B-157802, JUL. 7, 1967

B-157802, JUL. 7, 1967

CONTRACTS - COST-PLUS-FIXED-FEE - MORTGAGE INTEREST LIABILITY DECISION ON BEHALF OF AMERICAN CHEMICAL SOCIETY CONCERNING PAYMENT OF MORTGAGE INTEREST LIABILITY UNDER A COST-PLUS-FIXED-FEE AGREEMENT WITH NATIONAL SCIENCE FOUNDATION. DECISION REAFFIRMED DECISION OF FEB. 24, 1967, THAT PAYMENT OF SOCIETY'S INTEREST LIABILITY UNDER GUISE OF A FIXED FEE IS ILLEGAL AND IMPROPER.

TO ARTHUR B. HANSON, ESQUIRE, HANSON, COBB, O-BRIEN AND TUCKER:

REFERENCE IS MADE TO YOUR LETTER DATED MAY 17, 1967, REQUESTING, ON BEHALF OF THE AMERICAN CHEMICAL SOCIETY, RECONSIDERATION OF OUR DECISION B -157802, FEBRUARY 24, 1967, WHEREIN WE CONSIDERED AT THE REQUEST OF THE DEPUTY DIRECTOR OF THE NATIONAL SCIENCE FOUNDATION (NSF) THE QUESTION WHETHER THE PAYMENT OF A "FIXED FEE" REPRESENTING THE SOCIETY'S MORTGAGE INTEREST LIABILITY ON THE BUILDING WHERE THE CONTRACT WORK IS BEING PERFORMED CONSTITUTES AN "ACTUAL EXPENSE OF CONTRACT WORK IS BEING PERFORMED CONSTITUTES AN "ACTUAL EXPENSE OF SUCH INVESTIGATIONS, EXAMINATIONS, EXPERIMENTS, AND REPORTS" WITHIN THE MEANING OF SECTION 4 OF THE SOCIETY'S INCORPORATING ACT (50 STAT.798).

IN RESOLVING THIS QUESTION IN THAT DECISION, WE REAFFIRMED OUR DECISION REPORTED AT 45 COMP. GEN. 638 AND DETERMINED THAT THE FACTUAL SETTING OF NSF'S COST-PLUS-FIXED-FEE (CPFF) CONTRACT AFFORDED NO BASIS FOR CONSIDERING THE SOCIETY'S MORTGAGE INTEREST LIABILITY AN "ACTUAL EXPENSE" OF THE CONTRACT WORK. IN THIS REGARD, WE STATED IN OUR DECISION OF FEBRUARY 24, 1967, THAT:

"* * * THE CONTRACT WORK IS BEING PERFORMED IN THE SAME SOCIETY- OWNED BUILDING WHICH WAS INVOLVED IN OUR APRIL 19, 1966, DECISION. THIS BUILDING WAS NEITHER BUILT NOR EXPANDED IN CONTEMPLATION OF EITHER CONTRACT. THE MORTGAGE INTEREST ON THIS BUILDING, WHILE ADMITTEDLY A COST TO THE SOCIETY, DID NOT ACCRUE BECAUSE OF THE CONTRACT OR THE NIH CONTRACT; IT IS PAYABLE BY THE SOCIETY IN ANY EVENT AND IS CLEARLY ATTRIBUTABLE TO THE SOCIETY'S USUAL OPERATIONS RATHER THAN TO THE FACT OF CONTRACTING WITH THE GOVERNMENT. UNDER THESE CIRCUMSTANCES, IT CANNOT FAIRLY BE SAID THAT THE PAYMENT OF A PROPORTIONATE SHARE OF THE SOCIETY'S MORTGAGE INTEREST LIABILITY IN THE FORM OF A FEE COULD CONSTITUTE AN - ACTUAL EXPENSE- TO THE SOCIETY OF PERFORMING THE CONTRACT ORK;,

WE ARE ADVISED BY NSF THAT AS A RESULT OF THE PREVIOUS AGREEMENT OF THE CONTRACTING PARTIES AND IN ACCORDANCE WITH OUR DECISION OF FEBRUARY 24, 1967, CONTRACT AMENDMENT NO. 7, ELIMINATING THE FIXED-FEE OBLIGATION, WAS PRESENTED BY NSF TO THE SOCIETY FOR EXECUTION. BY LETTER DATED MAY 19, 1967, TO NSF, THE SOCIETY REFUSED TO EXECUTE THE AMENDMENT BUT REFUNDED UNDER PROTEST THE FEE (MORTGAGE INTEREST) PAID TO DATE.

INSOFAR AS YOU PRESENT MATTERS NOT PREVIOUSLY CONSIDERED, YOU MAINTAIN THAT OUR INTERPRETATION OF COSTS DOES NOT CONFORM TO THE INTENT OF THE CONGRESS "IN VIEW OF THE CHARTER'S REQUIREMENT THAT THE SOCIETY MUST PERFORM RESEARCH FOR THE DEPARTMENT OF DEFENSE ON REQUEST;,

INITIALLY, WE WOULD POINT OUT THAT OUR PREVIOUS DECISIONS CLEARLY ACKNOWLEDGED THE FACT THAT THE SOCIETY'S LONG-TERM FINANCIAL OBLIGATIONS WITH RESPECT TO ITS REAL PROPERTY ARE CERTAINLY COSTS. APART FROM CONSIDERATION OF THE EFFECT OF THE FEDERAL PROCUREMENT REGULATIONS ON THE SOCIETY'S CONTRACTUAL ARRANGEMENTS WITH NSF, WE DO NOT SUGGEST, IN REFERENCE TO THE CASES CITED BY YOU, THAT THE PAYMENT OF INTEREST ON BORROWINGS WOULD, IN EVERY CASE, BE IMPROPER UNDER SECTION 4 OF THE SOCIETY'S CHARTER. HOWEVER, IN OUR OPINION, THE LANGUAGE OF THE CHARTER AND THE LEGISLATIVE HISTORY THEREOF CONTEMPLATES THE PAYMENT OF COMPENSATION FOR COSTS RESULTING DIRECTLY FROM THE FACT OF CONTRACTING WITH THE GOVERNMENT.

MOREOVER, THERE IS NOTHING IN THE LEGISLATIVE HISTORY OF THE CHARTER ACT WHICH WOULD INDICATE THAT THE "ACTUAL EXPENSE" OF THE SOCIETY'S CONTRACT WORK FOR THE GOVERNMENT IS TO BE CONDITIONED BY EITHER THE VOLUNTARY OR OBLIGATORY CHARACTER OF THE SOCIETY'S RESPONSE TO A GOVERNMENTAL REQUEST FOR SERVICES. THIS PROVISION IN SECTION 4 OF THE CHARTER ACT WAS INTENDED TO REFLECT THE PAST RELATIONSHIP OF COOPERATION EXTENDED BY THE SOCIETY PRIMARILY TO THE THEN WAR AND NAVY DEPARTMENTS, AND IT WAS NOT ANTICIPATED THAT EVEN IN THE ABSENCE OF THE CHARTER OBLIGATION THE SOCIETY WOULD REFUSE TO RESPOND TO A GOVERNMENTAL REQUEST FOR SERVICES. SEE HOUSE REPORT NO. 1508, 75TH CONGRESS, 1ST SESSION, AT PAGE 2 (LETTER OF AUGUST 10, 1937, FROM THE SECRETARY OF WAR TO THE COMMITTEE ON THE JUDICIARY).

THEREFORE, AND SINCE YOU HAVE INTRODUCED NO NEW FACTUAL MATTERS OR PERSUASIVE LEGAL ARGUMENT, WE MUST ADHERE TO OUR CONCLUSION THAT THE PAYMENT OF THE SOCIETY'S MORTGAGE INTEREST LIABILITY UNDER THE GUISE OF A FIXED FEE IS ILLEGAL AND IMPROPER.

WITH RESPECT TO THAT PORTION OF OUR DECISION OF FEBRUARY 24, 1967, ADVISING NSF THAT ITS CPFF CONTRACTUAL ARRANGEMENT WITH THE SOCIETY WAS CONTRARY TO THE COST PRINCIPLES OF THE FEDERAL PROCUREMENT REGULATIONS, YOU SUGGEST THAT "THE FEDERAL PROCUREMENT REGULATIONS, WHICH DISALLOW INTEREST COSTS, ARE NOT APPLICABLE TO SECTION C OF THE SUBJECT CONTRACT, WHICH PROVIDES FOR PAYMENT OF THE FIXED FEE;, ALTHOUGH WE CANNOT ACCEPT THE CONCLUSION THAT THE MORTGAGE INTEREST PAYMENT IS AN "ACTUAL COST", WE MAY ACKNOWLEDGE GENERALLY THE CORRECTNESS OF YOUR OBSERVATION. HOWEVER, AS WE PREVIOUSLY INDICATED, UNDER THE FEDERAL PROCUREMENT REGULATIONS THE "FEE" IN A CPFF CONTRACT CONCEPTUALLY REQUIRES A CONCLUSION THAT THE "FEE" PROVIDED A PROFIT TO THE SOCIETY IN CONTRAVENTION OF SECTION 4 OF THE CHARTER ACT. SEE 39 COMP. GEN. 71. FURTHER, EVEN IF WE COULD AGREE THAT THE "FEE" IN THE CPFF CONTRACT MAY NOT CONTAIN AN ELEMENT OF GUARANTEED PREDETERMINED PROFIT, WE CAN SEE NO REASONABLE BASIS FOR NOT AFFIRMING OUR PRIOR CONCLUSION THAT THE "FOUNDATION HAS ENTERED INTO A REIMBURSEMENT- TYPE CONTRACT WHICH PROVIDES FOR THE RECOVERY OF INTEREST ON BORROWINGS UNDER THE GUISE OF A FIXED FEE;, ..END :