B-24602, APR 7, 1942

B-24602: Apr 7, 1942

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FEDERAL WORKS AGENCY: I HAVE YOUR LETTER OF MARCH 12. THE DEVELOPMENT IS DESIGNATED AS N.J. 28071 AND THE AREA IN WHICH IT IS LOCATED NOW CONSTITUTES WINFIELD TOWNSHIP. "THE CONTRACT WAS ENTERED INTO ON A COST-PLUS-A-FIXED-FEE BASIS. WOULD HAVE TO BE PERFORMED UNDER CONTRACT BUT IN COORDINATION WITH THE WPA PROJECT AND IN ORDER THAT THERE WOULD BE NO DELAY IN CONSTRUCTION THE CONTRACTOR WAS INSTRUCTED ORALLY TO HAVE THE WORK PERFORMED BY HIS PLUMBING SUBCONTRACTOR AND OTHERS PENDING THE EXECUTION OF A FORMAL CONTRACT. THIS WAS DONE. WAS EXECUTED AS OF JANUARY 5. THE TOTAL COST OF WHICH WAS ESTIMATED TO BE $186. "THIS PROVISION WAS DRAFTED AT A TIME WHEN THE FULL EXTENT OF THE WORK TO BE PERFORMED IN COOPERATION WITH WPA WAS STILL UNCERTAIN.

B-24602, APR 7, 1942

PRECIS-UNAVAILABLE

FEDERAL WORKS ADMINISTRATOR, FEDERAL WORKS AGENCY:

I HAVE YOUR LETTER OF MARCH 12, 1942, AS FOLLOWS:

"AS OF JUNE 3, 1941, THE FEDERAL WORKS ADMINISTRATOR, ACTING THROUGH LAWRENCE A. WESTBROOK, CONTRACTING OFFICER, EXECUTED CONTRACT NO. WA-17 WITH THE CLIFFORD F. MACEVOY COMPANY OF NEWARK, NEW JERSEY, FOR THE CONSTRUCTION OF 700 DWELLING UNITS FOR A DEFENSE HOUSING DEVELOPMENT IN THE CITY OF LINDEN AND CLARK TOWNSHIP, NEW JERSEY. THE DEVELOPMENT IS DESIGNATED AS N.J. 28071 AND THE AREA IN WHICH IT IS LOCATED NOW CONSTITUTES WINFIELD TOWNSHIP.

"THE CONTRACT WAS ENTERED INTO ON A COST-PLUS-A-FIXED-FEE BASIS, THE ESTIMATED COST BEING $2,000,000, EXCLUSIVE OF THE CONTRACTOR'S FEE, AND THE FEE BEING FIXED AT $84,000.

"DURING CONSTRUCTION, IT BECAME EVIDENT THAT CERTAIN ADDITIONAL WORK IN AN UNASCERTAINED AMOUNT, WHICH IT HAD ORIGINALLY BEEN EXPECTED WOULD BE PERFORMED BY THE WORK PROJECTS ADMINISTRATION, WOULD HAVE TO BE PERFORMED UNDER CONTRACT BUT IN COORDINATION WITH THE WPA PROJECT AND IN ORDER THAT THERE WOULD BE NO DELAY IN CONSTRUCTION THE CONTRACTOR WAS INSTRUCTED ORALLY TO HAVE THE WORK PERFORMED BY HIS PLUMBING SUBCONTRACTOR AND OTHERS PENDING THE EXECUTION OF A FORMAL CONTRACT. THIS WAS DONE.

"A LETTER SUPPLEMENT, SUPPLEMENT C, WAS EXECUTED AS OF JANUARY 5, 1942, COVERING THE WORK IN QUESTION AS WELL AS A NUMBER OF OTHER ITEMS. PROVIDED FOR TWELVE ITEMS OF ADDITIONAL WORK, THE TOTAL COST OF WHICH WAS ESTIMATED TO BE $186,954.36 AND INCREASED THE CONTRACTOR'S FEE BY $8,910.00. ITEM (5) OF SUPPLEMENT C PROVIDES AS FOLLOWS:

"THE LAYING OF WATER AND GAS MAINS, AS WELL AS THE MAKING OF THE NECESSARY JOINTS FOR WATER, GAS AND SEWER MAINS. THIS WORK ALSO TO INCLUDE THE COST OF BRICKLAYERS IN THE BUILDING OF MANHOLES; ALL OF THIS WORK FOR AN ESTIMATED COST OF $45,866.00, PLUS FIFTEEN PERCENT FOR COST OF SUPERVISION ON THE PART OF JOSEPH SHUR, PLUMBING SUBCONTRACTOR, MAKING A TOTAL ESTIMATED COST OF *** $52,400.00."

"THIS PROVISION WAS DRAFTED AT A TIME WHEN THE FULL EXTENT OF THE WORK TO BE PERFORMED IN COOPERATION WITH WPA WAS STILL UNCERTAIN. WHILE ITEM (5) DOES NOT CLEARLY EXPRESS THE INTENTION OF THE PARTIES IT IS OBVIOUS THAT IT CONTEMPLATES THE PERFORMANCE OF WORK AT AN ESTIMATED COST OF $52,400 AND A SUBCONTRACT WITH JOSEPH SHUR FOR PERFORMANCE OF THE WORK AND SUPERVISION. THIS SUBCONTRACT COULD AND SHOULD HAVE BEEN MADE EITHER ON A LUMP SUM BASIS OR ON A COST-PLUS-A-FIXED-FEE BASIS IN ACCORDANCE WITH THE REQUIREMENTS OF THE LANHAM ACT AND THE TERMS OF CONTRACT WA-17.

"AS PREVIOUSLY POINTED OUT THE WORK HAD BEEN PROGRESSING PENDING THE EXECUTION OF SUPPLEMENT C. UPON RECEIPT OF SUPPLEMENT C THE CLIFFORD F. MACEVOY COMPANY ISSUED A WORK ORDER TO JOSEPH SHUR, THE PLUMBING SUBCONTRACTOR, FOR ALL OF THE WORK EXCEPT THE BUILDING OF MANHOLES, USING THE SAME LANGUAGE AS APPEARED IN SUPPLEMENT C. THIS LANGUAGE, ALTHOUGH NOT IMPROPER AS A METHOD OF ESTIMATING THE COST TO THE PRINCIPAL CONTRACTOR, SINCE 15% IS SOMEWHAT LESS THAN THE AMOUNT USUALLY ADDED TO LABOR COSTS BY PLUMBING SUBCONTRACTORS IN FIGURING THEIR PRICES, NEVERTHELESS WHEN USED AS A METHOD OF ESTABLISHING PAYMENTS UNDER A SUBCONTRACT, APPEARS TO CONTRAVENE THE PROHIBITION AGAINST THE COST-PLUS-A-PERCENTAGE-OF-COST SYSTEM OF CONTRACTING.

"THROUGH INADVERTENCE THE WORK ORDER WAS NOT DISAPPROVED BUT WAS SUBMITTED TO YOUR OFFICE IN CONNECTION WITH A PRELIMINARY VOUCHER FOR PAYMENT OF $48,500 WHICH PAYMENT HAS BEEN MADE BY D.O. VOUCHER NO. 1509470, PAID FEBRUARY 7, 1942, ACCOUNT OF G. F. ALLEN, SYMBOL 86,730. THE CONTRACTOR NOW REQUESTS APPROVAL OF FINAL PAYMENT OF JOSEPH SHUR IN THE AMOUNT OF $3,091.67 OR A TOTAL OF $51,591.67. THIS PAYMENT HAS BEEN DELAYED PENDING A DETERMINATION OF ITS PROPRIETY.

"WE REQUEST THAT YOU CONSENT TO OUR APPROVAL OF THE PAYMENT FOR THE FOLLOWING REASONS:

"1. THE WORK WAS CARRIED ON AT THE ORAL INSTRUCTION OF THE CONTRACTING OFFICER, PENDING WRITTEN AUTHORIZATION IN ORDER THAT THERE WOULD BE NO DELAY IN THE OCCUPANCY OF THE DWELLING UNITS. THE CONTRACTOR IS THEREFORE ENTITLED TO COMPENSATION FOR THE REASONABLE VALUE OF THE WORK.

"2. THE RECORDS OF THIS AGENCY ESTABLISH THAT THE PRICE OF $51,591.67 IS REASONABLE COMPENSATION FOR THE WORK PERFORMED AND THAT IF PAYMENT WERE TO BE MADE ON A QUANTUM MERIT BASIS, THE CONTRACTOR WOULD RECEIVE SUBSTANTIALLY THE SAME AMOUNT OF COMPENSATION AS IS NOW BEING REQUESTED.

"3. THE FEDERAL WORKS ADMINISTRATOR MAY AUTHORIZE THE CANCELLATION OF THE EXISTING CONTRACT AS TO THIS ITEM AND ENTER INTO AN AGREEMENT FOR SETTLEMENT IN ACCORDANCE WITH THE TERMS OF EXECUTIVE ORDERS NOS. 9001 AND NO. 9023 UT TO DO SO WILL DELAY FINAL LIQUIDATION OF THE CLAIM

"UPON RECEIPT OF YOUR REPLY WE WILL BE ABLE TO PROCEED WITH THE SETTLEMENT OF THIS CONTRACT."

SUPPLEMENT C, DATED JANUARY 5, 1942, MENTIONED IN YOUR LETTER, IS AS FOLLOWS:

"IN CONFORMITY WITH PARAGRAPH 32 OF THE GENERAL CONDITIONS OF YOUR CONTRACT WITH US TO CONSTRUCT 700 DWELLING UNITS FOR THE DEFENSE HOUSING PROJECT NJ-28071, WE HEREBY AUTHORIZE YOU TO PERFORM CERTAIN ADDITIONAL WORK LISTED BELOW. THE WORK IS AS FOLLOWS:

"(1) FIELD ENGINEERING WORK TO BE DONE BY MR. THOMAS TAYLOR IN CONNECTION WITH THE ESTABLISHMENT OF GRADES AND STAKING OF 79 HOUSES AT A COST OF $1,975.00.

"(2) FIELD ENGINEERING WORK TO BE DONE BY MR. A. W. LAWRENCE IN CONNECTION WITH THE ESTABLISHMENT OF GRADES FOR UTILITIES, HOUSES, ROUGH AND FINISHED GRADING; THE STAKING OF 175 HOUSES AND THE ESTABLISHMENT OF EASEMENTS ACROSS PARK PROPERTY AND OTHER APPURTENANT WORK AT A COST OF $12,500.00.

"(3) THE CHANGING OF THE LOCATION OF THE HEATING UNITS IN THE NO. 3 HOUSES AS PER OUR TELEGRAM OF SEPTEMBER 1941, AT A COST OF $2,462.00.

"(4) THE CHANGES AND ADDITIONS TO KITCHEN WALLS AS PER OUR LETTER OF OCTOBER 7TH AT AN ESTIMATED COST OF $24,154.58.

"(5) THE LAYING OF WATER AND GAS MAINS, AS WELL A THE MAKING OF THE NECESSARY JOINTS FOR WATER, GAS AND SEWER MAINS. THIS WORK ALSO TO INCLUDE THE COST OF BRICKLAYERS IN THE BUILDING OF MANHOLES; ALL OF THIS WORK FOR AN ESTIMATED COST OF $45,566.00, PLUS FIFTEEN PERCENT FOR COST OF SUPERVISION ON THE PART OF JOSEPH SHUR, PLUMBING SUBCONTRACTOR, MAKING A TOTAL ESTIMATED COST OF $52,400.00.

"(6) CERTAIN ADDITIONS TO THE HOUSE WIRING DUE TO CERTAIN CHANGES IN THE OUTSIDE ELECTRICAL DISTRIBUTION SYSTEM. THIS ADDITIONAL WORK IS TO BE DONE BY MR. JOSEPH NEWMAN UNDER A LUMP SUM SUBCONTRACT IN THE AMOUNT OF $21,000.00.

"(7) CONSTRUCTION OF A SEWER PUMP HOUSE INCLUDING PIPES, FITTINGS AND PUMPS AT AN ESTIMATED COST OF $11,000.00.

"(8) CONSTRUCTION OF A METER HOUSE TO HOUSE-- THE MASTER GAS METER AT AN ESTIMATED COST OF $1,450.00.

"(9) THE FURNISHING AND INSTALLATION OF ONE 24" X 24" WASH TRAY TO BE LOCATED IN THE CELLAR OF EACH UNIT WITH HOT AND COLD WATER FAUCET CONNECTED COMPLETE, AS WELL AS PROPER CONNECTION OF WASTE WITH HOUSE DRAIN AS PER YOUR LETTER OF SEPTEMBER 30TH, FOR THE AMOUNT OF $24,500.00.

"(10) THE FURNISHING OF 23 PLATFORMS IN CERTAIN HOUSES UNDER WASH TRAYS AS PER YOUR LETTER OF SEPTEMBER 30TH, FOR THE AMOUNT OF $414.00.

"(11) THE FURNISHING AND INSTALLATION OF KITCHEN SHELVING AND BASE CABINETS FOR HOUSES NOS. 1, 3, 4, 5 AND 6, AS PER YOUR LETTER OF SEPTEMBER 30TH, AND ACCOMPANYING PLANS, FOR THE AMOUNT OF $23,688.78.

"(12) CHANGING THE WALL FINISH IN BATHROOMS OF ALL UNITS FROM PAINT TO 'SANITAS', THE ESTIMATED COST OF SUCH TO BE MADE FOR $2,500.00.

"IT IS OUR UNDERSTANDING THAT YOU AGREE TO PERFORM THE ADDITIONAL WORK MENTIONED ABOVE FOR A FEE OF $8,910.00 WHICH IS IN ADDITION TO THE FEE ALREADY AGREED UPON IN YOUR CONTRACT WITH US DATED JUNE 3, 1941, AND THAT YOUR SIGNATURE ATTACHED TO THIS LETTER INDICATES FULL ACCEPTANCE OF THE TERMS OUTLINED HEREIN. THIS ADDITIONAL WORK SHALL BE PERFORMED SUBJECT TO THE TERMS AND CONDITIONS OF YOUR CONTRACT WITH THE GOVERNMENT DATED JUNE 3, 1941."

AS IS STATED IN YOUR LETTER, SINCE THE TERMS OF THE WORK UNDER WHICH WAS ISSUED TO THE SUBCONTRACTOR BY THE PRIME CONTRACTOR PROVIDED FOR PAYMENT FOR ITEM 5 ON THE BASIS OF COST PLUS 15 PERCENT FOR SUPERVISION, SUCH WORK ORDER CONTRAVENES THE STATUTORY PROHIBITION AGAINST THE COST-PLUS-A- PERCENTAGE-OF-COST SYSTEM OF CONTRACTING AND, ACCORDINGLY, SUCH WORK ORDER, BY ITSELF, MAY NOT BE CONSIDERED AS IMPOSING ANY BINDING OBLIGATION ON THE UNITED STATES. HOWEVER, SINCE IT APPEARS FURTHER THAT THE SUBCONTRACTOR, ACTING UNDER THE INSTRUCTIONS OF THE CONTRACTING OFFICER, HAS PERFORMED THE WORK INCLUDED IN THE WORK ORDER AND HAS COMPLETED THE SAME TO THE SATISFACTION OF THE GOVERNMENT, THE CONTRACTOR IS ENTITLED TO PAYMENT FOR THE REASONABLE VALUE THEREOF ON A QUANTUM MERUIT BASIS. THEREFORE, AS IT HAS BEEN DETERMINED BY YOUR AGENCY THAT THE SUM OF $51,591.67 IS THE REASONABLE VALUE OF THE WORK PERFORMED, THIS OFFICE ORDINARILY WOULD NOT OBJECT TO PAYMENT OF THE BALANCE OF $3,091.67 WHICH IS DUE FOR SAID WORK.

HOWEVER, ON THE PRESENT RECORD, THE CORRECTNESS OF THE PAYMENT OF ANY PART OF THE SUM OF $51,591.67 APPEARS QUESTIONABLE FOR OTHER REASONS. IS STATED IN YOUR LETTER OF MARCH 12, SUPRA, AND AS APPEARS FROM THE TERMS OF SUPPLEMENT C AS SET FORTH ABOVE, THE CONTRACTOR WAS AUTHORIZED TO PERFORM 12 ITEMS OF ADDITIONAL WORK THEREUNDER AT A TOTAL ESTIMATED COST OF $186,954.36, AND AS CONSIDERATION FOR THE PERFORMANCE OF SAID WORK IT IS STATED IN THE SAID SUPPLEMENT THAT THE CONTRACTOR IS TO BE PAID AN ADDITIONAL FIXED FEE OF $8,910. IT IS TO BE NOTED FURTHER THOUGH THAT SUPPLEMENT C PROVIDES THAT SEVERAL OF THE ITEMS OF ADDITIONAL WORK INCLUDED THEREIN ARE TO BE PERFORMED, BY PERSONS OTHER THAN THE PRIME CONTRACTOR, UNDER SUBCONTRACTS TO BE ENTERED INTO EITHER ON A LUMP SUM OR ON A UNIT PRICE BASIS. FOR EXAMPLE, IN ADDITION TO SUBCONTRACTING THE WORK OF LAYING WATER AND GAS MAINS, ETC., AS DESCRIBED IN ITEM 5 OF SUPPLEMENT C, SUPRA, FOR WHICH YOU PROPOSE TO PAY THE LUMP PRICE OF $51,591.67 AS THE REASONABLE VALUE THEREOF, ITEM 6 OF SUPPLEMENT C PROVIDES FOR THE MAKING OF CERTAIN ADDITIONS TO THE HOUSE WIRING, AND STIPULATES THAT, "THIS ADDITIONAL WORK IS TO BE DONE BY MR. JOSEPH NEWMAN UNDER A LUMP SUM SUBCONTRACT IN THE AMOUNT OF $21,000.00." ALSO, ITEM 1 AND 2 THEREOF PROVIDE FOR THE PERFORMANCE OF CERTAIN ADDITIONAL FIELD ENGINEERING WORK BY MR. THOMAS TAYLOR AND MR. A. W. LAWRENCE, RESPECTIVELY, AT ESTIMATED COSTS OF (1) $1.975 AND (2) $12,500. HENCE, WHILE SUPPLEMENT C PROPOSES TO PAY THE PRIME CONTRACTOR AN ADDITIONAL FIXED FEE OF $8,910 FOR THE PERFORMANCE OF CERTAIN ADDITIONAL WORK TOTALING $186,954.36, IT APPEARS THAT A SUBSTANTIAL PORTION OF THIS WORK, TOTALING APPROXIMATELY $87,875, IS TO BE SUBCONTRACTED AND PERFORMED BY OTHERS AT EITHER LUMP SUM OR UNIT PRICES, WHICH PRICES UNDOUBTEDLY INCLUDE ITEMS OF OVERHEAD AND PROFIT, THUS RESULTING IN THE PAYMENT BY THE UNITED STATES OF DOUBLE CHARGES FOR THESE ITEMS.

THE INSURANCE OF SUPPLEMENT C ON THE AFORESAID BASIS APPARENTLY WAS PURSUANT TO SECTIONS NOS. (4) AND (5) OF ADDENDUM NO. 1 TO "GENERAL CONDITIONS GOVERNING COST-PLUS-A-FIXED-FEE CONTRACTS" OF YOUR AGENCY, WHICH ADDENDUM WAS INCORPORATED IN AND MADE A PART OF CONTRACT NO. WA 17, SUPRA. WITH RESPECT THERETO, IT APPEARS THAT PARAGRAPH 7 OF "GENERAL CONDITIONS GOVERNING COST-PLUS-A-FIXED-FEE CONTRACTS" PROVIDES, IN PART, AS FOLLOWS:

"SUBCONTRACT WORK MAY BE CONTRACTED FOR BY THE CONTRACTOR UNDER ANY FORM OF AGREEMENT DETERMINED BY THE CONTRACTOR AND THE CONTRACTING OFFICER TO BE MOST SUITABLE AND DESIRABLE FOR THE FULFILLMENT OF THE CONTRACTOR'S OBLIGATIONS TO THE GOVERNMENT, BUT SUBJECT TO THE FOLLOWING CONDITIONS: *** SECOND, NO WORK SHALL BE THE SUBJECT OF SUBCONTRACT WHICH THE CONTRACTOR HAS AGREED, DURING THE PERIOD OF NEGOTIATION OF THE CONTRACT, TO PERFORM WITH HIS OWN ORGANIZATION, EXCEPT UPON APPROVAL OF THE CONTRACTING OFFICER AND SUCH DEDUCTION FROM FEE AS MAY BE AGREED UPON;

HOWEVER, ADDENDUM NO. 1 TO GENERAL CONDITIONS, PROVIDES THAT SAID PARAGRAPH 7 SHOULD BE ELIMINATED INSOFAR AS IT APPLIED TO CONTRACT NO. WA- 17, SUPRA, AND THAT SECTION (5) OF SAID ADDENDUM SHOULD BE SUBSTITUTED THEREFOR. THE PERTINENT PROVISIONS OF SAID SUBSTITUTED SECTION (5) ARE AS FOLLOWS:

"SUBJECT TO THE PRIOR WRITTEN APPROVAL OF THE CONTRACTING OFFICER THE CONTRACTOR MAY AWARD SUB-CONTRACTS FOR ANY PORTION OF THE WORK WITH THE EXCEPTION OF PLUMBING WORK.

"THE TERMS OF THE SUB-CONTRACT AS TO THE SCOPE AND NATURE OF SERVICES TO BE RENDERED, THE AMOUNT AND BASIS OF COMPENSATION FOR SUCH SERVICES, AND THE DESIGNATION OF THE SUB-CONTRACTOR SHALL BE SUBJECT TO THE APPROVAL OF THE CONTRACTING OFFICER BEFORE ANY ACTION TAKEN WITH RESPECT THERETO SHALL BECOME BINDING UPON ANY OF THE PARTIES AT INTEREST. SUCH SUB-CONTRACTS MAY BE 'LUMP SUM' 'UNIT PRICE' OR IN THE FORM AND SUBSTANCE OF THE CONTRACTOR'S AGREEMENT WITH THE GOVERNMENT. IN THE LATTER CASE, SUB- CONTRACTOR'S FEES SHALL BE PAID BY THE CONTRACTOR OUT OF HIS FEE, AND SHALL NOT BE CONSTRUED TO BE A PART OF THE CONTRACTOR'S PRODUCTION COST. "PAYMENTS BECOMING DUE SUB CONTRACTORS SHALL BE PAID BY THE CONTRACTOR IN CONFORMITY WITH THE PROVISION OF THE APPLICABLE SUB-CONTRACT AND THE CONTRACTOR SHALL BE REIMBURSED IN THE FULL AMOUNT THEREOF, EXCEPT AS PROVIDED IN THE PRECEDING PARAGRAPH, IN CONFORMITY WITH THE PROCEDURE EMPLOYED FOR THE MAKING OF PAYMENTS BECOMING DUE IT AS A RESULT OF OPERATION WITH ITS OWN FORCES AND PRODUCTION COST."

FURTHERMORE, SECTION (4) OF ADDENDUM NO. 1 STIPULATES THAT--

"SECTION 5 A. (15) SHOULD BE CHANGED TO (16) AND A NEW ITEM (15) INSERTED READING AS FOLLOWS:

EXPENDITURES BY THE CONTRACTOR IN PAYMENTS TO SUB-CONTRACTORS ON ACCOUNT OF 'LUMP SUM' SUB-CONTRACTS AWARDED IN ACCORDANCE WITH SECTION 7 AND 8 OF THESE GENERAL CONDITIONS."

IT THUS APPEARS THAT THE EFFECT OF SECTIONS (4) AND (5) OF ADDENDUM NO. 1, AS SET FORTH ABOVE, IS TO PERMIT THE CONTRACTOR TO SUB-CONTRACT ANY PART OF THE WORK-- EXCEPT THE PLUMBING WORK-- ON EITHER A LUMP SUM OR A UNIT PRICE BASIS, AND TO OBLIGATE THE GOVERNMENT TO REIMBURSE THE CONTRACTOR, AS A PART OF THE COST OF THE WORK, FOR THE FULL AMOUNTS PAID UNDER SUCH LUMP SUM OR UNIT PRICE SUBCONTRACTS.

IT APPEARS FURTHER THAT NO DISTINCTION IS TO BE MADE BETWEEN WORK WHICH THE NEGOTIATORS CONTEMPLATED WOULD BE PERFORMED BY THE CONTRACTOR ITSELF AND WORK WHICH WAS CONTEMPLATED WOULD BE PERFORMED BY OTHERS. ALSO, NO PROVISION IS MADE IN SUBSTITUTED SECTION (5) FOR REDUCING THE CONTRACTOR'S FIXED FEE IN THE EVENT THAT WORK IS SUBCONTRACTED WHICH THE PARTIES CONTEMPLATED WOULD BE PERFORMED BY THE CONTRACTOR, AND WHICH WAS INCLUDED IN THE ESTIMATED COST OF THE WORK ON WHICH THE AMOUNT OF THE CONTRACTOR'S ORIGINAL FIXED FEE WAS BASED.

IT IS APPARENT THAT THE FORM OF CONTRACTING AS IS THUS PERMITTED BY SECTIONS (4) AND (5) OF ADDENDUM NO. 1, WILL RESULT IN THE PYRAMIDING OF OVERHEAD AND PROFIT COSTS IN CONNECTION WITH THE CONTRACT WORK-- ALL OF WHICH PYRAMIDED COSTS TO BE BORNE BY THE UNITED STATES. CONSEQUENTLY, SUCH AN ARRANGEMENT NOT ONLY WOULD RESULT IN EXCESSIVE AND UNLAWFUL EXPENDITURES OF PUBLIC MONEYS BUT, ALSO, WOULD PERMIT EVASION OF THE PROVISIONS OF PUBLIC RESOLUTION NO. 106, 76TH CONGRESS, 3D SESSION, 54 STAT. 1115, WHICH STIPULATES THAT UNDER NO CONTRACT ENTERED INTO FOR DEFENSE HOUSING PURSUANT TO SAID RESOLUTION AND PUBLIC LAW NO. 849, 76TH CONGRESS, 54 STAT. 1125, SHALL THE FEE TO BE PAID TO A COST-PLUS-A-FIXED- FEE CONTRACTOR EXCEED 6 PER CENTUM OF THE ESTIMATED COST OF THE CONTRACT, EXCLUSIVE OF THE FEE. IN OTHER WORDS, WHILE THE ESTIMATED COST OF THE WORK TO BE PERFORMED UNDER CONTRACT NO. WA-17 IS STATED AS BEING $2,000,000 AND THE CONTRACTOR'S FIXED FEE IS STATED TO BE $48,000, OR 4.2 PERCENT OF THE ESTIMATED COST, YET IF THE CONTRACTOR BE PERMITTED TO SUBCONTRACT ANY PORTION OF THE WORK WHICH WAS INCLUDED IN THE ESTIMATED COST OF $2,000,000, WITHOUT A CORRESPONDING ADJUSTMENT IN THE AMOUNT OF THE FIXED FEE TO BE PAID, THE RESULT WILL BE TO INCREASE PROPORTIONATELY THE PERCENTAGE ALLOWANCE WHICH THE GOVERNMENT AGREED TO PAY TO THE CONTRACTOR AS A FIXED FEE FOR WORK ACTUALLY PERFORMED BY IT. FOR EXAMPLE, THE ESTIMATED COST OF THE ACTUAL WORK COVERED BY SUPPLEMENT C IS $186,954.36, AND THE ADDITIONAL FIXED FEE TO BE PAID FOR SUCH WORK IS $8,910, OR APPROXIMATELY 4.76 PERCENT. HOWEVER, BY SUBCONTRACTING THE WORK INCLUDED IN ITEMS 1, 2, 5, AND 6 OF SUPPLEMENT C, THE COST OF WHICH WORK TOTALS APPROXIMATELY $87,875, THE ESTIMATED COST OF THE REMAINING WORK WHICH IS TO BE PERFORMED BY THE CONTRACTOR ITSELF IS $99,079.36. CONSEQUENTLY, PAYMENT OF A FIXED FEE OF $8,910 FOR THE PORTION OF THE WORK WHICH IS TO BE PERFORMED BY THE CONTRACTOR ITSELF WILL RESULT IN THE ALLOWANCE OF A FIXED FEE OF 8.99 PERCENT OF THE ESTIMATED COST OF SAID WORK, OR A PERCENTAGE FAR IN EXCESS OF THAT PERMITTED BY PUBLIC RESOLUTION NO. 106, SUPRA.

ACCORDINGLY, FOR THE FOREGOING REASONS, I AM CONSTRAINED TO HOLD THAT THE TERMS OF SECTIONS (4) AND (5) OF ADDENDUM NO. 1, SUPRA, WHICH PURPORT TO PERMIT THE SUBCONTRACTING OF WORK ON A LUMP SUM OR UNIT PRICE BASIS, AND WHICH PROVIDE FOR THE INCLUSION OF THE COST OF SUCH SUBCONTRACTS IN THE COST OF THE WORK WHICH IS TO BE PAID FOR BY THE GOVERNMENT, WITHOUT PROVIDING FOR A CORRESPONDING REDUCTION IN THE CONTRACTOR'S FIXED FEE, ARE CONTRARY TO LAW. THEREFORE, ON THE PRESENT RECORD, I AM UNABLE TO AUTHORIZE PAYMENT OF THE BALANCE OF $3,091.67 TO THE CONTRACTOR AS PROPOSED IN YOUR LETTER OF MARCH 12, SUPRA. ALSO, I HAVE TO ADVISE THAT CREDIT WILL BE WITHHELD BY THIS OFFICE ON VOUCHERS MAKING REIMBURSEMENTS TO THE CONTRACTOR OF AMOUNTS WHICH ARE PAID TO SUBCONTRACTORS UNDER LUMP SUM OR UNIT PRICE CONTRACTS, UNLESS THERE BE A SATISFACTORY SHOWING THAT A PROPORTIONATE REDUCTION HAS BEEN MADE IN THE CONTRACTOR'S FIXED FEE.

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