B-132745, SEP. 25, 1957

B-132745, SEP. 25, 1957

TO OFFICER IN CHARGE, NAVY REGIONAL ACCOUNTS OFFICE:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 18, 1957, REFERRED HERE BY THE ASSISTANT COMPTROLLER OF THE NAVY, TRANSMITTING RECLAIM VOUCHER FOR $7,110.85, IN FAVOR OF THE GRAY MARINE MOTOR COMPANY, DETROIT, MICHIGAN, REPRESENTING THE PROPORTION OF THE SALARY PAYMENTS MADE TO CERTAIN OF THE CLAIMANT'S PERSONNEL FOR HOLIDAYS, VACATIONS AND SICK LEAVE, PLUS THE APPLICABLE OVERHEAD, GENERAL AND ADMINISTRATIVE EXPENSE AND SOCIAL SECURITY TAXES, IN CONNECTION WITH SERVICES RENDERED IN THE PERFORMANCE OF COST-PLUS-A-FIXED-FEE CONTRACT NO. NOBS 45555, DATED JUNE 20, 1947.

THE AMOUNT OF $7,110.85, RECLAIMED HEREIN, WAS DEDUCTED FROM AMOUNTS DUE THE CLAIMANT UNDER ANOTHER CONTRACT IN ORDER TO SATISFY A NOTICE OF EXCEPTION ISSUED FEBRUARY 1, 1952, BY THE GENERAL ACCOUNTING OFFICE.

UNDER THE TERMS OF RESEARCH AND DEVELOPMENT CONTRACT NOBS-45555, THE CONTRACTOR UNDERTOOK THE DEVELOPMENT OF A 105 HP LIGHT WEIGHT MARINE PROPULSION DIESEL ENGINE APPROPRIATE FOR USE ON SMALL NAVY CRAFT. ALONG WITH THE DELIVERY OF ONE EXPERIMENTAL ENGINE SO DEVELOPED, THE CONTRACTOR AGREED TO FURNISH THE GOVERNMENT WITH A SET OF SPARE PARTS, SPECIAL TOOLS, PLANS, INSTRUCTION BOOKS, AND THE PATENT SCHEDULES AND DISCLOSURES REQUIRED UNDER THE TERMS OF THE CONTRACT. IN CONSIDERATION FOR THE SAID SERVICES, THE CLAIMANT WAS TO BE REIMBURSED BY THE GOVERNMENT FOR ALL PROPER EXPENDITURES INCURRED IN THE FULFILLMENT OF ITS CONTRACTUAL UNDERTAKING, AND WAS TO BE PAID A STIPULATED FIXED FEE. INCLUDED AMONG THE ITEMS OF COST TO BE REIMBURSED UNDER THE CONTRACT ERE:

"/A) AS ALLOWABLE COSTS

2. SALARIES AND WAGES OF THE FOLLOWING PERSONNEL DIRECTLY EMPLOYED IN THE PERFORMANCE OF THIS CONTRACT, EXCLUDING THEREFROM * * * HOLIDAY, VACATION AND SICK LEAVE ALLOWANCES PERTAINING HERETO:

(I) PERSONNEL EMPLOYED IN DIRECT PRODUCTIVE LABOR, GENERALLY REFERRED TO AS SHOP LABOR.

(II) PERSONNEL EMPLOYED IN DIRECT LABOR, INCLUDING ENGINEERS, SCIENTISTS, DRAFTSMEN, TECHNICIANS AND OTHER SALARIED EMPLOYEES.'

THE NOTICE OF EXCEPTION REFERRED TO AS BASED UPON THE PREMISE THAT THE COMPENSATION PAID TO ENGINEERING AND SHIP EMPLOYEES OF THE CONTRACTOR FOR HOLIDAYS, VACATION AND SICK LEAVE, PLUS THE GENERAL OVERHEAD AND ADMINISTRATIVE EXPENSES, AND THE SOCIAL SECURITY TAXES APPLICABLE ERETO,"DO NOT APPEAR PROPER FOR REIMBURSEMENT UNDER THE CONTRACT.'

IN THEIR RESPONSE THERETO, THE ADMINISTRATIVE OFFICIALS HAVE EXPLAINED THAT EACH OF THE INDIVIDUALS WHOSE VACATION, SICK LEAVE AND HOLIDAY COMPENSATION WAS QUESTIONED BY THE NOTICE OF EXCEPTION WAS A REGULAR SALARIED EMPLOYEE OF THE CONTRACTOR, WHOSE CONSISTENT POLICY AND PRACTICE HAS BEEN TO (1) PAY ITS SALARIED PERSONNEL THEIR MONTHLY OR YEARLY RATES OF COMPENSATION, PROVIDED THEY WORK DURING THE REGULARLY PRESCRIBED WORK HOURS ESTABLISHED BY THE MANAGEMENT; (2) TO ALLOW EACH OF ITS REGULAR SALARIED EMPLOYEES A TWO WEEKS VACATION WITH PAY, AND (3) TO MAKE PAYMENTS OF SALARIES TO SUCH EMPLOYEES WITHOUT DEDUCTION FOR ABSENCES, WITHIN PRESCRIBED LIMITATIONS, RESULTING FROM SICKNESS. FURTHER, THE CONTRACTING OFFICIALS HAVE POINTED OUT THAT IN THE CASE OF SALARIED EMPLOYEES, SUCH AS HERE INVOLVED, IT IS NOT CUSTOMARY FOR A CONTRACTOR TO MAKE ANY ADDITIONAL "ALLOWANCES" FOR AUTHORIZED LEAVES OF ABSENCE FROM DUTY, SINCE THOSE EMPLOYEES MUST BE PAID THEIR YEARLY OR MONTHLY SALARY RATES, AS FIXED BY THE TERMS OF THEIR EMPLOYMENT, WITHOUT REGARD TO HOLIDAYS OCCURRING AND VACATIONS OR SICK LEAVE GRANTED, PROVIDED, OF COURSE, SUCH PERIODS OF LEAVE ARE NOT IN EXCESS OF THOSE NORMALLY CONSIDERED ADEQUATE AND REASONABLE.

IN REFERRING THE RECLAIM VOUCHER HERE FOR OUR CONSIDERATION, THE U.S. NAVY BRANCH AUDIT OFFICE, DETROIT, MICHIGAN, SUGGESTS THAT THE WORD "ALLOWANCES," AS USED IN THE CONTRACT, BE INTERPRETED IN THE LIGHT OF ITS PRACTICAL AND INTENDED MEANING, POINTING OUT THAT IF THE CONTRACTOR HAD NOT MADE ANY SPECIFIC ALLOWANCES FOR THE VACATION OR OTHER PROPER ABSENCES OF ITS SALARIED EMPLOYEES, THEN THE WORDING USED WOULD NOT BE APPLICABLE. THE SAID OFFICE FURTHER STATES THAT IT KNOWS OF NO ACCOUNTING REQUIREMENT THAT ACCOUNTS BE SET UP TO WHICH HOLIDAY, VACATION AND SICK LEAVE GRANTED TO SALARIED EMPLOYEES--- WHOSE TIME IS NOT CHARGED TO WORK PROJECTS ON AN HOURLY OR OTHER UNIT BASIS--- MUST BE CHARGED. IN VIEW THEREOF, AND SINCE IT IS THE CUSTOMARY PRACTICE OF EMPLOYERS TO PAY SALARIED PERSONNEL FIXED SUMS PER MONTH OR YEAR, WITHOUT REGARD TO HOLIDAYS AND AUTHORIZED VACATIONS AND SICK LEAVE GRANTED, THE SAID OFFICE RECOMMENDS THAT THE INSTANT CLAIM BE PAID.

AN "ALLOWANCE" HAS BEEN DEFINED TO MEAN,"A SUM OF MONEY PERIODICALLY GRANTED AS A BONUS.' IT HAS BEEN REASONABLY ESTABLISHED THAT EACH OF THE NINE EMPLOYEES OF THE GRAY MARINE MOTOR COMPANY, WHOSE RIGHT TO FULL COMPENSATION WAS QUESTIONED IN OUR NOTICE OF EXCEPTION, WAS A REGULAR SALARIED EMPLOYEE WHO DEVOTED ALL OF HIS TIME TO THIS PARTICULAR PROJECT; ALSO, THAT UNDER THE COMPANY'S ESTABLISHED ACCOUNTING SYSTEM, NO SEPARATE ACCOUNT IS MAINTAINED FOR VACATIONS, HOLIDAYS OR SICK LEAVES GRANTED THAT CLASSIFICATION OF EMPLOYEE. THUS, THERE CAN BE NO QUESTION BUT THAT THE CONTRACTOR ACTED IN ENTIRE GOOD FAITH IN HAVING INCURRED THE ACTUAL EXPENSE TO WHICH EXCEPTION HAS BEEN TAKEN IN THIS INSTANCE. FURTHERMORE, THE VACATIONS, HOLIDAYS AND SICK LEAVES GIVEN THESE EMPLOYEES WERE NEVER INTENDED BY THE CONTRACTOR TO BE BONUSES OR EXTRA ALLOWANCES GRANTED FOR SERVICES RENDERED UNDER THIS CONTRACT, BUT, IN FACT, THEY WERE RIGHTLY CONSIDERED BY HIM TO BE A PART OF THEIR CONTRACT OF EMPLOYMENT WITH THE COMPANY. UNLIKE THE HOURLY-RATED EMPLOYEE, WHOSE WAGE IS BASED UPON THE NUMBER OF HOURS ACTUALLY WORKED, AND WHO POSSIBLY MAY, UNDER CERTAIN CIRCUMSTANCES, BECOME ELIGIBLE FOR A HOLIDAY OR VACATION ALLOWANCE, THE SALARIED EMPLOYEE IS ENGAGED TO WORK AND IS PAID FOR THE PERIOD OF TIME FOR WHICH HE IS EMPLOYED, AND SHOULD BE REQUIRED TO WORK ON HOLIDAYS, OR DURING HIS VACATION, UNDER HIS CONTRACT OF EMPLOYMENT HE PERHAPS WOULD BECOME ENTITLED TO ADDITIONAL COMPENSATION FOR THE EXTRA SERVICES RENDERED. NO SUCH BONUS OR EXTRA SALARY ALLOWANCE APPEARS TO BE HERE INVOLVED.

ACCORDINGLY, AND SINCE THE "EXPLANATION OF PRINCIPLES FOR DETERMINATION OF COSTS UNDER GOVERNMENT CONTRACTS (WAR DEPARTMENT - NAVY DEPARTMENT)," PAGE 8, ARTICLE 29 (C), BY REFERENCE MADE A PART OF THIS CONTRACT, REASONABLY CONTEMPLATES THE ALLOWANCE TO COST-PLUS-A FIXED-FEE CONTRACTORS OF VACATION TIME PAID ITS SALARIED EMPLOYEES, YOU ARE ADVISED THAT PAYMENT MAY BE MADE ON THE INSTANT RECLAIM VOUCHER, IF OTHERWISE CORRECT.