B-24341 April 1, 1942

B-24341 April 1, 1942

Mr. Wayne Coy, Liaison Office for Emergency Management, Office for Emergency Management, Executive Office of the President.

My dear Mr. Coy:

I have your letter of March 23, 1942, as follows:

"This is with reference to your letter of March 12, 1942, reference B-24341, in which a determination was made by you as to what constitutes "administrative expense" within the purview of the First Deficiency Appropriation Act, 1942 (Public Law 463), approved February 21, 1942, providing under Title I, for the Executive Office of the President, for civilian defense, $100,000,000 to carry out the provisions of the Act approved January 27, 1942 (Public Law 415). We wish to thank you for the promptness with which this decision was rendered.

"In analyzing the contents of this decision, much concern is felt because of the inclusion of all 'research and development' within the limitation for administrative expenses. Our review of the pertinent considerations you mention leads to the conclusion that this is not a warranted determination. The inclusion probably results from a misunderstanding as to the extent and types of research and development to be carried on under the provisions of the law.

"Relative to the matter of research and development, your letter states on page 9, that:

"'It appears from the legislative history of the act that the "research and development" contemplated consists primarily in the standardization of the equipment and the drafting of specifications. Irrespective thereof, the research and development will be carried on as a necessary incident to the primary object, the procurement of supplies, facilities and equipment for civilian defense purposes and consequently appears to be no more than administrative expense incident to execution of the program. The fact that the term "research and development" is specifically mentioned in Public Law 415 does not preclude its being an "administrative expense" within the meaning of Public Law 463.'

"It is rather important that we bear in mind that according to the Act of January 27, 1942, the responsibilities of the Director of Civilian Defense are, 'to provide under such regulations as the President may prescribe, (1) facilities; (2) supplies; and (3) service to include research and development for the adequate protection of persons and property from bombing attack, sabotage or other war hazards'. (Underscoring and enumeration supplied). The enabling legislation thus designates the providing of 'services' as a responsibility of the Director of Civilian Defense upon equal status with 'facilities' and 'supplies'. The provision of 'services to include research and development for the adequate protection of persons and property' is consequently identified with the $97,000,000 rather than with the administrative limitation.

"'Research and development' appears primarily as an explicit statement of what is included among these 'services' to be provided by the Director and not as being merely incidental to procurement. The type of research that is contemplated is far beyond the mere standardization of equipment and drafting of specifications and is of much wider scope and significance than that which is merely identified with procurement.

"As specific types of research, the following present types about to be undertaken: (1) research and development of material to be used for decontamination of clothing, and research for the purpose of developing clothing which would not require decontamination material; (2) research and development for fire resistant material, both for fabrication and building materials, particularly for flooring of attics and roof materials; (3) development of materials for fighting incendiary bombs such as new formulae to be substituted for sand; (4) research and development in connection with air raid alarm devices; (5) research and development in connection with blackout devices, particularly traffic lights and transportation lights of all kinds; and (6) research relative to the utility value of various fire hosing types.

"Referring to the Hearings of the Subcommittee of the Committee on Appropriations, House of Representatives which you quote at great length, the former Director of Civilian Defense states on page 260 that:

"'We have only set aside, out of this $100,000,000, $1,000,000 for research and experiment.'

"It should be noted that this statement is not made in connection with the administrative expenses which are taken up at a later point in the hearings, during which latter testimony research is not mentioned. He expressed therein the understanding which this office has had and expressed at all times that approximately $1,000,000 of the $97,000,000 would be used for research of a nature necessary to carry out the directives prescribed under the law.

"The specific provisions of the Executive Order should further dispel any doubts as to the extent of 'research and development' contemplated.

"This office is in complete agreement with your statement that:

"'The cost of transportation of supplies and equipment procured to the points to which they are to be delivered for civilian defense purposes represents a direct and essential part of the cost of the supplies and equipment and consequently is not properly for classification as an administrative expense.'

"We do, however, question the advisability of charging to 'administrative expense' the transportation costs incident to the transfer of equipment from one locality to another, after the initial distribution. In view of the limited supply to cover rather extensive possible target areas, certain reshipments are necessary in order to carry out the provisions of the law and to get the property to what you refer to as the 'ultimate destinations'.

"The Executive Order provides in paragraph (10) that:

"'All equipment, facilities and supplies which shall at any time be provided by the Director of Civilian Defense for any locality shall be at the disposition of the United States Government***.'

"Further, under paragraph (8)(c), the Director of Civilian Defense shall have full discretionary authority from time to time 'to recall any facilities or supplies, or discontinue any services so allocated to any locality.'

""We feel that the reshipment cost is a part of the transportation cost necessary to get the 'supplies and equipment procured to the points to which they are to be delivered for civilian defense purposes'. An analogous thought to that which you express in the decision would seem to be that it would be immaterial that the supplies and equipment first are shipped to one locality and then later transported to other localities which are under attack or in danger of attack. These latter are the 'ultimate destinations' within the contemplation of the law.

"A prompt decision on the points raised herein would be very much appreciated."

By reason of the evident concern of the Office of Civilian Defense due to the classification of "research and development" as an item of administrative expense I have carefully reconsidered the matter but find no substantial basis, under the circumstances, for reaching a conclusion different from that stated in my decision to you of March 12, 1942.

While the act of January 27, 1942, Public Law 415, authorizes the Director of Civilian Defense to provide "services to include research and development", the act of February 21, 1942, Public Law 463, limits the amount of available funds which may be used for "administrative expenses" and the said act expressly includes personal services in the District of Columbia as "administrative expenses". There would seem to be no room for doubt, therefore, that personal services in the District of Columbia in connection with research and development must, by the express terms of the act, be charged to the limited amount available for administrative expenses. Whatever may have been the intention of the officials of the Office of Civilian Defense with respect to classification of "research and development" this office cannot ignore the plain and unambiguous requirement in the statute that personal services in the District of Columbia be classified as administrative expenses irrespective of the matter to which those personal services may relate. And, as I pointed out in my decision of March 12, 1942, it would be absurd, under the circumstances, to attribute to the Congress an intention that personal services involved in research and development in the District of Columbia should not be so charged.

It is appreciated that "services to include research and development", is specifically included in the act of January 27, 1942, as one of the items which the Director of Civilian Defense is authorized to provide but when the act was passed there was no restriction therein with respect to administrative expenses, or personal services. The subsequent act of February 21, 1942, specifically limited the amount which might be used for administrative expenses including personal services and whatever may have been the intention of the original enabling act it must give way to the express provisions of the later act which appropriated funds but limited their use. In this connection the inclusion of "research and development" as an item of administrative expense does not fail to give effect to the act of January 27, 1942, but merely limits the amount available for "service to include research and development".

Aside from the express provisions of the act of February 21, 1942, it appears from the legislative history of the act that the congress intended to confine such services to the limitation of $3,000,000 as fully stated in the decision of March 12, 1942. The breakdown furnished the Congress of the items and amounts for which it was proposed to use the $100,000,000 sought, although specific as to the items of supplies, equipment, and facilities, did not specifically show an item of research and development, except, of course, to the extent that research and development might be classified under "administration and overhead".

In connection with and as incidental to research and development I am sure you will agree that, as a practical matter, it would be virtually impossible to draw a clear line between expenses chargeable against the administrative expense limitation and expenses chargeable against the general fund, even if it were clear that "research and development" was not chargeable as an administrative expense. But, however that may be, I find no authority in the act of February 21, 1942, to exclude "research and development" from classification as an administrative expense, and if the limited funds available therefor are not sufficient the matter properly is for presentation to the Congress.

In the decision of March 12, 1942, it was stated that "transportation costs of equipment from the point of production to ultimate destination, either direct or through Office of Civilian Defense depots" were not chargeable as administrative expenses because such costs represent a direct and essential part of the cost of the supplies and equipment, but that "any transfer of equipment from one locality to another, after distribution of the equipment, would be an incident to the maintenance and administration of the program and, as such, the incidental transportation costs should be charged as an administrative expense". In this connection the term "ultimate destination" was intended to refer to the point at which the supplies and equipment first are turned over to the possession of localities within the various states, rather than to points of temporary warehousing at Office of Civilian Defense depots. The purpose is, of course, to get the supplies and equipment delivered to such localities and when such a delivery of supplies and equipment has been accomplished any transportation costs later incurred do not represent a direct and essential part of the delivered cost of the supplies and equipment but represent a cost incurred as an incident to administration of the program. While it may be necessary and desirable in some instances to reship the supplies and equipment from one locality to another I cannot agree that the cost of such reshipments should be regarded as a direct and essential part of the cost of such equipment. Certainly there must be a time and place at which transportation costs cease to represent an essential part of the cost of the articles and that time and place must be when and where the articles are turned over to localities for intended use; any reshipments thereafter, whether once or a number of times, extending over an indefinite period and necessitated by changed conditions or circumstances, being merely incidental to the effective administration of the act, are properly chargeable as administrative expenses.

In view of the foregoing and for the reasons heretofore stated I must adhere to the conclusions reached in the decision of March 12, 1942.

Respectfully,

(signed) Lindsay C. Warren Comptroller General of the United States