B-94503, AUG 14, 1950

B-94503: Aug 14, 1950

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THE EXPENSES ARE ITEMIZED AND DESCRIBED IN SCHEDULES A AND A-1 THROUGH A-8. WHICH ARE INCLUDED IN THE FILE ENTITLED "DOCUMENTARY SUPPORT FOR KEY VO. 1577. THE AMOUNTS INVOLVED PREVIOUSLY WERE REIMBURSED TO THE CONTRACTOR. THE SAID AMOUNTS LATER WERE COLLECTED FROM THE CONTRACTOR BY VOUCHER DEDUCTIONS AND OTHERWISE. THE ITEMS INVOLVED ARE AS FOLLOWS: CHART OMITTED THE SEVERAL CONTRACTS INVOLVED PROVIDE THAT ALLOWABLE COSTS WILL BE DETERMINED BY THE CONTRACTING OFFICER IN ACCORDANCE WITH THE REGULATIONS FOR THE DETERMINATION OF THE COST OF PERFORMING A CONTRACT AS CONTAINED IN SECTION 26.9 OF T.D. 5000. WHICH IS. NO DEFINITIONS OF THE ELEMENTS OF COST MAY BE STATED WHICH ARE OF INVARIABLE APPLICATION TO ALL CONTRACTORS AND SUBCONTRACTORS.

B-94503, AUG 14, 1950

PRECIS-UNAVAILABLE

MAJOR H. A. SOSKIN, F.D.; U.S. ARMY:

C/O CHIEF OF FINANCE

DEPARTMENT OF THE ARMY

THERE HAS BEEN RECEIVED BY REFERENCE FROM THE CHIEF OF FINANCE YOUR COMMUNICATION OF AUGUST 19, 1949, TRANSMITTING FOR ADVANCE DECISION EIGHT BUREAU VOUCHERS STATED IN FAVOR OF NORTHROP AIRCRAFT, INC., HAWTHORNE, CALIFORNIA, IN THE AMOUNTS AND UNDER THE COST-PLUS-A-FIXED FEE CONTRACTS LISTED BELOW:

CHART OMITTED

THE VOUCHERS COVER REIMBURSEMENT TO THE CONTRACTOR ON A PRO RATA BASIS FOR CERTAIN ITEMS OF OVERHEAD EXPENSES INCURRED DURING THE PERIOD 1941 TO 1946. THE EXPENSES ARE ITEMIZED AND DESCRIBED IN SCHEDULES A AND A-1 THROUGH A-8, WHICH ARE INCLUDED IN THE FILE ENTITLED "DOCUMENTARY SUPPORT FOR KEY VO. 1577," ETC., SUBMITTED WITH THE VOUCHERS. THE AMOUNTS INVOLVED PREVIOUSLY WERE REIMBURSED TO THE CONTRACTOR, BUT, AS A RESULT OF EXCEPTIONS TAKEN BY THE AUDIT DIVISION OF THE GENERAL ACCOUNTING OFFICE, THE SAID AMOUNTS LATER WERE COLLECTED FROM THE CONTRACTOR BY VOUCHER DEDUCTIONS AND OTHERWISE. THE ITEMS INVOLVED ARE AS FOLLOWS:

CHART OMITTED

THE SEVERAL CONTRACTS INVOLVED PROVIDE THAT ALLOWABLE COSTS WILL BE DETERMINED BY THE CONTRACTING OFFICER IN ACCORDANCE WITH THE REGULATIONS FOR THE DETERMINATION OF THE COST OF PERFORMING A CONTRACT AS CONTAINED IN SECTION 26.9 OF T.D. 5000, WHICH IS, IN PERTINENT PART, AS FOLLOWS:

"SEC. 26.9 COST OF PERFORMING A CONTRACT OR SUBCONTRACT.-- (A) GENERAL RULE.-- THE COST OF PERFORMING A PARTICULAR CONTRACT OR SUBCONTRACT SHALL BE THE SUM OF (1) THE DIRECT COSTS, INCLUDING THEREIN EXPENDITURES FOR MATERIALS, DIRECT LABOR AND DIRECT EXPENSES, INCURRED BY THE CONTRACTING PARTY IN PERFORMING THE CONTRACT OR SUBCONTRACT; AND (2) THE PROPER PROPORTION OF ANY INDIRECT COSTS (INCLUDING THEREIN A REASONABLE PROPORTION OF MANAGEMENT EXPENSES) INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT. "(B) ELEMENTS OF COST.-- NO DEFINITIONS OF THE ELEMENTS OF COST MAY BE STATED WHICH ARE OF INVARIABLE APPLICATION TO ALL CONTRACTORS AND SUBCONTRACTORS. IN GENERAL, THE ELEMENTS OF COST MAY BE DEFINED FOR PURPOSES OF THE ACT AS FOLLOWS:

"(1) MANUFACTURING COST, WHICH IS THE SUM OF FACTORY COST (SEE PARAGRAPH (C) OF THIS SECTION) AND OTHER MANUFACTURING COST (SEE PARAGRAPH (D) OF THIS SECTION); ***

"(C) FACTORY COST.-- FACTORY COST IS THE SUM OF THE FOLLOWING:

"(5) INDIRECT FACTORY EXPENSES.-- ITEMS, USUALLY TERMED 'FACTORY OVERHEAD,' WHICH ARE NOT DIRECTLY CHARGEABLE TO THE FACTORY COST OF PERFORMING THE CONTRACT OR SUBCONTRACT BUT WHICH ARE PROMPTLY INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT AND CONSIST OF THE FOLLOWING:

"(D) FIXED CHARGES AND OBSOLESCENCE.-- RECURRING CHARGES WITH RESPECT TO PROPERTY USED FOR MANUFACTURING PURPOSES OF THE CONTRACT OR SUBCONTRACT, SUCH AS *** PROPERTY TAXES ***

"(E) MISCELLANEOUS INDIRECT FACTORY EXPENSES.-- MISCELLANEOUS FACTORY EXPENSES NOT DIRECTLY CHARGEABLE TO THE FACTORY COST OF PERFORMING THE CONTRACT OR SUBCONTRACT, SUCH AS *** ORDINARY AND NECESSARY EXPENSES OF REARRANGING FACILITIES WITHIN A DEPARTMENT OR PLANT; EMPLOYEES' WELFARE EXPENSES ***

"(G) *** EXPENSES OF DISTRIBUTION, SERVICING, AND ADMINISTRATION, WHICH ARE TREATED IN THIS SECTION AS A PART OF GENERAL EXPENSES IN DETERMINING THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT *** COMPREHEND THE EXPENSES INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT, WHICH ARE INCURRED IN CONNECTION WITH THE DISTRIBUTION AND GENERAL SERVICING OF THE CONTRACTING PARTY'S PRODUCTS AND THE GENERAL ADMINISTRATION OF THE BUSINESS, SUCH AS--

"(1) *** THE SALARIES OF THE CORPORATE AND GENERAL EXECUTIVE OFFICERS AND THE SALARIES AND WAGES OF ADMINISTRATIVE CLERICAL EMPLOYEES ***.

"(4) *** EMPLOYEES' WELFARE EXPENSES; ***

"AMONG THE ITEMS WHICH SHALL NOT BE INCLUDED AS A PART OF THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT OR CONSIDERED IN DETERMINING SUCH COST, ARE THE FOLLOWING: *** DUES AND MEMBERSHIPS OTHER THAN OF REGULAR TRADE ASSOCIATIONS; *** EXPENSES, MAINTENANCE AND DEPRECIATION OF EXCESS FACILITIES (INCLUDING IDLE LAND *** VACATED OR ABANDONED, OR NOT ADAPTABLE FOR FUTURE USE IN PERFORMING CONTRACTS OR SUBCONTRACTS; ***

"(J) ALLOCATION OF INDIRECT COSTS.-- NO GENERAL RULE APPLICABLE TO ALL CASES MAY BE STATED FOR ASCERTAINING THE PROPER PROPORTION OF THE INDIRECT COSTS TO BE ALLOCATED TO THE COST OF PERFORMING A PARTICULAR CONTRACT OR SUBCONTRACT. SUCH PROPER PROPORTION DEPENDS UPON ALL THE FACTS AND CIRCUMSTANCES RELATING TO THE PERFORMANCE OF THE PARTICULAR CONTRACT OR SUBCONTRACT. SUBJECT TO A REQUIREMENT THAT ALL ITEMS WHICH HAVE NO RELATION TO THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT SHALL BE ELIMINATED FROM THE AMOUNT TO BE ALLOCATED, THE FOLLOWING METHODS OF ALLOCATION ARE OUTLINED AS ACCEPTABLE IN A MAJORITY OF CASES ***."

THERE HAVE BEEN SUBMITTED IN SUPPORT OF THE RECLAIM VOUCHERS MEMORANDA AND LETTERS FROM THE CONTRACTOR, THE AAF RESIDENT AUDITOR, THE CONTRACTING OFFICER, AND HEADQUARTERS, AIR MATERIAL COMMAND, WRIGHT PATTERSON AIR FORCE BASE, DAYTON, OHIO. THE LATTER, BY 13TH INDORSEMENT OF MARCH 15, 1950, HAS RECOMMENDED THAT REIMBURSEMENT BE AUTHORIZED FOR ALL OF THE ITEMS OF EXPENSE INVOLVED EXCEPT ITEM NO. 11.

WITH RESPECT TO ITEM 1, THE REIMBURSEMENT OF WHICH WAS EXCEPTED TO ON THE GROUND THAT THE RECORD INDICATED THAT THE EMPLOYEE INVOLVED HAD DEVOTED HIS TIME TO ACTIVITIES OF THE NORTHROP RECREATION CLUB TRADING POST STORE, A SEPARATE ORGANIZATION, AND HENCE HIS SALARY COULD NOT BE SAID TO HAVE BORNE ANY RELATION TO THE CONTRACT WORK, IT IS NOW SHOWN THAT THIS EMPLOYEES' POSITION AS SUPERVISOR OF THE TRADING POST WAS OF AN ADVISORY NATURE, WHICH REQUIRED VERY LITTLE OF HIS TIME, AND THAT HE SERVED PRIMARILY AS A SUPERVISOR IN THE CONTRACTOR'S INDUSTRIAL RELATIONS DEPARTMENT, WHERE HE DISCHARGED IMPORTANT RESPONSIBILITIES RELATING TO CONTRACT PERFORMANCE. IN VIEW THEREOF, REIMBURSEMENT TO THE CONTRACTOR FOR THIS ITEM NOW APPEARS PROPER UNDER THE CONTRACTS.

WITH REGARD TO ITEM 2, THE RECORD SHOWS THAT THE TRADING POST INVOLVED OCCUPIED AN AREA ON THE WEST SIDE OF THE MAIN BUILDING OF THE CONTRACTOR'S PLANT, AND THAT IT WAS MOVED TO THE EAST SIDE OF THE BUILDING IN ORDER TO PROVIDE ADDITIONAL ROOM FOR DEPARTMENT 45, WHICH WAS ENGAGED IN FABRICATING TOOLING FOR P-61 AIRPLANES. HENCE, THE ITEM APPEARS PROPER FOR REIMBURSEMENT TO THE CONTRACTOR UNDER PARAGRAPH (C) (5) (E) OF SECTION 26.9 OF T.D. 5000, WHICH PROVIDES FOR ORDINARY AND NECESSARY EXPENSES OF REARRANGING FACILITIES WITHIN A DEPARTMENT OR PLANT.

REGARDING ITEMS 3, 10, 12, 12 AND 14, IT IS STATED IN THE CONTRACTOR'S LETTER OF JUNE 23, 1949, THAT AN EXAMINATION OF THE MINUTES OF THE MEETINGS HELD BY THE BOARD OF DIRECTORS DURING THE PERIOD OF TIME INVOLVED DISCLOSES THAT THE DIRECTORS DEALT WITH SUCH PROBLEMS AS THE SELECTION AND EMPLOYMENT OF THE CORPORATE OFFICERS AND THE AMOUNT OF THEIR COMPENSATION, THE SELECTION AND ACQUISITION OF PLANT SITES AND OTHER PROPERTY TO BE USED IN CONTRACT PERFORMANCE, THE NEGOTIATION OF CONTRACTS WITH THE DEFENSE PLANT CORPORATION TO PROVIDE FACILITIES FOR CONTRACT PERFORMANCE, AND THE FINANCING OF THE WORK. THESE FUNCTIONS, THE CONTRACTOR CONTENDS, CONSTITUTE A PART OF THE GENERAL ADMINISTRATION OF THE BUSINESS AND ARE INCIDENT TO AND NECESSARY FOR CONTRACT PERFORMANCE WITHIN THE MEANING OF SECTION 26.9 OF T.D. 5000. ALSO, ATTENTION IS DIRECTED IN SAID LETTER TO THE FACT THAT IT IS PROVIDED IN TM 14-1000 THAT THE COMPENSATION OF DIRECTORS IS AN ALLOWABLE ITEM OF COST, AND TO THE FACT THAT REIMBURSEMENT OF THE DIRECTORS' FEES IN QUESTION WAS APPROVED BY THE CONTRACTING OFFICER.

THE QUESTION AS TO THE REIMBURSABILITY OF DIRECTORS' FEES UNDER CONTRACTS SUCH AS ARE HERE INVOLVED WAS CONSIDERED IN OFFICE DECISION OF JANUARY 25, 1946, B-53933, WHEREIN IT WAS HELD, IN PERTINENT PART, AS FOLLOWS:

"NEITHER THE PRIME CONTRACTS NOR THE SUBCONTRACT HERE INVOLVED, CONTAINS ANY PROVISION THAT FEES PAID TO DIRECTORS FOR ATTENDING MEETINGS OF THE CORPORATION SHALL CONSTITUTE AN ALLOWABLE ITEM OF COST THEREUNDER. HOWEVER, IT IS CONTENDED THAT THE ITEM OF EXPENSE IN QUESTION WAS INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE SUBCONTRACT AND THAT THE RIGHT OF A CONTRACTOR TO BE REIMBURSED FOR EXPENDITURES OF THIS NATURE IS RECOGNIZED IN PARAGRAPH 253 OF TM 14 1000.

"WHILE IT IS PROVIDED IN CHAPTER 6, SECTION VI, OF TM 14-1000 THAT COMPENSATION OF DIRECTORS INCLUDING THEIR TRAVEL EXPENSE, CONSTITUTES AN ALLOWABLE ITEM OF COST AS A GENERAL RULE, SUCH INTERPRETATION OBVIOUSLY IS NOT CONTROLLING IN THE MATTER, SINCE THE RIGHTS AND LIABILITIES OF PARTIES TO A COST-PLUS-A-FIXED-FEE CONTRACT AND THE EXTENT TO WHICH REIMBURSEMENT IS TO BE MADE THEREUNDER MUST BE DETERMINED SOLELY UPON THE TERMS OF THE PARTICULAR CONTRACT INVOLVED. 24 COMP.GEN. 125.

"IT IS GENERALLY RECOGNIZED THAT THE SERVICES OF THE DIRECTORS OF A CORPORATION IN HOLDING REGULAR DIRECTORS' MEETINGS AND IN OTHERWISE PERFORMING THEIR DUTIES AS SUCH OFFICERS RELATE PRIMARILY TO THE HANDLING OF PROBLEMS OF INTERNAL CORPORATE MANAGEMENT-- RESULTING LARGELY FROM THE CORPORATE FORM IN WHICH THE CONTRACTOR CHOOSES TO DO BUSINESS-- RATHER THAN TO THE WORK BEING PERFORMED UNDER A PARTICULAR CONTRACT AND, IN ANY CASE, THEY ARE SO INDIRECTLY ASSOCIATED WITH THE CONTRACT WORK THAT THE EXPENSE THEREOF MAY NOT PROPERLY BE REGARDED AS A REIMBURSABLE COST UNDER THE TYPE OF CONTRACT HERE INVOLVED. ON THE CONTRARY, IT SEEMS EVIDENT THAT SINCE THE ITEM OF EXPENSE INVOLVED WAS INCURRED PRIMARILY FOR THE SUBCONTRACTOR'S OWN BENEFIT, PURSUANT TO ITS PROPER FUNCTIONING AS A LEGAL ENTITY, IT SHOULD BE BORNE BY THE SUBCONTRACTOR OUT OF THE FIXED-FEE STIPULATED TO BE PAID FOR ITS SERVICES."

RELATIVE TO THE FUNCTIONS PERFORMED BY THE DIRECTORS HERE INVOLVED, AS SET FORTH IN THE CONTRACTOR'S LETTER, THE SELECTION AND EMPLOYMENT OF THE CORPORATE OFFICERS AND THE FIXING OF THEIR COMPENSATION OBVIOUSLY WERE PROBLEMS RELATING TO INTERNAL CORPORATE MANAGEMENT, RESULTING FROM THE CORPORATE FORM IN WHICH THE CONTRACTOR CHOSE TO DO BUSINESS, AS DISTINGUISHED FROM PROBLEMS RELATING TO THE PERFORMANCE OF THE WORK UNDER THE CONTRACT, AND THE EXPENSE INCIDENT TO THE PERFORMANCE OF SUCH SERVICES BY THE DIRECTORS MAY NOT BE REGARDED AS REIMBURSABLE UNDER THE PRINCIPALS ENUNCIATED IN THE ABOVE-QUOTED DECISION. MOREOVER, THE PRESENT RECORD FAILS TO ESTABLISH THAT THE CONTRACTOR IS ENTITLED TO BE REIMBURSED FOR EXPENSES WHICH ARE INCIDENT TO THE ACQUISITION OF THE PLANT FACILITIES REFERRED TO, AND REIMBURSEMENT TO THE CONTRACTOR FOR ANY EXPENSES INCIDENT TO FINANCING THE PERFORMANCE OF THE WORK WOULD APPEAR TO BE PRECLUDED BY PARAGRAPH (G) (4) OF SECTION 26.9 OF T.D. 5000, WHICH PROVIDES THAT FINANCE CHARGES SHALL NOT BE INCLUDED AS A PART OF THE COST OF PERFORMING A CONTRACT. THE AUTHORITY VESTED IN A CONTRACTING OFFICER TO DETERMINE WHETHER A PARTICULAR ITEM OF EXPENSE INCURRED IN THE PERFORMANCE OF A COST -PLUS-A-FIXED-FEE CONTRACT IS REIMBURSABLE TO A CONTRACTOR IS NOT AN UNLIMITED AUTHORITY AND DOES NOT EXTEND TO THE APPROVAL FOR REIMBURSEMENT OF AN EXPENDITURE WHICH, UNDER A REASONABLE INTERPRETATION OF THE TERMS OF THE CONTRACT, MAY NOT BE SAID TO CONSTITUTE AN ALLOWABLE COST. SEE 22 COMP.GEN. 349; 24 ID. 1, 4. ACCORDINGLY, REIMBURSEMENT FOR ITEMS 3, 10, 12, 13 AND 14 IS NOT AUTHORIZED.

REIMBURSEMENT TO THE CONTRACTOR FOR ITEM 4 WAS EXCEPTED TO FOR THE STATED REASON THAT "TAX ON IDLE LAND SOUTH OF P.E. TRACKS IS NOT REIMBURSABLE. SEE T.D. 5000, SECTION 26.9(G)(4)." HOWEVER, IT NOW APPEARS FROM THE RECORD THAT DURING THE PERIOD COVERED BY THE TAX PORTIONS OF THE LAND INVOLVED-- WHICH WAS HELD BY THE CONTRACTOR UNDER A LEASE-OPTION-TO PURCHASE-AGREEMENT-- WAS USED AS A PARKING SPACE FOR EMPLOYEES' AUTOMOBILES AND FOR OPEN STORAGE UNTIL JANUARY, 1942. THEREAFTER, UNTIL IT WAS PURCHASED BY THE CONTRACTOR AND CONVEYED TO THE DEFENSE PLANT CORPORATION FOR WAR PURPOSES, THE WAR DEPARTMENT USED IT AS A SITE FOR OPERATING AN ANTI-AIRCRAFT BATTERY, WHICH WAS ESTABLISHED TO PROTECT THE CONTRACTOR'S PLANTS. HENCE, THE LAND WAS NOT IDLE LAND WITHIN THE MEANING OF PARAGRAPH (G)(4) OF SECTION 26.9 OF T.D. 5000, AND THE ITEM MAY BE CONSIDERED AS REIMBURSABLE.

IN OFFICE DECISION B-51344, DATED OCTOBER 9, 1945, THE INSTITUTE OF AERONAUTICAL SCIENCES WAS HELD TO BE A REGULAR TRADE ASSOCIATION WITHIN THE MEANING OF PARAGRAPH (G)(4) OF SECTION 26.9 OF T.D. 5000. HENCE, ITEM 5 MAY BE VIEWED AS REIMBURSABLE.

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

THE PROPRIETY OF REIMBURSING A CONTRACTOR FOR THE COST OF SERVICE PINS UNDER CIRCUMSTANCES SIMILAR TO THOSE HERE INVOLVED WAS CONSIDERED IN OFFICE DECISION B-50227, DATED JULY 18, 1945, AND IT WAS HELD THEREIN AS FOLLOWS:

"THE RECORD SHOWS THAT THE PURPOSE SOUGHT TO BE ACHIEVED BY THE AWARD OF SERVICE PINS AND BUTTONS IN RECOGNITION OF CONTINUOUS WAR SERVICE WAS TO PROMOTE A BETTER RELATIONSHIP BETWEEN THE EMPLOYER AND EMPLOYEE AND WAS CONSIDERED AS A STIMULANT TO EMPLOYEE MORALE AND AS AN INDIRECT PRODUCTION INCENTIVE. THE RECORD FURTHER SHOWS THAT IT HAS BEEN THE ESTABLISHED POLICY OF THE CONTRACTOR TO AWARD SERVICE PINS AND BUTTONS TO EMPLOYEES FOR CONTINUOUS SERVICE, AND THAT THE COST OF THESE ITEMS WAS APPROVED BY THE CONTRACTING OFFICER. ACCORDINGLY, PAYMENT ON THE INSTANT VOUCHER IS AUTHORIZED, IF OTHERWISE CORRECT."

FOR SIMILAR REASONS, ITEM 7 MAY BE REGARDED AS REIMBURSABLE, IF OTHERWISE CORRECT.

EXCEPTION WAS TAKEN TO THE REIMBURSEMENT OF ITEM 8 ON THE GROUNDS THAT THE SERVICES RENDERED BY THE INGLEWOOD WAR AREA RATIONING BOARD AND THE WAR HOUSING CENTER COULD HAVE BEEN OBTAINED FROM REGULAR LOCAL OFFICES OF GOVERNMENT AGENCIES WITHOUT COST. HOWEVER, IT NOW APPEARS FROM THE RECORD THAT THE REGULAR RATIONING BOARDS ESTABLISHED BY THE OFFICE OF PRICE ADMINISTRATION WERE INADEQUATE TO MEET THE NEEDS OF WAR PRODUCTION AREAS, SUCH AS THE INGLEWOOD-HAWTHORNE, CALIFORNIA, AREA, IN WHICH THE CONTRACTOR'S PLANT WAS LOCATED, AND THAT THE OFFICE OF PRICE ADMINISTRATION, BY REGULATION, ESTABLISHED "WAR AREA RATIONING BOARDS" IN SUCH AREAS WHICH PERFORMED SPECIALIZED SERVICE FOR WAR INDUSTRIES; THAT, UNDER THE REGULATIONS ESTABLISHING WAR AREA RATIONING BOARDS, THE PARTICIPATING WAR INDUSTRIES WERE REQUIRED TO DEFRAY THE COST OF SUPPLYING CLERICAL AND OTHER ASSISTANCE FOR THE PROGRAM; THAT THE INGLEWOOD WAR HOUSING CENTER, A CONSTITUENT BRANCH OF THE NATIONAL WAR HOUSING AGENCY, WAS ESTABLISHED FOR SIMILAR REASONS, AND WAR INDUSTRIES WERE REQUIRED TO CONTRIBUTE TO ITS SUPPORT IN THE SAME MANNER.

IN VIEW OF THE FOREGOING EXPLANATION, AND SINCE THE SERVICES PERFORMED BY THE AGENCIES IN QUESTION-- BY ENABLING EMPLOYEES OF THE CONTRACTOR TO OBTAIN GASOLINE AND TIRES FOR NECESSARY TRANSPORTATION TO AND FROM WORK, OBTAIN HOUSING, WITHOUT UNDUE LOSS OF TIME FROM THEIR JOBS-- APPEAR TO HAVE FACILITATED THE PERFORMANCE OF THE CONTRACT WORK, THIS OFFICE WILL RAISE NO FURTHER OBJECTION TO REIMBURSEMENT TO THE CONTRACT FOR THE AMOUNT INVOLVED, IF OTHERWISE CORRECT.

THE FACTS RELATIVE TO THE PUBLICATION OF THE NORTHROP NEWS, THE EXPENSE OF WHICH IS DESIGNATED AS ITEM 9, ARE SIMILAR TO THOSE RELATING TO THE PUBLICATION OF THE HOUSE ORGAN CONSIDERED IN OFFICE DECISION B 44439, DATED OCTOBER 27, 1944, WHEREIN IT WAS HELD, IN PERTINENT PART, AS FOLLOWS:

"*** THE CONTRACTING OFFICER HAS CERTIFIED THAT THE PUBLICATION, AS A WHOLE, WAS OF DECIDED ADVANTAGE IN THE PROSECUTION OF THE CONTRACT WORK DUE TO THE FACT THAT IT PERMITTED A WIDE CIRCULARIZATION OF MATTERS AFFECTING SAFETY POLICIES, PLANT PROTECTION, TECHNICAL ADVICE, AND TRANSPORTATION DATA, IN ADDITION TO CONTRIBUTING MATERIALLY TO THE MORALE OF THE CONTRACTOR'S EMPLOYEES. UNDER SUCH CIRCUMSTANCES, THE EXPENSE INCURRED IN CONNECTION WITH THE INSTANT PUBLICATION REASONABLY MAY BE VIEWED AS INCIDENT TO AND SERVING A USEFUL PURPOSE IN CONNECTION WITH THE PERFORMANCE OF THE CONTRACT WORK AND, AS SUCH, CONSTITUTES A REIMBURSABLE ITEM OF COST.

ACCORDINGLY, REIMBURSEMENT TO THE CONTRACTOR FOR ITEM 9 IS AUTHORIZED, IF OTHERWISE CORRECT.

RELATIVE TO ITEM 11, IT IS STATED IN THE CONTRACTOR'S LETTER OF JUNE 23, 1949, THAT THE CALIFORNIA TAX PAYERS' ASSOCIATION MAKES EXTENSIVE STUDIES CONCERNING PROBLEMS OF STATE AND LOCAL TAXATION WITH THE OBJECT OF MAKING AVAILABLE TO ITS MEMBERS, AND TO PUBLIC OFFICIALS, IMPROVED PROCEDURES FOR TAXATION; THAT IT HAS HAD GREAT SUCCESS IN IMPROVING TAX ADMINISTRATION IN THE STATE OF CALIFORNIA AND AVOIDING THE WASTE OF PUBLIC FUNDS, TO THE END THAT TAX RATES HAVE BEEN REDUCED; THAT IT ENGAGED ACTIVELY IN THE EFFORT TO PREVENT A PROPOSED TAX UPON GOVERNMENT-OWNED PROPERTY IN THE HANDS OF COST-PLUS-A-FIXED-FEE CONTRACTORS, AND THAT MEMBERSHIP IN SUCH ORGANIZATION RECEIVED THE APPROVAL OF THE CONTRACTING OFFICER.

DUES AND MEMBERSHIP FEES ARE NOT LISTED AMONG THE ALLOWABLE ITEMS OF COST ENUMERATED IN THE COST ALLOWANCE PROVISIONS OF THE CONTRACTS HERE INVOLVED, AND THE ONLY SPECIFIC MENTION THEREOF IN SECTION 26.9 OF T. D. 5000 IS FOUND IN PARAGRAPH (G) (4), WHICH EXCLUDES DUES AND MEMBERSHIPS OTHER THAN OF REGULAR TRADE ASSOCIATIONS.

THUS, REIMBURSEMENT TO THE CONTRACTOR FOR DUES AND MEMBERSHIP FEES OF ANY NATURE, OTHER THAN IN REGULAR TRADE ASSOCIATION, NOT ONLY LACKS SPECIFIC CONTRACTUAL AUTHORIZATION, BUT IS, IN FACT, IN DIRECT CONTRAVENTION OF THE EXPRESS TERMS OF THE CONTRACTS. ACCORDINGLY, REIMBURSEMENT FOR THE DUES HERE INVOLVED MAY NOT BE CONSIDERED AS PROPER UNDER THE TERMS OF THE CONTRACTS. SEE B-60357, DATED MARCH 14, 1947.

WITH RESPECT TO ITEM 15, THE RECORD SHOWS THAT AN EXCEPTION WAS TAKEN TO THE REIMBURSEMENT OF THE CONTRACTOR ON D.O. VOUCHER NO. 117560, AND OTHERS, FOR THE TRAVEL EXPENSE OF FOUR OF ITS EMPLOYEES FOR THE REASON, AS STATED IN THE EXCEPTION, THAT:

"EXPENSES OF TRAVEL PERFORMED IN CONNECTION WITH REORGANIZATION OF WASHINGTON OFFICE, STUDYING PROPOSED BILLS BEFORE STATE LEGISLATURE, WAGE STABILIZATION MATTERS AND COMMERCIAL SALES ACTIVITIES, ARE SO REMOTELY ASSOCIATED WITH THE WORK UNDER THE SUBJECT CONTRACTS THAT THE COST THEREOF SHOULD BE BORNE BY THE CONTRACTOR."

IN THIS LETTER OF JUNE 23, 1949, THE CONTRACTOR SETS FORTH IN DETAIL THE METHOD USED IN THE ALLOCATION OF TRAVEL EXPENSES, AND STATES, AMONG OTHER THINGS, THAT IT HAS ALWAYS BEEN THE CONTRACTOR'S POLICY TO CHARGE THE COST OF TRAVEL TO OVERHEAD IN THE BURDEN CONTOR TO WHICH THE TRAVELER'S SALARY IS CHARGED AND THEN TO ALLOCATE SUCH COSTS TO A 11 WORK, BOTH COST-PLUS-A- FIXED-FEE AND FIXED PRICE, ON THE BASIS OF DIRECT LABOR. HOWEVER, AS INDICATED ABOVE, THE ITEM OF EXPENSE INVOLVED WAS EXCEPTED TO FOR THE REASON THAT THE RECORD FAILED TO SHOW THAT THE TRAVEL IN QUESTION WAS SUFFICIENTLY RELATED TO THE CONTRACT WORK TO CONSTITUTE A REIMBURSABLE COST. SINCE THE RECORD STILL FAILS TO ESTABLISH SUCH FACT, THE ITEM MAY NOT BE REGARDED AS REIMBURSABLE.

THE VOUCHERS, TOGETHER WITH THEIR SUPPORTING PAPERS, ARE RETURNED HEREWITH, AND YOU ARE ADVISED THAT PAYMENT THEREIN IS AUTHORIZED ONLY TO THE EXTENT HEREINBEFORE SET FORTH.