B-29005, OCT 6, 1942

B-29005, OCT 6, 1942

PRECIS-UNAVAILABLE

LIEUTENANT COLONEL GEORGE DOBERT, F.D., U.S. ARMY:

C/O HEADQUARTERS, SERVICES OF SUPPLY, FISCAL DIVISION,

WAR DEPARTMENT:

I HAVE, BY REFERENCE FROM HEADQUARTERS, SERVICES OF SUPPLY, FISCAL DIVISION, YOUR LETTER OF AUGUST 6, 1942, AS FOLLOWS:

"UNDER AUTHORITY OF THE ACT OF JULY 31, 1894 (28 STAT. 208), AS AMENDED BY THE ACT OF JUNE 10, 1921 (42 STAT. 24), YOUR ADVANCED DECISION IS REQUESTED AS TO THE PROPRIETY FOR PAYMENT OF THE ATTACHED VOUCHER IN FAVOR OF BRANDON-REED, INC., GRAND BLANC, MICHIGAN, IN THE AMOUNT OF $5,224.25, WHICH HAS BEEN PRESENTED TO ME FOR PAYMENT AS A DISBURSING OFFICER OF THE UNITED STATES.

"THE PAYEE (BRANDON-REED, INC.) IS A SUB-CONTRACTOR OF THE WINSTON BROS. COMPANY, C.F. HAGLIN AND SONS, INC., THE MISSOURI VALLEY BRIDGE AND IRON COMPANY, AND THE SOLLITT CONSTRUCTION COMPANY, INC., HOLDERS OF PRIME CONTRACT NO. W-7013-QM-2 OF THE HOOSIER ORDNANCE PLANT, CHARLESTOWN, INDIANA. A COPY OF THE PRIME CONTRACT IS ON FILE IN YOUR OFFICE.

"THE BASIS OF THE CLAIM IS THE BALANCE DUE FOR THE RECAPTURE OF RENTAL EQUIPMENT BY THE GOVERNMENT UNDER THE TERMS OF THE RENTAL AGREEMENT CONTRACT (A PHOTOSTAT COPY OF WHICH IS ATTACHED TO THE VOUCHER).

"THE TERMS OF ARTICLE VII OF THE EQUIPMENT RENTAL AGREEMENT (THE RECAPTURE CLAUSE), AS AMENDED, ALLOWS BUT 25% OF RENTALS PAID BY THE GOVERNMENT TO APPLY ON RECAPTURE OF EQUIPMENT, WHEREAS UNDER THE TERMS OF THE PRIME CONTRACT (W-7013-QM-2), 100% OF RENTALS PAID ARE TO APPLY ON RECAPTURE OF EQUIPMENT. ARTICLE II - 1(C) READS IN PART AS FOLLOWS:

"'EACH CONTRACT FOR THE RENTAL OF CONSTRUCTION PLANT OR PARTS THEREOF BY THE CONTRACTOR FORM THIRD PARTIES SHALL BE IN A FORM PRESCRIBED BY THE SECRETARY OF WAR, SHALL BE SUBJECT TO APPROVAL BY THE CONTRACTING OFFICER, AND SHALL CONTAIN THE SAME PROVISIONS ENTITLING THE GOVERNMENT TO ACQUIRE TITLE TO SUCH PLANT OR PLANT OR PART THEREOF UPON THE SAME CONDITIONS IN PARAGRAPH 2 OF ARTICLE II OF THIS CONTRACT.'

"DOUBT EXISTS AS TO THE LEGALITY OF THE CONTRACT WHICH PERMITS OF GREATER PAYMENTS TO A SUB-CONTRACTOR THAN WOULD ACCRUE TO THE PRIME CONTRACTOR FOR THE RECAPTURE OF LIKE EQUIPMENT UNDER THE SAME CONTRACT."

BUREAU VOUCHER, TOGETHER WITH INVOICE DATED JANUARY 16, 1942, TRANSMITTED WITH YOUR LETTER, COVERS CLAIM IN THE AMOUNT OF $5,224.25 BY BRANDON-REED, INC. OF GRAND BLANC, MICHIGAN, FOR AN ALLEGED BALANCE DUE FOR THE PURCHASE PRICE OF BOOM TYPE BUCKEYE DITCHER, PURSUANT TO EQUIPMENT RENTAL AGREEMENT DATED FEBRUARY 26, 1941, ENTERED INTO BETWEEN SAID CLAIMANT AND WINSTON BROS. COMPANY, C.F. HAGLIN AND SONS, INC., THE MISSOURI VALLEY BRIDGE AND IRON CO., AND THE SOLLITT CONSTRUCTION CO., INC., PRIME CONTRACTORS UNDER COST-PLUS-A-FIXED-FEE CONTRACT W-7013-QM-2, DATED JANUARY 10, 1941. THE DITCHER, IT APPEARS, HAS BEEN DELIVERED BY BRANDON-REED, INC. TO THE UNITED STATES.

THE PRIME CONTRACT CONTAINS THE FOLLOWING RELEVANT PROVISIONS:

"1. THE CONTRACTOR SHALL BE REIMBURSED IN THE MANNER HEREINAFTER DESCRIBED FOR SUCH OF HIS ACTUAL EXPENDITURES IN THE PERFORMANCE OF THE WORK AS MAY BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER AND AS ARE INCLUDED IN THE FOLLOWING ITEMS:

"(C) RENTAL ACTUALLY PAID BY THE CONTRACTOR, AT RATES NOT TO EXCEED THOSE APPROVED BY THE CONTRACTING OFFICER, FOR CONSTRUCTION PLANT IN SOUND AND WORKABLE CONDITION, SUCH AS PUMPS, DERRICKS, CONCRETE MIXERS, BOILERS, CLAMSHELL OR OTHER BUCKETS, ELECTRIC MOTORS, ELECTRIC DRILLS, ELECTRIC HAMMERS, ELECTRIC HOISTS, MECHANICAL SHOVELS, LOCOMOTIVE CRANES, POWER SAWS, ENGINEERS' LEVELS AND TRANSITS, AND SUCH OTHER EQUIPMENT EXCEEDING $300 IN VALUE AS MAY BE NECESSARY FOR THE PROPER AND ECONOMICAL PROSECUTION OF THE WORK. EACH CONTRACT FOR THE RENTAL OF CONSTRUCTION PLANT OR PARTS THEREOF BY THE CONTRACTOR FROM THIRD PARTIES SHALL BE IN A FORM PRESCRIBED BY THE SECRETARY OF WAR, SHALL BE SUBJECT TO APPROVAL BY THE CONTRACTING OFFICER, AND SHALL CONTAIN THE SAME PROVISIONS ENTITLING THE GOVERNMENT TO ACQUIRE TITLE TO SUCH PLANT OR ANY PART THEREOF UPON THE SAME CONDITIONS AS THOSE CONTAINED IN PARAGRAPH 2 OF ARTICLE II OF THIS CONTRACT.

"2. RENTAL SHALL BE PAID TO THE CONTRACTOR FOR SUCH CONSTRUCTION PLANT OR PARTS THEREOF AS HE MAY OWN AND FURNISH, AT NOT TO EXCEED THE RATES APPROVED BY THE CONTRACTING OFFICER. EXCEPT AS SPECIFIED BELOW, SUCH RENTAL SHALL BEGIN ON THE DATE OF THE DELIVERY OF SUCH PLANT, OR PARTS THEREOF, TO A COMMON CARRIER FOR SHIPMENT TO THE SITE OF THE WORK, AS EVIDENCED BY THE BILL OF LADING COVERING SUCH SHIPMENT, AND SHALL TERMINATE UNLESS TITLE THERETO PASSES TO THE GOVERNMENT AT AN EARLIER DATE, ON THE DATE OF THE DELIVERY OF SUCH PLANT, OR PARTS THEREOF, TO A COMMON CARRIER FOR SHIPMENT FROM THE SITE OF THE WORK, AS EVIDENCED BY THE BILL OF LADING COVERING SUCH SHIPMENT, PROVIDED SUCH PLANT, OR PARTS THEREOF, ARE SO DELIVERED WITHOUT DELAY AFTER NOTICE BY THE CONTRACTING OFFICER TO THE CONTRACTOR THAT SUCH PLANT OR PARTS THEREOF, ARE NO LONGER REQUIRED; OTHERWISE THE RENTAL SHALL TERMINATE ON THE DATE OF SUCH NOTICE. IF SUCH PLANT, OR ANY PART THEREOF, IS NOT IN SOUND AND WORKABLE CONDITION WHEN IT ARRIVES AT THE SITE OF THE WORK, THE RENTAL PERIOD THEREFOR SHALL NOT BEGIN UNTIL SUCH PLANT, OR PARTS THEREOF, SHALL HAVE BEEN PLACED IN SOUND AND WORKABLE CONDITION AT THE EXPENSE OF THE CONTRACTOR, AND NO RENTAL THEREFOR SHALL BE PAID FOR ANY PRIOR PERIOD. SUCH PLANT, OR PARTS THEREOF, CANNOT BE PLACED IN SOUND AND WORKABLE CONDITION, NO TRANSPORTATION CHARGES FOR THE SHIPMENT THEREOF SHALL BE INCLUDED IN THE COST OF THE WORK OR PAID, EITHER DIRECTLY OR INDIRECTLY, BY THE GOVERNMENT. DETERMINATION AS TO WHETHER SUCH PLANT, OR PARTS THEREOF, ARE IN SOUND AND WORKABLE CONDITION SHALL, IN EVERY INSTANCE, BE MADE BY THE CONTRACTING OFFICER. SLIGHT DELAYS IN THE USE OF SUCH PLANT, OR PARTS THEREOF, CAUSED BY NECESSARY MINOR OR FIELD REPAIRS AND REPLACEMENTS SHALL NOT INTERRUPT THE RENTAL PERIOD, BUT NO RENTAL SHALL BE PAID FOR THE PERIOD OF ANY DELAY IN THE USE OF SUCH PLANT, OR PARTS THEREOF, CAUSED BY OTHER THAN NECESSARY MINOR OR FIELD REPAIRS. WHEN SUCH CONSTRUCTION PLANT OR ANY PART THEREOF SHALL ARRIVE AT THE SITE OF THE WORK, THE CONTRACTOR SHALL FILE WITH THE CONTRACTING OFFICER A SCHEDULE SETTING FORTH THE FAIR VALUATION AT THAT TIME OF EACH PART OF SUCH CONSTRUCTION PLANT. SUCH VALUATION SHALL BE DEEMED FINAL UNLESS THE CONTRACTING OFFICER SHALL, WITHIN 10 DAYS AFTER THE MACHINERY HAS BEEN SET UP AND WORKING, MODIFY OR CHANGE SUCH VALUATION. WHEN AND IF THE TOTAL RENTAL PAID TO THE CONTRACTOR FOR ANY SUCH PART SHALL EQUAL THE VALUATION THEREOF, PLUS ONE PERCENT (1%) PER MONTH FOR EACH MONTH OR FRACTION THEREOF SUCH PART HAS BEEN IN USE, NO FURTHER RENTAL THEREFOR SHALL BE PAID TO THE CONTRACTOR, AND TITLE THERETO SHALL VEST IN THE GOVERNMENT. AT THE COMPLETION OF THE WORK OR UPON TERMINATION OF THE CONTRACT AS PROVIDED IN ARTICLE VII, THE GOVERNMENT MAY AT ITS OPTION PURCHASE ANY PART OF SUCH CONSTRUCTION PLANT BY PAYING TO THE CONTRACTOR THE DIFFERENCE BETWEEN THE VALUATION OF SUCH PART OR PARTS, PLUS ONE PERCENT (1%) PER MONTH FOR EACH MONTH OR FRACTION THEREOF SUCH PART OR PARTS HAVE BEEN IN USE AND THE TOTAL RENTALS THERETOFORE PAID FOR SUCH PART OR PARTS."

THE EQUIPMENT RENTAL SUBCONTRACT READS IN PERTINENT PART AS FOLLOWS:

"WHEREAS, THE LESSEE HAS HERETOFORE, TO WIT ON THE 10TH DAY OF JANUARY, 1941, ENTERED INTO A CONTRACT HEREINAFTER CALLED THE PRINCIPAL CONTRACT, WITH THE UNITED STATES OF AMERICA, HEREINAFTER CALLED THE GOVERNMENT, TO CONSTRUCT FOR THE GOVERNMENT THE HOOSIER ORDNANCE PLANT CONSTRUCTION CONTRACT NO. W-7013-QM-2 AT OR NEAR WATSON, INDIANA.

O.I. NO. 2-41

"WHEREAS, THE LESSOR HAS AGREED TO RENT TO THE LESSEE FOR USE IN CONNECTION WITH THE AFOREMENTIONED CONSTRUCTION THE EQUIPMENT LEASED ON SCHEDULE 'A' ATTACHED HERETO AND MADE A PART HEREOF; AND

"WHEREAS, THE LESSOR HAS READ AND IS FAMILIAR WITH EACH AND EVERY PART OF SAID PRINCIPAL CONTRACT, THE RESPECTIVE RIGHTS, POWERS, BENEFITS AND LIABILITIES OF THE LESSEE AND THE GOVERNMENT THEREUNDER;

"NOW, THEREFORE, THIS AGREEMENT WITNESSETH: THAT THE PARTIES HERETO DO MUTUALLY AGREE AS FOLLOWS:

"ARTICLE VII

"WHEN THE EQUIPMENT RENTED HEREUNDER SHALL ARRIVE AT THE SITE OF THE WORK THE LESSOR SHALL FILE WITH THE LESSEE A SCHEDULE SETTING FORTH, (1) THE FAIR VALUATION OF EACH PIECE OF EQUIPMENT AT THE TIME OF ITS ARRIVAL AND (2) THE NAMES AND ADDRESSES OF ANY AND ALL PERSONS HOLDING ANY LIEN OR ENCUMBRANCE OF ANY NATURE WHATSOEVER AGAINST SUCH PIECE OR EQUIPMENT TOGETHER WITH THE AMOUNT OF THE INDEBTEDNESS SECURED BY SUCH LIEN OR ENCUMBRANCE. SUCH VALUATION SHALL BE DEEMED FINAL UNLESS WITHIN TEN DAYS (10) AFTER THE EQUIPMENT HAS BEEN SET UP AND OPERATING, THE LESSEE OR THE CONTRACTING OFFICER OR HIS DULY AUTHORIZED REPRESENTATIVE SHALL MODIFY SUCH VALUATION. WHEN AND IF THE TOTAL RENTAL PAID TO THE LESSOR FOR ANY PIECE OF EQUIPMENT SHALL EQUAL THE VALUE THEREOF, PLUS ONE PERCENT PER MONTH FOR EACH MONTH OR FRACTION THEREOF SUCH PIECE OF EQUIPMENT SHALL HAVE BEEN IN USE, NO FURTHER RENTAL SHALL BE PAID TO THE LESSOR AND TITLE SHALL VEST IN THE GOVERNMENT. AT THE COMPLETION OF THE WORK OR UPON TERMINATION OF THE PRINCIPAL CONTRACT AS PROVIDED IN ARTICLE VI OF THE PRINCIPAL CONTRACT, THE GOVERNMENT MAY AT ITS OPTION PURCHASE ANY PIECE OF SUCH EQUIPMENT BY PAYING THE LESSOR THE DIFFERENCE BETWEEN THE VALUATION OF SUCH EQUIPMENT PLUS 1% PER MONTH FOR EACH MONTH OR PART THEREOF SUCH PIECE OF EQUIPMENT SHALL HAVE BEEN IN USE AND '25% OF' THE TOTAL RENTAL THEREFOR PAID FOR SUCH PIECE OF EQUIPMENT."

IT APPEARS THAT THE CHATTEL WAS VALUED AT $6,000 AND THAT THE RENTAL PER MONTH FOR A SINGLE SHIFT WAS $450, PROVISION BEING MADE FOR ADDITIONAL RENTAL IF THE MACHINE WERE USED MORE THAN ONE SHIFT. THE EQUIPMENT ACTUALLY WAS USED FROM FEBRUARY 20, 1941, TO JANUARY 7, 1942, A PERIOD OF NEARLY 11 MONTHS, FOR WHICH RENTAL PAYMENTS WERE MADE TO BRANDON-REED, INC., IN THE AMOUNT OF $5,743. THE CLAIM IN THE AMOUNT OF $5,224.25 IS ARRIVED AT BY TAKING 25 PERCENT OF $5,743, OR $1,435.75, AND DEDUCTING SAID AMOUNT FROM THE VALUATION OF $6,000, LEAVING A TOTAL OF $4,564.25, TO WHICH THERE IS ADDED 1 PERCENT PER MONTH FOR 11 MONTHS OR $660.

IT ALSO APPEARS THAT PRIOR TO EXECUTION OF THE SUBCONTRACT THE LAST SENTENCE OF ARTICLE VII THEREOF WAS AMENDED IN VIOLATION OF ARTICLE II, PARA. 1(C) OF THE PRIME CONTRACT, SO THAT THE TERMS OF RECAPTURE AT THE COMPLETION OF THE WORK OR UPON TERMINATION OF THE PRINCIPAL CONTRACT WERE MADE MORE ONEROUS, IN THAT THE GOVERNMENT WAS TO BE GIVEN CREDIT FOR ONLY 25 PERCENT INSTEAD OF 100 PERCENT OF THE TOTAL RENTAL. THEREFORE, THE SUBCONTRACT AS EXECUTED BETWEEN THE PRIME CONTRACTOR AND THE SUBCONTRACTOR WAS, SO FAR AS THE PRESENT RECORD SHOWS, BEYOND THE AUTHORITY OF THE CONTRACTING OFFICER TO APPROVE AND IN VIOLATION OF THE TERMS OF THE PRINCIPAL CONTRACT. IT SHOULD BE NOTED IN THIS CONNECTION THAT THE SUBCONTRACTOR WAS NOT REQUIRED TO FURNISH NECESSARY GAS AND OIL. CONSEQUENTLY THE BASIS FOR THE EXECUTION OF A CONTRACT PURPORTING TO AUTHORIZE THE APPLICATION OF BUT 25 PERCENT OF THE PAID RENTAL AGAINST THE STIPULATED VALUATION OF THE EQUIPMENT IN THE EVENT OF RECAPTURE IS NOT APPARENT. ALSO, IT SHOULD BE NOTED THAT A CHANGE WAS NOT MADE IN THE THIRD SENTENCE OF ARTICLE VII WHICH PROVIDES FOR THE VESTING OF TITLE TO THE MACHINE IN THE UNITED STATES AFTER THE TOTAL RENTAL PAYMENTS EQUAL THE VALUATION OF THE MACHINE PLUS ONE PERCENT PER MONTH FOR EACH MONTH OF USE.

FURTHERMORE, IT APPEARS THAT BRANDON-REED, INC. HAS ALREADY RECEIVED $5,743 IN RENTAL OF A MACHINE VALUED AT $6,000. HAD THE MACHINE BEEN KEPT IN USE BUT A LITTLE OVER HALF A MONTH LONGER, ON BUT A SINGLE SHIFT, THE TOTAL RENTAL PAYMENTS WOULD HAVE EXCEEDED THE VALUE OF THE EQUIPMENT, AND EVEN THE 1 PERCENT PER MONTH EXTRA WOULD HAVE BEEN PAID IN A LITTLE OVER TWO MONTHS OF SUCH USE, SO THAT ABSOLUTE TITLE TO THE DITCHER WOULD HAVE VESTED IN THE UNITED STATES, UNDER THE THIRD SENTENCE OF ARTICLE VII, BY THE PAYMENT OF SOME NINE HUNDRED ODD DOLLARS, INSTEAD OF THE MORE THAN FIVE THOUSAND DOLLARS NOW DEMANDED.

UNDER THE CIRCUMSTANCES IT IS NOT UNDERSTOOD WHY IT WAS DETERMINED TO RECAPTURE THE EQUIPMENT SHORTLY BEFORE THE RENTALS PAID WOULD HAVE EQUALLED THE AGREED VALUATION OF THE MACHINE, WITH THE CONSEQUENT ATTEMPT TO OBLIGATE THE GOVERNMENT FOR AN AMOUNT CONSIDERABLY IN EXCESS OF WHAT THE MACHINE OTHERWISE WOULD HAVE COST. CERTAINLY SUCH ACTION WAS CONTRARY TO THE BEST INTEREST OF THE GOVERNMENT. ALSO, IT IS NOT UNDERSTOOD WHY THE SUBCONTRACTOR WOULD DEMAND ANY SUM IN COMPLETE PAYMENT FOR THE MACHINE IN ADDITION TO THE AMOUNT WHICH WOULD HAVE BEEN PAYABLE HAD THE EQUIPMENT REMAINED IN USE UNDER THE RENTAL AGREEMENT FOR A SHORT ADDITIONAL PERIOD.

IN ANY EVENT, SINCE IT APPEARS NEITHER THE PRIME CONTRACTOR NOR THE CONTRACTING OFFICER HAD AUTHORITY TO EXECUTE OR APPROVE A SUBCONTRACT FOR RENTAL OF EQUIPMENT UNDER THE CONDITIONS PRESENT HERE, WHEREBY BUT 25 PERCENT OF THE RENTAL PAID WAS TO BE APPLIED AGAINST THE AGREED VALUATION OF THE EQUIPMENT IN CASE OF RECAPTURE, PAYMENT ON THE VOUCHER, WHICH IS RETURNED HEREWITH, IS NOT AUTHORIZED.