B-85210, MAY 27, 1949

B-85210, MAY 27, 1949

PRECIS-UNAVAILABLE

THE HONORABLE, THE SECRETARY OF THE AIR FORCE:

I HAVE YOUR LETTER OF APRIL 5, 1949, WITH ENCLOSURES, WHEREIN A DECISION IS REQUESTED AS TO WHETHER CONTRACT NO. W 33-038 AC-16551, DATED MAY 15, 1947, WITH THE AEROJET ENGINEERING CORPORATION MAY BE REFORMED OR AMENDED BY THE DELETION OF APPENDIX "C" THEREOF ON THE GROUND THAT A MUTUAL MISTAKE WAS MADE IN THE EXECUTION OF THE CONTRACT IN THAT SAID APPENDIX WAS ERRONEOUSLY INCLUDED THEREIN.

THE CONTRACT, WHICH PROVIDES THAT THE AEROJET ENGINEERING CORPORATION WOULD FURNISH ARCHITECTURAL, ENGINEERING, CONSTRUCTION AND MANAGEMENT SERVICES INCIDENT TO THE CONSTRUCTION OF A ROCKET STATIC TEST STAND AT MUROC ARMY AIR FIELD, MUROC, CALIFORNIA, WAS ENTERED INTO ON A COST-PLUS-A -FIXED-FEE BASIS. WITH RESPECT TO REIMBURSEMENT OF THE CONTRACTOR'S COSTS, ARTICLE XII(1) OF THE CONTRACT IS TO THE EFFECT THAT THE GOVERNMENT WILL CURRENTLY REIMBURSE THE CONTRACTOR FOR EXPENDITURES MADE IN ACCORDANCE WITH ARTICLE XI UPON CERTIFICATION TO, AND VERIFICATION BY, THE CONTRACTING OFFICER OF THE ORIGINAL SIGNED PAYROLLS FOR LABOR, THE RECEIPTED INVOICES FOR MATERIALS, OR SUCH OTHER DOCUMENTS AS THE CONTRACTING OFFICER MAY REQUIRE. THE CONTRACTOR'S KEY EMPLOYEE AND THOSE OF ITS SUBCONTRACTORS WERE LISTED IN APPENDIX "C" TO THE CONTRACT, WHICH NOT ONLY SHOWS THEIR NAMES BUT GIVES THE JOB CLASSIFICATION OF CASH AND THE RATE OF SALARY, AS WELL AS THE MAXIMUM SALARY AGREED TO BE PAID UNDER THE CONTRACT. HOWEVER, TREASURY DECISION 5000, WHICH, UNDER THE TERMS OF THE CONTRACT, IS TO SERVE GENERALLY AS THE CONTRACTING OFFICER'S CRITERION IN DETERMINING THE AMOUNTS PAYABLE THEREUNDER, INCLUDES THE FOLLOWING PERTINENT PROVISION IN PARAGRAPH (I) OF SECTION 26.:

"UNREASONABLE COMPENSATION.-- THE SALARIES AND COMPENSATION FOR SERVICES WHICH ARE TREATED AS A PART OF THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT INCLUDE REASONABLE PAYMENTS FOR SALARIES, BONUSES, OR OTHER COMPENSATION FOR SERVICES. AS A GENERAL RULE, BONUSES PAID TO EMPLOYEES AND NOT TO OFFICERS IN PURSUANCE OF A REGULARLY ESTABLISHED INCENTIVE BONUS SYSTEM MAY BE ALLOWED AS A PART OF THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT.

"THE TEST OF ALLOWABILITY IS WHETHER THE AGGREGATE COMPENSATION PAID TO EACH INDIVIDUAL IS FOR SERVICES ACTUALLY RENDERED INCIDENT TO, AND NECESSARY FOR, THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT, AND IS REASONABLE. EXCESSIVE OR UNREASONABLE PAYMENTS WHETHER IN CASH, STOCK, OR OTHER PROPERTY OSTENSIBLY AS COMPENSATION FOR SERVICES SHALL NOT BE INCLUDED IN THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT."

IT APPEARS FROM THE ENCLOSURES FORWARDED WITH YOUR LETTER THAT BY LETTER DATED MARCH 19, 1947, THE CONTRACTOR FORWARDED TO THE CONTRACTING OFFICER THREE COPIES OF THE CONTRACT, WHICH HAD BEEN EXECUTED BY THE CONTRACTOR CONDITIONALLY, ONE OF THE CONDITIONS BEING THAT REIMBURSEMENT OF ITS SALARY RATES CURRENTLY IN OPERATION AT ITS PLANT WOULD HAVE TO BE ASSURED PRIOR TO COMMENCEMENT OF THE WORK COVERED BY THE CONTRACT. THEREAFTER, IN RESPONSE TO THE CONTRACTING OFFICER'S REQUEST FOR INFORMATION AS TO THE EMPLOYEES REQUIRED BY THE CONTRACTOR IN ACCORDANCE WITH APPENDIX "C", THE CONTRACTOR, BY LETTER DATED MAY 29, 1947, FURNISHED A LIST OF ITS KEY PERSONNEL WITH THE SALARY OF EACH, IT BEING STATED, HOWEVER, THAT THE SALARY LIST WAS SUBJECT TO "CHANGE UPWARD" IN ACCORDANCE WITH THE CONTRACTOR'S EXISTING SALARY RATE STRUCTURE AND MISCELLANEOUS INCOME POLICY. IN LETTER DATED FEBRUARY 6, 1948, THE CONTRACTOR ADVISED THE UNITED STATES AIR FORCE, AIR MATERIAL COMMAND, WRIGHT FIELD, DAYTON, OHIO, THAT IT WAS EXPERIENCING DIFFICULTY IN DETERMINING THE EFFECT TO BE GIVEN APPENDIX "C" DUE TO THE FACT THAT THE CONTRACTOR'S JOB CLASSIFICATIONS AND SALARY STRUCTURE DID NOT COMPLETELY CORRESPOND WITH THE INFORMATION REQUIRED BY THAT APPENDIX, AND THAT THE SAID APPENDIX WOULD BE COMPLIED WITH ONLY PENDING RECEIPT OF AN AMENDMENT DELETING IT FROM THE CONTRACT OR CLARIFYING ITS EFFECT.

WITH RESPECT TO THE INTENT OF THE CONTRACTING OFFICER-- ALTHOUGH HE STATED IN MEMORANDUM REPORT DATED FEBRUARY 9, 1949, THAT DURING THE NEGOTIATIONS PRECEDING THE EXECUTION OF THE CONTRACT IT WAS THE INTENTION OF THE PARTIES TO SUBSTITUTE THEREIN TREASURY DECISION 5000 FOR APPENDIX "C"-- THE RECORD SHOWS THAT BY LETTER OF MAY 13 AND 23, 1947, TO THE CONTRACTOR, HE REQUESTED INFORMATION ALLEGEDLY REQUIRED BY THE APPENDIX. IT SEEMS APPARENT THAT HE WOULD NOT HAVE FOLLOWED THAT COURSE OF ACTION HAD IT BEEN HIS INTENTION THAT THE APPENDIX WAS NOT TO BE GIVEN ANY APPLICATION. IN THIS CONNECTION, IT IS NOTED ALSO THAT BY LETTER DATED AUGUST 29, 1947, THE CONTRACTING OFFICER EXPRESSED THE BELIEF THAT DOUBT WOULD CONTINUE TO EXIST AS TO THE EFFECT TO BE GIVEN THE APPENDIX UNTIL THE MATTER WAS CLARIFIED BY REFORMATION OR AMENDMENT OF THE CONTRACT AND STATED, FURTHER, THAT IT WAS "BELIEVED THAT MEANWHILE APPENDIX, "C" SHOULD BE TREATED AS THOUGH FULLY EFFECTIVE."

THUS, IT SEEMS THAT THE CONTRACTOR DID NOT AGREE UNCONDITIONALLY TO THE TERMS OF APPENDIX "C" AS INCORPORATED INTO THE CONTRACT, ALTHOUGH IT IS EQUALLY CLEAR FROM THE COURSE OF ACTION FOLLOWED BY THE CONTRACTING OFFICER THAT IT WAS HIS INTENT THAT THE APPENDIX SHOULD BE INCORPORATED INTO THE CONTRACT. IN VIEW THEREOF, IT CANNOT BE SAID THAT EITHER PARTY MADE A MISTAKE WITH RESPECT TO THE APPLICABILITY OF APPENDIX "C" OR THAT THEY REACHED ANY AGREEMENT CONCERNING THE SAME WHICH NOW CAN BE MADE THE BASIS OF REFORMATION. RATHER, IT APPEARS THAT THERE WAS NO MUTUAL ASSENT OR MEETING OF MINDS AS TO WHAT PROVISION OF THE CONTACT. THE COURTS HAVE HELD CONSISTENTLY THAT A MEETING OF MINDS INVOLVING A COMMON UNDERSTANDING OF THE CONTRACT TERMS IS ESSENTIAL TO THE FORMULATION OF A CONTRACT. SEE PUGH V. FAIRMOUNT GOLD & S. MIN. CO. 112 U.S. 238; TILLEY V. COOK COUNTY 103 U.S. 155; WATERMAN V. BANKS 144 U.S. 394; CARR V. DUVAL 14 PET. 77; 14 COMP.GEN. 612; 16 ID. 699. THEREFORE, AS NO AGREEMENT WAS EVER REACHED WITH RESPECT TO THE MATTER HERE INVOLVED, THE CONTRACTOR IS NOT LEGALLY REQUIRED TO COMPLY WITH THE APPENDIX.

IN VIEW OF THE REPORTED FACTS AND CIRCUMSTANCES, THIS OFFICE WILL NOT BE REQUIRED TO OBJECT TO AN AMENDMENT TO THE CONTRACT EXPRESSLY DELETING THEREFROM THE PROVISIONS OF APPENDIX "C". A REFERENCE TO THIS DECISION SHOULD BE MADE WHEN FORWARDING THE AMENDMENT TO THE AUDIT DIVISION OF THE GENERAL ACCOUNTING OFFICE FOR FILING.

THE ENCLOSURES WITH YOUR LETTER ARE RETURNED HEREWITH.