B-157310, DEC. 5, 1967

B-157310, DEC. 5, 1967

CONTRACTS - COST-PLUS - EXHIBIT COSTS, INTEREST ON DEBENTURE BONDS DECISION TO CONTRACTING OFFICER, DEFENSE SUPPLY AGENCY, RE COSTS ALLOWABLE UNDER COST-PLUS-A-FIXED-FEE CONTRACTS WITH DOUGLAS AIRCRAFT COMPANY AND AIR FORCE. EXPENSES OF PREPARING EXHIBITS AND EXPENSES IN PAYING INTEREST ON DEBENTURE BONDS ARE ALLOWABLE COSTS UNDER COST-PLUS-A-FIXED-FEE CONTRACTS SINCE THEY WERE INCURRED BEFORE JULY 1, 1961, WHEN THE PROHIBITION IN SECTION 636 OF THE DEPARTMENT OF DEFENSE APPROPRIATION BECAME EFFECTIVE.

TO MR. LOVELY:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 27, 1967, (DCRT-ROC), WITH ENCLOSURES, REQUESTING A DECISION AS TO WHETHER PAYMENT MAY BE MADE ON VOUCHERS IN THE AMOUNTS OF $2,217.83 AND $780.61, COVERING RECLAIMS OF THE DOUGLAS AIRCRAFT COMPANY, TULSA DIVISION, UNDER AIR FORCE COST-PLUS-A- FIXED-FEE CONTRACTS NOS. AF 04/607/-2062 AND AF 01/601/-52664.

THE AMOUNTS OF THE RECLAIMS INVOLVE PORTIONS OF SUMS COLLECTED FROM THE DOUGLAS AIRCRAFT COMPANY AS THE RESULT OF NOTICES OF EXCEPTION NOS. 300040, 6200001 AND 500125, ISSUED BY OUR OFFICE ON JULY 31, 1962, APRIL 2, 1962, AND AUGUST 7, 1964, RESPECTIVELY, WHICH QUESTIONED THE REIMBURSEMENT OF ALLOCATED PORTIONS OF CERTAIN OF THE COMPANY'S ADVERTISING, PUBLIC RELATIONS AND CORPORATE EXPENSE ACCOUNTS FOR ITS FISCAL YEARS 1958 AND 1959, AS A PART OF THE COST OF PERFORMING AIR FORCE COST-PLUS-A-FIXED-FEE CONTRACTS NOS. AF 04/607/-2062, AF 34/601/-3541 AND AF 01/601/-52664.

THE ITEMS OF ADVERTISING EXPENSE INCLUDED IN THE QUESTIONED AMOUNTS OF $7,372.86, $2,324.63, $1,247.58 AND $611.87 UNDER THE NOTICES OF EXCEPTION ARE NOT RECLAIMED. THE RECLAIMS FOR $2,217.83 AND $780.61 CONCERN THE QUESTION WHETHER ALLOCATED PORTIONS OF EXHIBIT COSTS (INCLUDED IN THE COMPANY'S PUBLIC RELATIONS EXPENSE ACCOUNTS), AND ALLOCATED PORTIONS OF COSTS INCURRED IN MAKING PAYMENT OF INTEREST ON DEBENTURE BONDS (INCLUDED IN THE COMPANY'S CORPORATE EXPENSE ACCOUNTS), ARE TO BE CONSIDERED AS ALLOWABLE COSTS UNDER THE THREE CONTRACTS. YOUR LETTER SETS FORTH THAT THE RECLAIMED AMOUNTS HAVE BEEN RECONCILED WITH THE AUDIT EXCEPTIONS BUT OUR ATTENTION HAS BEEN INVITED TO THE FACT THAT THE FULL AMOUNT OF THE RECLAIM FOR $2,217.83 IS STATED AS A CHARGE AGAINST CONTRACT NO. AF 04/607/-2062, WHEREAS $131.83 OF THAT AMOUNT WAS ORIGINALLY CLAIMED UNDER CONTRACT NO. AF 34/601/-3541.

SUBJECT TO OUR APPROVAL OF THE CLAIMED REFUNDS, IT IS PROPOSED TO PAY THE RESPECTIVE AMOUNTS OF $2,217.83 AND $780.61 AS OBLIGATIONS UNDER CONTRACTS NOS. AF 04/607/-2062 AND AF 01/601/-52664, WHICH ARE CITED ON THE TWO RECLAIM VOUCHERS. YOU STATE THAT THERE ARE SUFFICIENT FUNDS AVAILABLE FOR PAYMENT OF THE AMOUNT OF $2,217.83 UNDER CONTRACT NO. AF 04/607/-2062, AND THAT THE ADMINISTRATIVE EXPENSE OF OBTAINING $131.83 FOR PAYMENT UNDER CONTRACT NO. AF 34/601/-3541 WOULD NOT APPEAR TO BE WARRANTED AND THAT THE FUNDING CITATIONS INVOLVED PRESUMABLY WOULD BE THE SAME FOR BOTH CONTRACTS ANYWAY.

REFERENCE HAS BEEN MADE TO A DECISION OF OUR OFFICE, B-157310, FEBRUARY 7, 1966, WHEREIN IT WAS DETERMINED THAT ALLOCATED PORTIONS OF THE DOUGLAS AIRCRAFT COMPANY'S COSTS OF PREPARING AND MAINTAINING EXHIBITS AT INTERNATIONAL AERONAUTICAL EXPOSITIONS AND EXPENSES INCURRED IN MAKING PAYMENT OF INTEREST ON BOND DEBENTURES, WHICH COSTS AND EXPENSES WERE INCLUDED IN THE COMPANY'S FISCAL-YEAR 1959 ACCOUNTS, REASONABLY COULD BE CONSIDERED AS ALLOWABLE COSTS UNDER AIR FORCE COST PLUS-A-FIXED-FEE CONTRACT NO. AF 04/645/-65. HOWEVER, YOU HAVE EXPRESSED A DOUBT AS TO WHETHER THE DECISION IS APPLICABLE IN THIS CASE SINCE THE DECISION MAKES NO REFERENCE TO OTHER COST-PLUS-A-FIXED FEE CONTRACTS WITH THE DOUGLAS AIRCRAFT COMPANY.

THE DECISION OF FEBRUARY 7, 1966, SETS FORTH THAT CONTRACT NO. AF 04/645/ -65 INCORPORATED BY REFERENCE THE COST PRINCIPLES OF PART 2 OF SECTION 15, ARMED SERVICES PROCUREMENT REGULATION, AS IN EFFECT ON THE CONTRACT DATE; AND THAT, IN THE OPINION OF OUR OFFICE, THE CITED COST PRINCIPLES DID NOT REQUIRE A CONCLUSION THAT EXHIBIT COSTS OR EXPENSES INCURRED IN MAKING PAYMENT OF INTEREST ON DEBENTURE BONDS SHOULD BE CONSIDERED AS ITEMS OF UNALLOWABLE COSTS. THE DECISION ALSO SETS FORTH THAT THE PRACTICE OF ALLOWING EXHIBIT COSTS APPEARED TO HAVE BEEN DISCONTINUED WITH RESPECT TO CONTRACTOR EXPENDITURES INCURRED ON AND AFTER JULY 1, 1961, IN VIEW OF SECTION 636 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT OF 1962, PUBLIC LAW 87-144, 75 STAT. 365, 381. AS IN THE PRIOR CASE, THE RECLAIMS HERE INVOLVED CONCERN OVERHEAD EXPENSES INCURRED BY THE DOUGLAS AIRCRAFT COMPANY BEFORE JULY 1, 1961.

FOR THE REASONS STATED IN THE DECISION OF FEBRUARY 7, 1966, THE RECLAIMS FOR $2,217.83 AND $780.61 WOULD APPEAR TO BE PROPERLY FOR ALLOWANCE IF THE COST PRINCIPLES APPLICABLE TO CONTRACTS NOS. AF 04/607/-2062, AF 34/601/- 3541 AND AF 01/601/-52664 ARE SUBSTANTIALLY THE SAME AS THOSE WHICH WERE MADE APPLICABLE TO DETERMINATIONS OF ALLOWABLE ITEMS OF COST UNDER CONTRACT NO. AF 04/645/-65. WE HAVE NOT EXAMINED THE FIRST THREE CONTRACTS. HOWEVER, PAYMENT ON THE RECLAIM VOUCHERS IN THE AMOUNTS OF $2,217.83 AND $780.61 IS AUTHORIZED PROVIDED THAT AN ADMINISTRATIVE REVIEW OF THE FOUR CONTRACTS DISCLOSES THAT THEIR PROVISIONS ARE SIMILAR WITH RESPECT TO THE QUESTION WHETHER REASONABLE PORTIONS OF THE CONTRACTOR'S EXHIBIT COSTS AND EXPENSES IN MAKING PAYMENT OF INTEREST ON DEBENTURE BONDS REPRESENT ALLOWABLE ITEMS OF COST UNDER THOSE CONTRACTS. WE HAVE NO OBJECTION TO THE PROPOSED PAYMENT PROCEDURE IN REGARD TO THE RECLAIM FOR $2,217.83 BUT IT IS SUGGESTED THAT A COPY OF THIS DECISION BE MADE A PART OF THE ADMINISTRATIVE FILE CONCERNING CONTRACT NO. AF 34/601/-3541.