B-14830, FEBRUARY 25, 1941, 20 COMP. GEN. 477

B-14830, FEBRUARY 25, 1941, 20 COMP. GEN. 477

CONTRACTS - COST-PLUS - PAYMENTS - AUDIT REQUIREMENTS IN THE AUDIT OF VOUCHERS COVERING PAYMENTS UNDER A WAR DEPARTMENT COST- PLUS-A-FIXED-FEE CONTRACT, A DETAILED SCHEDULE OF THE DISTRIBUTION OF WAGES OF "DIRECT LABOR" PERSONNEL PROPERLY CERTIFIED BY A WAR DEPARTMENT FIELD AUDITOR, WILL BE ACCEPTED IN LIEU OF THE CONTRACTOR'S ORIGINAL PAY ROLLS WHERE ONLY A SMALL PERCENTAGE OF THE CONTRACTOR'S "DIRECT LABOR" PERSONNEL ENGAGED ON THE CONTRACT WORK WILL BE EXCLUSIVELY ON SUCH WORK AND IT IS THE CONTRACTOR'S PRACTICE TO PAY HIS EMPLOYEES IN CASH WITHOUT REQUIRING THEM TO SIGN RECEIPTS. (FORM OF FIELD AUDITOR'S CERTIFICATE PRESCRIBED.)

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, FEBRUARY 25, 1941:

I HAVE YOUR LETTER OF FEBRUARY 3, 1941, AS FOLLOWS:

YOUR ATTENTION IS INVITED TO A CONTRACT BETWEEN THE UNITED STATES AND THE BALDWIN LOCOMOTIVE WORKS DESIGNATED AS CONTRACT NO. W-ORD-483, WHICH WAS APPROVED BY THE ASSISTANT SECRETARY OF WAR UNDER DATE OF OCTOBER 24, 1940.

THE FOREGOING CONTRACT IS A COST-PLUS-A-FIXED-FEE CONTRACT. IN ADDITION THERETO THE CONTRACTOR HAS OTHER WAR DEPARTMENT CONTRACTS ON A FIXED-PRICE BASIS, A COST-PLUS-A-FIXED-FEE CONTRACT WITH THE BRITISH GOVERNMENT, AND APPROXIMATELY FIFTY (50) OTHER MAJOR CONTRACTS WITH COMMERCIAL FIRMS. WORK ON ALL OF THESE CONTRACTS IS BEING DONE SIMULTANEOUSLY.

SOME OF THE CONTRACTOR'S DIRECT LABOR PERSONNEL WILL DEVOTE ALL OF THEIR TIME TO THE WAR DEPARTMENT COST-PLUS-A-FIXED-FEE CONTRACT ABOVE REFERRED TO, WHILE OTHER DIRECT LABOR WILL BE ENGAGED INTERMITTENTLY ON THE ORDNANCE CONTRACT AND MANY OTHERS, SOME EMPLOYEES WORKING ON AS MANY AS TWO OR THREE DIFFERENT CONTRACTS DURING THE COURSE OF A WORKING DAY. IS ESTIMATED THAT APPROXIMATELY 12 PERCENT OF THE CONTRACTOR'S PAYROLL WITH RESPECT TO THE GOVERNMENT CONTRACT WILL REPRESENT TIME EXCLUSIVELY DEVOTED TO THE COST-PLUS-A-FIXED-FEE CONTRACT WHILE THE REMAINING 88 PERCENT OF THE DIRECT LABOR WILL WORK ON A DIVIDED-TIME BASIS. IT IS NOT CERTAIN THAT THE 12 PERCENT WILL AT ALL TIMES REPRESENT THE SAME INDIVIDUAL EMPLOYEES. THE FOREGOING SPLIT-UP OF WORK IS NECESSARY IN ORDER THAT ALL MACHINE TOOLS MAY BE PROFITABLY EMPLOYED FOR THE MAXIMUM PERIOD DURING THE WORKING DAY.

IT HAS BEEN THE PRACTICE OF THE CONTRACTOR, FOR THE PAST SEVERAL DECADES, TO PAY HIS EMPLOYEES IN CASH, MAKING UP A PAY ROLL AND HANDLING THE EMPLOYEES THEIR PAY, IN CASH, IN THE PRESENCE OF A GUARD AND THE COMPANY PAYMASTER, TAKING NO RECEIPT FOR THE MONEY. OCCASIONALLY ATTEMPTS TO PAY THE MEN BY CHECK HAVE PROVED UNSATISFACTORY AND THERE IS NO REASON FOR THE BELIEF THAT A CHANGE IN THE CONTRACTOR'S METHOD OF PAYING THE EMPLOYEES WOULD PROVE DESIRABLE AT THIS TIME. IT IS OBVIOUS THAT A CHANGE, IF MADE, WOULD HAVE TO BE EFFECTED THROUGHOUT THE ENTIRE PLANT OF THE CONTRACTOR.

IN THE LIGHT OF THE FOREGOING FACTS IT HAS BEEN SUGGESTED THAT, IF YOUR OFFICE APPROVES, REIMBURSEMENT VOUCHERS WILL BE SUPPORTED WITH A SCHEDULE OF DISTRIBUTION OF WAGES INDICATING THE AMOUNTS TO BE CHARGED TO THE CONTRACT IN QUESTION, MAKING A CERTIFICATE THEREON AS FOLLOWS:

"THE FIELD AUDITOR HAS VERIFIED THE ORIGINAL RECORDS IN DETAIL AND CERTIFIED THAT WAGES CHARGEABLE TO CONTRACT NO. W-ORD-483 REPRESENT WAGES PROPERLY CHARGEABLE TO WORK DONE ON THIS CONTRACT, THAT THE JOB CARDS CORROBORATE THIS FACT AND THAT THE PAYOFF WAS WITNESSED BY A GOVERNMENT INSPECTOR.'

WHILE IT WOULD BE POSSIBLE TO SEPARATE THE FULL PERCENT OF THE PAY ROLL EMPLOYED CONTINUOUSLY ON THE CONTRACT FROM 88 PERCENT EMPLOYED EITHER INTERMITTENTLY OR NOT AT ALL THEREON, IT IS FELT THAT THE WORK INCIDENT THERETO MIGHT IMPEDE RATHER THAN ASSIST IN THE PROMPT AND EFFICIENT PROSECUTION OF THE WORK.

LIKE SITUATIONS IN VARIABLE DEGREES EXIST, PARTICULARLY IN THE FOLLOWING LISTED CONTRACTS FOR EXECUTION IN THE PHILADELPHIA ORDNANCE DISTRICT AND TO OTHER CONTRACTS THROUGHOUT THE UNITED STATES IN A LESSER DEGREE, ESPECIALLY IN THEIR INCEPTION.

CONTRACT NO. W-ORD-472--- HENRY DISSTON AND SONS, INC.

CONTRACT NO. W-670-ORD-1700--- BIRDSBORO STEEL FOUNDRY AND

MACHINE CO.

CONTRACT NO. W-670-ORD-23--- THE BALDWIN LOCOMOTIVE WORKS.

A DECISION IS REQUESTED AS TO WHETHER OR NOT, UPON THE FOREGOING FACTS, THE CERTIFICATE OF THE FIELD AUDITOR AS ABOVE INDICATED WILL BE ACCEPTED AS SUPPORTING EVIDENCE FOR REIMBURSEMENT VOUCHERS FOR ALL DIRECT LABOR, WHETHER PART TIME OR FULL TIME ON THE CONTRACTS IN QUESTION.

YOUR EARLY DECISION IS REQUESTED.

ARTICLE II-B, PARAGRAPH 1, OF CONTRACT NO. W-ORD-483, DATED OCTOBER 24, 1940, WITH THE BALDWIN LOCOMOTIVE WORKS, PROVIDES, WITH RESPECT TO REIMBURSEMENT OF COSTS, AS FOLLOWS:

THE GOVERNMENT WILL CURRENTLY REIMBURSE THE CONTRACTOR FOR EXPENDITURES MADE IN ACCORDANCE WITH ARTICLE II-A UPON CERTIFICATION TO AND VERIFICATION BY THE CONTRACTING OFFICER FOR ANY PROPER EXPENDITURE INCURRED IN THE PROSECUTION OF THE WORK, INCLUDING, BUT WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE COST OF THE FOLLOWING SPECIAL ITEMS, VIZ: DIES, JIGS, GAGES, PATTERNS, FIXTURES, FOUNDATIONS, INSTALLATIONS OF MACHINERY AND SIMILAR ITEMS. GENERALLY, REIMBURSEMENT WILL BE MADE SEMIMONTHLY BUT MAY BE MADE AT MORE FREQUENT INTERVALS IF REQUESTED BY THE CONTRACTOR AND IF THE CIRCUMSTANCES WARRANT.

ALSO, IT IS PROVIDED IN ARTICLE II-A, PARAGRAPH 1, OF THE CONTRACT, THAT THE CONTRACTOR SHALL BE REIMBURSED FOR ITS COSTS IN THE PERFORMANCE OF THE WORK, AS APPROVED OR RATIFIED BY THE CONTRACTING OFFICER, DETERMINED IN ACCORDANCE WITH A GENERAL RULE STATED IN SUBPARAGRAPH (A) (1), AS FOLLOWS:

THE COST OF PERFORMING THIS CONTRACT SHALL BE THE SUM OF THE DIRECT COSTS INCLUDING THEREIN EXPENDITURES FOR MATERIALS, DIRECT LABOR AND DIRECT EXPENSES INCURRED BY THE CONTRACTOR IN PERFORMING THIS CONTRACT; AND THE PROPER PROPORTION OF ANY INDIRECT COSTS (INCLUDING THEREIN A REASONABLE PROPORTION OF MANAGEMENT EXPENSES) INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THIS CONTRACT.

IT IS ASSUMED THAT THE DIRECT LABOR CHARGES TO WHICH YOUR SUBMISSION REFERS ARE THOSE LABOR EXPENSES WHICH ARE CHARGEABLE DIRECTLY TO THE CONTRACT WORK, AND NOT LABOR CHARGES WHICH MAY BE INCLUDED IN OTHER ITEMS OF INDIRECT EXPENSE AS TO WHICH THE CONTRACT PROVIDES A MEANS FOR THEIR ALLOCATION TO THE COST OF THE WORK. SPECIFICALLY, IT IS ASSUMED THAT THE LABOR CHARGES HERE INVOLVED ARE THE CATEGORIES DESIGNATED IN ARTICLE II-A, SUBPARAGRAPH 1 (A) (3), IN PERTINENT PART, AS FOLLOWS:

B. DIRECT PRODUCTIVE LABOR.--- PRODUCTIVE LABOR, USUALLY TERMED "SHOP LABOR," WHICH IS PERFORMED ON, AND IS PROPERLY CHARGEABLE TO, THE ARTICLE MANUFACTURED OR CONSTRUCTED PURSUANT TO THIS CONTRACT, BUT WHICH ORDINARILY DOES NOT INCLUDE DIRECT ENGINEERING LABOR (SEE SUBPARAGRAPH C. OF THIS PARAGRAPH.)

C. DIRECT ENGINEERING LABOR--- THE COMPENSATION OF PROFESSIONAL ENGINEERS AND OTHER TECHNICISTS, AND OF DRAFTSMEN, PROPERLY CHARGEABLE DIRECTLY TO THE COST OF THIS CONTRACT.

SINCE ONLY APPROXIMATELY 12 PERCENT OF THE NUMBER OF THE CONTRACTOR'S EMPLOYEES ENGAGED ON THE CONTRACT WORK WILL BE EMPLOYED EXCLUSIVELY ON WORK UNDER THIS CONTRACT, THE REMAINDER BEING INTERMITTENTLY ENGAGED THEREON, AND IN VIEW OF THE OTHER FACTS AND CIRCUMSTANCES SET FORTH IN YOUR LETTER, THIS OFFICE WILL NOT REQUIRE THAT REIMBURSEMENT VOUCHERS BE SUPPORTED WITH THE CONTRACTOR'S ORIGINAL PAY ROLLS OF ANY OF THE EMPLOYEES OF THE CLASS HERE INVOLVED ENGAGED ON THE CONTRACT WORK, OR THAT ANY CHANGE BE MADE IN THE CONTRACTOR'S PROCEDURE OF EFFECTING PAYMENT TO SUCH EMPLOYEES.

THE PROCEDURE RECOMMENDED BY YOU, UNDER WHICH SUCH REIMBURSEMENT VOUCHERS WILL BE SUPPORTED BY A CERTIFIED SCHEDULE OF DISTRIBUTION OF WAGES, WILL BE ACCEPTABLE IN THE AUDIT OF SUCH VOUCHERS UNDER THIS AND OTHER CONTRACTS WHERE THE CIRCUMSTANCES ARE SIMILAR. HOWEVER, SAID SCHEDULE OF DISTRIBUTION SHOULD SHOW A SUFFICIENTLY DETAILED BREAKDOWN OF LABOR BY CLASSES OF WORK OR FACTORY DEPARTMENTS SO THAT IT REASONABLY MAY BE DETERMINED WHETHER SUCH WAGES ARE DIRECT LABOR CHARGES AGAINST THE CONTRACT WITHIN THE ABOVE-QUOTED PROVISIONS OF THE CONTRACT. ALSO, IN LIEU OF THE CERTIFICATE SUGGESTED IN YOUR SUBMISSION, SUCH SCHEDULES SHOULD BEAR A CERTIFICATE IN FORM SUBSTANTIALLY AS FOLLOWS, TO BE EXECUTED BY THE FIELD AUDITOR OF THE WAR DEPARTMENT WHO VERIFIES THE AMOUNT CLAIMED:

I CERTIFY THAT THE ABOVE AMOUNT, DETERMINED BY THE CONTRACTOR IN ITS DISTRIBUTION OF WAGES FOR THE PERIOD INDICATED TO BE DIRECTLY CHARGEABLE TO THE UNITED STATES UNDER THE PROVISIONS OF CONTRACT NO. W ORD-483, IS TRUE AND CORRECT AND HAS BEEN VERIFIED IN DETAIL FROM THE ORIGINAL RECORDS; AND THAT PAYMENT OF ALL EMPLOYEES WHOSE WAGES ARE INCLUDED IN THE DISTRIBUTION WAS WITNESSED BY A GOVERNMENT REPRESENTATIVE.

IT IS TO BE UNDERSTOOD, OF COURSE, THAT THE ABOVE CERTIFICATE IS NOT TO BE IN LIEU OF OR TO DISPENSE WITH EITHER THE CERTIFICATION ON THE VOUCHER REQUIRED TO BE MADE BY THE CONTRACTING OFFICER OR HIS AUTHORIZED REPRESENTATIVE, OR THE APPROVAL OR RATIFICATION REQUIRED OF THE CONTRACTING OFFICER BY THE TERMS OF THE CONTRACT.