B-18159, APRIL 8, 1943, 22 COMP. GEN. 948

B-18159, APRIL 8, 1943, 22 COMP. GEN. 948

CONTRACTS - COST-PLUS - LOSS OR DAMAGE - UNEARNED WAGES PAID IN ERROR UNDER A COST-PLUS-A-FIXED-FEE PRIME CONTRACT WHICH PROVIDES FOR REIMBURSEMENT TO THE CONTRACTOR OF THE ACTUAL COST OF THE WORK, INCLUDING LOSSES NOT COVERED BY INSURANCE, AND WHICH CONTEMPLATES THE EMPLOYMENT BY THE CONTRACTOR OF QUALIFIED, CAREFUL AND EFFICIENT WORKERS IN THE PERFORMANCE OF THE WORK, THE PRIME CONTRACTOR MAY NOT BE REIMBURSED PAYMENTS MADE BY IT TO A COST-PLUS SUBCONTRACTOR REPRESENTING UNEARNED WAGES ERRONEOUSLY PAID BY THE SUBCONTRACTOR TO ITS EMPLOYEES. 21 COMP. GEN. 149, AMPLIFIED.

COMPTROLLER GENERAL WARREN TO LT. COL. H.A. GARDYNE, U.S. ARMY, APRIL 8, 1943:

THERE HAS BEEN RECEIVED BY REFERENCE FROM HEADQUARTERS, SERVICES OF SUPPLY, FISCAL DIVISION, YOUR LETTER OF OCTOBER 29, 1942, AS FOLLOWS:

1. UNDER THE PROVISIONS OF PARAGRAPHS 1 B AND 3 B, AR 35-730, DATED JUNE 1, 1939, AND PURSUANT TO AUTHORITY CONTAINED IN SECTION 8 OF THE ACT OF JULY 31, 1894, (28 STAT. 208), APPLICATION IS HEREBY SUBMITTED FOR AN ADVANCE DECISION CONCERNING PAYMENT OF VOUCHER ( STANDARD FORM 1034) OF THE HERCULES POWDER COMPANY, RADFORD, VIRGINIA, COVERING CLAIM FOR REIMBURSEMENT UNDER COST-PLUS-A--FIXED-FEE CONTRACT NO. W-ORD 462, DATED AUGUST 16, 1940.

2. THE VOUCHER AS PREPARED AND SUBMITTED FOR PAYMENT COVERS CLAIM FOR REIMBURSEMENT OF UNEARNED WAGES PAID IN ERROR BY THE MASON AND HANGER COMPANY, INC., RADFORD, VIRGINIA, THE SUBCONTRACTOR. IT BEING DOUBTFUL WHETHER SUCH AN EXPENDITURE IS PROPERLY CHARGEABLE TO THE UNITED STATES AND REIMBURSABLE UNDER CONTRACT, VOUCHER IS BEING SUBMITTED WITH REQUEST FOR ADVANCE DECISION CONCERNING PROPRIETY OF PAYMENT.

3. I AM A DISBURSING OFFICER, U.S. ARMY, AND THE ENCLOSED VOUCHER HAS BEEN SUBMITTED TO ME FOR PAYMENT.

IN YOUR LETTER OF THE SAME DATE ADDRESSED TO THE CHIEF OF FINANCE, WASHINGTON, D.C., THROUGH THE COMMANDING GENERAL, THIRD SERVICE COMMAND, BALTIMORE, MARYLAND, YOU STATED THAT THE HERCULES POWDER COMPANY HAD REIMBURSED MASON AND HANGER COMPANY, INC., THE SUBCONTRACTOR, AND THAT IT WAS THE OPINION OF THE OFFICE OF THE FINANCE OFFICER, NEWPORT NEWS, VIRGINIA,"THAT THE UNITED STATES CAN IN NO MANNER ASSUME RESPONSIBILITY FOR ERRORS MADE BY THE SUBCONTRACTOR UNDER A FIXED-FEE CONTRACT, COVERING ERRONEOUS PAYMENT OF UNEARNED WAGES.

THE BASIS UPON WHICH IT IS CLAIMED THAT THE EXPENDITURE IS A PROPER CHARGE AGAINST THE UNITED STATES UNDER THE CONTRACT IS SET FORTH BY THE CONTRACTOR IN A LETTER DATED FEBRUARY 9, 1942, TO THE COMMANDING OFFICER RADFORD ORDNANCE WORKS, RADFORD, VIRGINIA, AS FOLLOWS:

MR. CLARK HAS REFERRED TO US YOUR LETTER OF JANUARY 15TH ADVISING THAT THE FINANCE OFFICER DID NOT APPROVE THE BUREAU VOUCHER REFERRED TO ABOVE BECAUSE HE WAS OF THE OPINION THAT NO AUTHORITY EXISTED FOR SUCH REIMBURSEMENT. THIS REPLY HAS BEEN DELAYED DUE TO MY ABSENCE FROM THE OFFICE.

THE FINANCE OFFICER HAS APPARENTLY INADVERTENTLY OVERLOOKED THE FACT THAT CONTRACT W-ORD-462 SPECIFICALLY MAKES ALL COSTS AND EXPENSES INCURRED BY THE CONTRACTOR IN CONNECTION WITH THE WORK AT RADFORD ORDNANCE WORKS, NOT COVERED AND REIMBURSED BY INSURANCE OR OTHERWISE, REIMBURSABLE TO THE CONTRACTOR. (SEE ARTICLE VI-A, 1 (A), (B), (J) AND ARTICLE VIII-O). SIMILAR PROVISIONS ARE INCLUDED IN MASON AND HANGER COMPANY'S SUBCONTRACT BY THE EXPRESS LANGUAGE OF ARTICLE III THEREOF.

EVEN ASSUMING FOR THE PURPOSE OF DISCUSSION THAT MASON AND HANGER COMPANY WAS NEGLIGENT IN MAKING THE OVERPAYMENT OF WAGES, WHICH DOES NOT APPEAR TO BE THE CASE IN VIEW OF THE SMALL AMOUNT OF $865.45 INVOLVED OUT OF A TOTAL PAYROLL OF SUBSTANTIALLY OVER $12,900,000.00 DURING THE PERFORMANCE OF THE WORK BY IT AT RADFORD, THE PROVISIONS REFERRED TO ABOVE OF CONTRACT W-ORD- 462 PROVIDE THAT THE CONTRACTOR SHALL BE REIMBURSED FOR THE SAME, SINCE THE CONTRACTOR IS LIABLE ONLY FOR LOSSES, EXPENSES AND COSTS "SHOWN BY THE GOVERNMENT TO HAVE BEEN CAUSED DIRECTLY BY BAD FAITH OR WILLFUL MISCONDUCT ON THE PART OF EMPLOYEES ACTING WITHIN THE SCOPE OF HIS OR THEIR AUTHORITY AND EMPLOY.'

THE COMPTROLLER GENERAL HAS RULED A NUMBER OF TIMES, AS THE FINANCE OFFICER IS AWARE, THAT THE CONTRACTOR UNDER THE STANDARD COST-PLUS-A- FIXED-FEE CONTRACT IS NOT LIABLE FOR LOSSES RESULTING FROM ORDINARY NEGLIGENCE. CONTRACT W-ORD-462 IS MUCH MORE EXPLICIT ON THIS POINT EVEN, THAN IS THE STANDARD FORM.

IN VIEW OF THESE FACTS WE BELIEVE THAT UPON REFERENCE TO THE PROVISIONS OF THE CONTRACT CITED ABOVE THE FINANCE OFFICER SHOULD PROMPTLY PASS FOR REIMBURSEMENT BUREAU VOUCHER NO. 5488-NP WHICH IS RETURNED HEREWITH.

THE REFERRED TO PROVISIONS OF COST-PLUS-A-FIXED-FEE CONTRACT NO. W ORD- 462, DATED AUGUST 16, 1940, WITH THE HERCULES POWDER COMPANY, WILMINGTON, DELAWARE, COVERING THE CONSTRUCTION, EQUIPMENT AND OPERATION OF AN AMMUNITION PLANT AT OR NEAR RADFORD, VIRGINIA, ARE AS FOLLOWS:

ARTICLE VI-A. REIMBURSEMENT FOR CONTRACTOR'S EXPENDITURES

1. THE GOVERNMENT SHALL BEAR ALL COST AND EXPENSES OF EVERY CHARACTER AND DESCRIPTION INCURRED BY THE CONTRACTOR, WHEN APPROVED OR RATIFIED BY THE CONTRACTING OFFICER, IN CONNECTION WITH THE ACQUISITION OF SITE, DESIGN, CONSTRUCTION, EQUIPPING AND OPERATING OF SAID PLANT, OR ANY PART THEREOF (INCLUDING EQUIPMENT, ALTERATIONS, MAINTENANCE AND CLOSING DOWN), WHICH COSTS AND EXPENSES SHALL INCLUDE BUT SHALL NOT BE LIMITED TO THE FOLLOWING ITEMS, TO WIT:

(A) ALL COSTS AND EXPENSES DIRECTLY ATTRIBUTABLE TO THE ACQUISITION OF THE SITE, INCLUDING (BUT NOT LIMITED TO) THE ACQUISITION OF OPTIONS FOR THE PURCHASE OF THE LAND, THE PURCHASE OF THE LAND, THE TITLE SEARCHES AND THE CONVEYANCE OF THE LAND TO THE GOVERNMENT.

(B) ALL LABOR (INCLUDING GUARDS AND FIRE PROTECTION FORCES), MATERIALS (INCLUDING RAW MATERIALS FOR THE MANUFACTURE OF POWDER), TOOLS, MACHINERY, EQUIPMENT, DESIGNS, PLANS, SUPPLIES, SERVICES, POWER, WATER SUPPLY, AND FUEL NECESSARY FOR EITHER TEMPORARY OR PERMANENT USE FOR THE BENEFIT OF THE WORK. ALL ARTICLES OF CONSTRUCTION PLANT MACHINERY OR EQUIPMENT VALUED AT $300 OR LESS SHALL BE CLASSED AS TOOLS AND SHALL BE CHARGED DIRECTLY TO THE WORK. TITLE THERETO SHALL THEREUPON PASS TO THE GOVERNMENT.

(J) LOSSES AND EXPENSES, NOT COMPENSATED BY INSURANCE OR OTHERWISE (INCLUDING SETTLEMENTS OF CLAIMS MADE BETWEEN THE CONTRACTOR AND THIRD PARTIES, MADE WITH THE WRITTEN CONSENT OF THE CONTRACTING OFFICER), ACTUALLY SUSTAINED BY THE CONTRACTOR IN CONNECTION WITH THE WORK AND FOUND AND CERTIFIED BY THE CONTRACTING OFFICER TO BE JUST AND REASONABLE OR DETERMINED BY DUE PROCESS OF LAW.

ARTICLE VIII-O. CONTINGENCIES

IF THE PERFORMANCE OF ANY WORK OR THE PRODUCTION OR DELIVERY OF ANY MATERIAL HEREUNDER IS INTERRUPTED OR PREVENTED BY REASON OF INABILITY TO OBTAIN ESSENTIAL MATERIALS TO BE USED IN THE MANUFACTURE OF POWDER, BY REASON OF LABOR SHORTAGE OR LABOR DISPUTES, OR BY REASON OF FIRE, EXPLOSION, ACCIDENT, SABOTAGE, OR ANY CAUSES BEYOND ITS CONTROL, WHETHER OF A SIMILAR OR DISSIMILAR NATURE, THE CONTRACTOR SHALL BE EXCUSED FROM PERFORMING WORK OR PRODUCING POWDER WHILE OR TO THE EXTENT THAT IT IS PREVENTED FROM SO DOING BY ONE OR MORE OF SUCH CAUSES, AND ALL SUCH WORK SHALL BE PERFORMED AND SUCH POWDER SHALL BE PRODUCED AS SOON AS PRACTICABLE AFTER SUCH DISABILITY IS REMOVED. THE GOVERNMENT RECOGNIZES THAT THE WORK HEREIN PROVIDED FOR IS OF A HIGHLY DANGEROUS NATURE AND THAT ITS ACCOMPLISHMENT UNDER EXISTING CONDITIONS WILL BE ATTENDANT WITH EVEN GREATER RISKS OF DAMAGE TO PROPERTY, INJURIES TO PERSONS AND FAILURES AND DELAYS IN PERFORMANCE DUE TO UNCERTAIN AND UNEXPECTED CAUSES THAN WOULD NORMALLY EXIST. THE CONTRACTOR IS UNWILLING TO ASSUME SAID RISKS FOR THE CONSIDERATION HEREIN PROVIDED AND INSURANCE AGAINST SAME IS NOT OBTAINABLE EXCEPT AT PROHIBITIVE COST, IF AT ALL. IT IS, THEREFORE, AGREED THAT THE CONTRACTOR SHALL NOT BE LIABLE TO THE GOVERNMENT IN ANY AMOUNT WHATEVER FOR ANY FAILURE OR DELAY IN PERFORMANCE BY IT HEREUNDER, NO MATTER WHAT THE CAUSE THEREOF MAY BE OR SEEM TO BE, OR FOR ANY DAMAGE TO OR DESTRUCTION OF PROPERTY OR FOR ANY INJURY OR DEATH TO PERSONS ARISING OUT OF OR IN CONNECTION WITH THE WORK HEREUNDER,UNLESS SAME SHALL BE SHOWN BY THE GOVERNMENT TO HAVE BEEN CAUSED DIRECTLY BY BAD FAITH OR WILLFUL MISCONDUCT ON THE PART OF SOME EMPLOYEE OR EMPLOYEES OF THE CONTRACTOR ACTING WITHIN THE SCOPE OF HIS OR THEIR AUTHORITY AND EMPLOYMENT.

WHILE THE VOUCHER IN QUESTION BEARS THE APPROVAL OF THE AREA ENGINEER, IT APPEARS FROM HIS LETTER OF JANUARY 2, 1942, TO THE FINANCE OFFICER, U.S. ARMY, FT. MONROE, VIRGINIA, THAT SUCH APPROVAL WAS GIVEN SUBJECT TO A DECISION BY THE FINANCE OFFICER AS TO WHETHER THE EXPENSE COVERED THEREBY WAS REIMBURSABLE UNDER THE TERMS OF THE CONTRACT. ALSO, IT APPEARS FROM THE SAID LETTER OF JANUARY 2, 1942, THAT THE ERRONEOUS PAYMENTS WERE MADE BY MASON AND HANGER COMPANY, INC., "BEFORE REIMBURSEMENT REQUESTS WERE SUBMITTED" THEREFOR BY THE RESPECTIVE EMPLOYEES, AND FROM SWORN CERTIFICATE OF THAT COMPANY ATTACHED TO THE VOUCHER THAT SOME OF THE OVERPAYMENTS WERE RECAPTURED THROUGH THE MEDIUM OF WRITING A PERSONAL LETTER "IN EACH CASE EXPLAINING TO THE FORMER EMPLOYEE THAT HE DID NOT EARN THE AMOUNT THAT WAS PAID TO HIM AND THAT HE WAS TO RETURN THIS OVERPAYMENT TO MASON AND HANGER COMPANY, INC. AT ONCE.' IT WAS FURTHER STATED THAT SUCH OF THE OVERPAYMENTS AS WERE RECAPTURED BY THIS PROCEDURE WERE NOT INCLUDED IN THE "SCHEDULES OF SUPPLEMENTARY PAYROLL NO. 1" ATTACHED TO THE VOUCHER.

CONTRACT PROVISIONS SUBSTANTIALLY SIMILAR TO ARTICLE VI-A QUOTED IN PART ABOVE, WERE CONSIDERED IN 21 COMP. GEN. 149, WHEREIN IT WAS HELD THAT UNDER THE TERMS THEREOF REIMBURSEMENT IS AUTHORIZED FOR LOSSES AND EXPENSES INCURRED IN CONNECTION WITH THE FORMS OF CONTRACTS THERE INVOLVED, INCLUDING SUCH AS MAY BE DUE TO THE NEGLIGENCE OF THE CONTRACTOR'S EMPLOYEES, PROVIDED REIMBURSEMENT IS NOT OTHERWISE EXCLUDED AND THE CONTRACTOR IS NOT CHARGEABLE WITH ANY BREACH OF ITS CONTRACTUAL DUTIES AND OBLIGATIONS TO THE UNITED STATES. IN OTHER WORDS, IT WAS HELD IN THE SAID DECISION THAT A CONTRACTOR UNDER THE FORMS OF CONTRACTS THERE INVOLVED MAY NOT BE REIMBURSED FOR LOSSES WHERE THE CONTRACTOR'S FAILURE TO PERFORM ITS CONTRACTUAL DUTIES AND OBLIGATIONS IS THE PROXIMATE CAUSE OF THE LOSS.

ARTICLE VIII-A-3 OF THE CONTRACT HERE INVOLVED PROVIDES THAT THE WORK SHALL BE "EXECUTED IN THE BEST AND MOST WORKMANLIKE MANNER BY QUALIFIED, CAREFUL AND EFFICIENT WORKERS, IN CONFORMITY WITH THE BEST STANDARD PRACTICES" AND ARTICLE VIII-B- (G) PROVIDES THAT THE CONTRACTOR SHALL AT ALL TIMES USE HIS BEST EFFORTS "TO PROTECT AND SUBSERVE THE INTEREST OF THE GOVERNMENT.' WHILE THE CONTRACT, IN EFFECT, GUARANTEES TO THE CONTRACTOR LIMITED FIXED FEES FOR ITS SERVICES, INCLUDING PROFIT AND ALL GENERAL OVERHEAD EXPENSES, IN ADDITION TO REIMBURSEMENT OF THE ACTUAL COST OF THE WORK, INCLUDING LOSSES NOT COVERED BY INSURANCE, AND DAMAGES AS CONTEMPLATED UNDER ARTICLE VIII-O, QUOTED ABOVE, THE FIXED FEES ARE PAID TO OBTAIN THE COMPETENT AND FAITHFUL SERVICES OF THE CONTRACTOR. IF THE CONTRACTOR IS REMISS IN THE PERFORMANCE OF ITS OBLIGATION TO FURNISH AND MAINTAIN A FORCE OF COMPETENT AND CAREFUL EMPLOYEES, IT IS CLEAR THAT IT HAS NO BASIS FOR A CLAIM FOR REIMBURSEMENT OF LOSSES DUE TO THE CARELESSNESS OR NEGLIGENCE OF THE EMPLOYEES INVOLVED. ANY DIFFERENT VIEW, OR TO HOLD OTHERWISE, WOULD NOT ONLY BE IN DEROGATION OF THE MANIFEST TERMS OF THE CONTRACT, BUT WOULD OPERATE AS A SHIELD FOR INCOMPETENCE AND TEND TO ENCOURAGE, RATHER THAN TO DISCOURAGE, NEGLIGENCE ON THE PART OF THE CONTRACTOR'S EMPLOYEES, OR THOSE OF THE SUBCONTRACTOR, IN THE PERFORMANCE OF THEIR DUTIES. IN VIEW THEREOF, AND SINCE THE UNITED STATES RECEIVED NO BENEFIT FROM THE EXPENDITURE, THE ITEM OF COST MAY NOT BE REGARDED AS A PROPER CHARGE AGAINST THE UNITED STATES UNDER THE TERMS OF THE CONTRACT. COMPARE 22 COMP. GEN. 349.

ACCORDINGLY, THE VOUCHER, TOGETHER WITH THE PERTINENT PAPERS, IS RETURNED HEREWITH, AND YOU ARE ADVISED THAT PAYMENT THEREON IS NOT AUTHORIZED.