSELORS AT LAW, 115 BROADWAY, NEW YORK, NEW YORK, THAT THE LEGAL SERVICES HERE IN QUESTION WERE FURNISHED DURING THE PERIOD FROM FEBRUARY 10, 1941, TO NOVEMBER 30, 1942, AND INCLUDED THE ANALYSIS OF VARIOUS FORMS OF INSURANCE CONTRACTS, AN EXAMINATION OF LABOR LAWS, THE PREPARATION OF EMPLOYMENT AND OTHER MISCELLANEOUS AGREEMENTS, THE NEGOTIATION AND PREPARATION OF SUBCONTRACTS, AN EXAMINATION OF THE LAW AND PRESENTMENT THEREOF IN MEMORANDUM FORM TO THE COMPTROLLER OF THE CITY OF NEW YORK IN CONNECTION WITH YOUR CLAIM OF EXEMPTION FROM LIABILITY FOR NEW YORK CITY SALES, USE AND GROSS RECEIPTS TAXES, ADVICE IN THE MAKING OF BANKING AND CURRENCY ARRANGEMENTS, ASSISTANCE IN MATTERS RELATING TO THE LEASE AND PURCHASE BY YOU OF EQUIPMENT AND THE DISPOSAL OF CERTAIN CLAIMS FILED AGAINST THE SAME, AND OTHER MISCELLANEOUS MATTERS RELATED TO THE GENERAL PROSECUTION OF THE WORK. YOUR CLAIM FOR REIMBURSEMENT OF THE COST OF SAID SERVICES WAS FORWARDED TO THIS OFFICE FOR DIRECT SETTLEMENT BY THE OFFICE OF THE FISCAL DIRECTOR, ARMY SERVICE FORCES, WAR DEPARTMENT, AND WAS DISALLOWED IN THE SETTLEMENT OF MARCH 8, 1944, FOR THE REASON THAT SINCE THE CONTRACT DID NOT SPECIFICALLY PROVIDE THAT ATTORNEY FEES WERE TO BE REIMBURSED BY THE GOVERNMENT AS A PART OF THE COST OF THE WORK, THE PAYMENT THEREOF WAS PROHIBITED BY THE PROVISION OF ARTICLE II, SECTION 7, QUOTED ABOVE.

BRIEFLY STATED, THE REASONS ADVANCED BY YOU FOR THE ALLOWANCE OF YOUR CLAIM, AS SET FORTH IN YOUR LETTER REQUESTING A REVIEW OF THE SAID SETTLEMENT, MAY BE SUMMARIZED AS FOLLOWS: THAT THE NEWFOUNDLAND BASE CONTRACTORS, A JOINT VENTURE, WAS ORGANIZED SPECIFICALLY TO CARRY OUT THE CONTRACT INVOLVED; THAT, SINCE THE CONSTRUCTION WORK CALLED FOR UNDER THE CONTRACT WAS PERFORMED OUTSIDE OF THE UNITED STATES, MANY NEW AND NOVEL PROBLEMS WERE PRESENTED IN CONNECTION WITH THE PROCUREMENT OF LABOR AND MATERIALS AND IN THE HANDLING OF SUBCONTRACT RELATIONS AND CONSEQUENTLY, THAT IT WAS NECESSARY TO PREPARE CONTRACTS AND AGREEMENTS TO TAKE CARE OF PARTICULAR SITUATIONS AS THEY AROSE IN SUCH MANNER AS TO PROTECT THE INTERESTS OF THE UNITED STATES; THAT, IN ORDER TO DO THIS, IT WAS NECESSARY FOR YOU TO OBTAIN LEGAL ADVICE AND ASSISTANCE FROM LAWYERS WHO WERE WIDELY EXPERIENCED IN CONSTRUCTION MATTERS AND WHOSE EXPERIENCE EMBRACED THE HANDLING OF SUCH MATTERS IN FOREIGN COUNTRIES; THAT, IN VIEW OF THE FACT THAT THE SERVICES PERFORMED BY THE ATTORNEYS IN QUESTION HAD TO DO WITH THE PROCUREMENT OF MATERIALS, LABOR AND EQUIPMENT, AND VARIOUS OTHER PROBLEMS AND OPERATIONS DIRECTLY CONNECTED WITH THE WORK, YOU DID NOT CONSIDER THEM IN THE NATURE OF "OVERHEAD.' FURTHERMORE, YOU STATE THAT, SINCE YOU WERE AUTHORIZED BY THE CONTRACTING OFFICER AT VARIOUS TIMES TO CONTRACT FOR OTHER PROFESSIONAL SERVICES, SUCH AS THOSE WHICH WERE FURNISHED BY ENGINEERING SPECIALISTS IN CONNECTION WITH THE ERECTION OF VARIOUS ITEMS OF EQUIPMENT, BOILERS, GENERATORS, ETC., YOU BELIEVE THAT YOU COULD HAVE OBTAINED SIMILAR AUTHORITY FOR THE EMPLOYMENT OF AN ATTORNEY TO BE CARRIED ON THE REIMBURSABLE PAY ROLL IN YOUR TEMPORARY OFFICE AT THE TIME YOU ARRANGED FOR THE LEGAL SERVICES INVOLVED BUT THAT YOU THOUGHT THE ARRANGEMENT WHICH YOU MADE WAS MORE PRACTICAL. ALSO, YOU ALLEGE THAT, IN YOUR OPINION, THE PROHIBITION AGAINST THE PAYMENT OF OVERHEAD EXPENSES OF ANY KIND CONTAINED IN PARAGRAPH 7 OF ARTICLE II OF THE CONTRACT, SUPRA, REFERS ONLY TO THE OVERHEAD EXPENSES OF THE CONTRACTOR'S MAIN OR BRANCH OFFICES AND DOES NOT RELATE TO EXPENSES INCURRED IN THE DIRECT PERFORMANCE OF THE WORK AT NEWFOUNDLAND.

WHILE IT MAY BE THAT THE WORK WHICH YOU WERE CALLED UPON TO PERFORM UNDER THE INSTANT CONTRACT GAVE RISE TO MANY NEW AND NOVEL PROBLEMS AND, AS A CONSEQUENCE, YOU FOUND IT NECESSARY TO REQUIRE THE ADVICE AND ASSISTANCE OF COUNSEL TO HANDLE SUCH PROBLEMS, IT DOES NOT FOLLOW THAT THE EXPENSE OF SUCH COUNSEL IS A REIMBURSABLE ITEM OF COST UNDER THE TERMS OF SAID CONTRACT. IT MUST BE ASSUMED THAT, AT THE TIME THE CONTRACT WAS NEGOTIATED BY YOURSELVES AND THE WAR DEPARTMENT, IT WAS REALIZED THAT, IN VIEW OF THE NATURE OF THE WORK TO BE PERFORMED THEREUNDER THERE WOULD BE ENCOUNTERED VARIOUS PROBLEMS DIFFERENT FROM THOSE PERTAINING TO WORK PERFORMED IN THIS COUNTRY. HENCE, IT MUST BE PRESUMED THAT, IF IT WERE CONTEMPLATED THAT YOU WOULD BE REIMBURSED FOR ANY SPECIAL OR UNUSUAL EXPENSES INCURRED IN DISPOSING OF SUCH PROBLEMS, THE CONTRACT WOULD HAVE SO PROVIDED. THEREFORE, SINCE NO SPECIFIC PROVISION TO SUCH EFFECT WAS INCORPORATED INTO THE CONTRACT, IT MUST BE HELD THE COSTS OF MEETING SUCH SPECIAL PROBLEMS WERE TO BE ABSORBED FROM THE FIXED FEE PAID TO YOU. THIS CONNECTION, IT IS TO BE NOTED THAT THE CONTRACT PROVIDED EXPRESSLY THAT SAID FIXED FEE WAS TO CONSTITUTE COMPLETE COMPENSATION FOR THE CONTRACTOR'S SERVICES AND, THEREFORE, IF YOU FOUND IT NECESSARY TO REQUIRE THE ADVICE OF COUNSEL TO ASSIST YOU IN DEALING WITH PROBLEMS THAT AROSE IN THE PERFORMANCE OF THE WORK, IT IS OBVIOUS THAT THE COST OF SUCH COUNSEL IS TO BE BORNE BY YOU.

MOREOVER, IT APPEARS THAT THE LEGAL SERVICES FOR WHICH REIMBURSEMENT IS CLAIMED PERTAINED TO MATTERS RELATING PRIMARILY TO THE MANAGEMENT, SUPERVISION OR CONDUCT OF THE CONTRACT AND, THEREFORE, THAT, UNDER WELL ESTABLISHED PRINCIPLES, THE COSTS THEREOF ARE OVERHEAD EXPENSES. LYTLE, CAMPBELL AND CO., INC. V. SOMERS, FILTER AND TODD CO., 276 PA. 409, 120 ATL. 409, 410. AS HEREINBEFORE STATED, THE INSTANT CONTRACT EXPRESSLY PROVIDES THAT NO OVERHEAD EXPENSES OF ANY KIND ARE TO BE INCLUDED IN THE COST OF THE WORK UNLESS SPECIFICALLY AUTHORIZED IN SECTION 1 OF ARTICLE II AND SAID SECTION MAKES NO PROVISION FOR REIMBURSEMENT OF ATTORNEY FEES OR LEGAL EXPENSES AS AN ITEM OF COST. HENCE, IT IS SEEN THAT THE PLAIN AND UNAMBIGUOUS TERMS OF THE CONTRACT PROHIBIT THE REIMBURSEMENT OF THE COST OF THE LEGAL SERVICES TO YOU. WITH RESPECT THERETO IT IS OBVIOUS THAT THERE IS NO REASONABLE BASIS FOR YOUR CONTENTION THAT THE PROHIBITION AGAINST THE INCLUSION OF OVERHEAD EXPENSES AS A PART OF THE COST OF THE WORK HAD REFERENCE TO THE OVERHEAD EXPENSES OF YOUR MAIN OR BRANCH OFFICES. IT IS TO BE NOTED FROM ARTICLE II SECTION 7 OF THE CONTRACT, SUPRA, THAT, IN ADDITION TO SPECIFICALLY EXCLUDING ANY EXPENSE OF CONDUCTING YOUR MAIN OR BRANCH OFFICES, NO OVERHEAD EXPENSE OF ANY KIND, WHETHER INCURRED IN THE CONDUCT OF SAID OFFICES OR IN CONNECTION WITH THE PERFORMANCE OF THE INSTANT CONTRACT, IS TO BE INCLUDED IN THE COST OF THE WORK UNLESS SPECIFICALLY AUTHORIZED BY SECTION 1 OF ARTICLE II.

FURTHERMORE, THE FACT THAT THE CONTRACTING OFFICER MAY HAVE AUTHORIZED YOU TO CONTRACT FOR OTHER PROFESSIONAL SERVICES, SUCH AS FOR THOSE OF ENGINEERING SPECIALISTS IN CONNECTION WITH THE ERECTION OF VARIOUS ITEMS OF EQUIPMENT, BOILERS, GENERATORS, ETC., CONSTITUTES NO BASIS FOR ASSUMING THAT, IF YOU HAD REQUESTED IT, HE WOULD HAVE AUTHORIZED YOU TO EMPLOY AN ATTORNEY TO BE CARRIED ON THE REIMBURSABLE PAY ROLL. WHILE THE ENGINEERING SERVICES TO WHICH YOU REFER ARE NOT IDENTIFIED, IT REASONABLY MAY BE CONCLUDED THAT THEY CONSTITUTED A PART OF THE PRODUCTIVE WORK CALLED FOR UNDER THE CONTRACT RATHER THAN A PART OF THE SUPERVISORY OR ADMINISTRATIVE WORK THEREUNDER. IN ANY EVENT, THE CONTRACTING OFFICER'S AUTHORITY TO APPROVE A PARTICULAR ITEM OF COST FOR REIMBURSEMENT DOES NOT EXTEND TO THE APPROVAL OF ITEMS THE EXPENSE OF WHICH, BY THE TERMS OF THE CONTRACT, WAS TO BE ABSORBED BY THE FIXED FEE.

ACCORDINGLY, THE SETTLEMENT OF MARCH 8, 1944, MUST BE, AND IS, SUSTAINED.