B-41487, MAY 9, 1944, 23 COMP. GEN. 867

B-41487, MAY 9, 1944, 23 COMP. GEN. 867

CONTRACTS - COST-PLUS - CAFETERIA OPERATING LOSSES WHERE, IN CONNECTION WITH PERFORMANCE OF A COST-PLUS-A-FIXED-FEE CONTRACT PROVIDING FOR DETERMINATION BY THE CONTRACTING OFFICER OF ALLOWABLE ITEMS OF COST THEREUNDER IN ACCORDANCE WITH T.D. 5000, THE CONTRACTOR FOUND IT NECESSARY, IN ORDER TO OBTAIN OR RETAIN PERSONNEL, TO OPERATE A CAFETERIA AT ITS PLANT IN VIEW OF THE REMOTENESS FROM OTHER EATING PLACES AND AN UNSUCCESSFUL EFFORT TO INTEREST OUTSIDE CONCERNS IN THE OPERATION OF ACCESSIBLE EATING FACILITIES, SUCH OPERATION MAY BE CONSIDERED AS INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT WORK, AND EXPENDITURES, APPROVED BY THE CONTRACTING OFFICER AS ALLOWABLE ITEMS OF COST, REPRESENTING OPERATING LOSSES INCURRED BY THE CONTRACTOR MAY BE REIMBURSED.

COMPTROLLER GENERAL WARREN TO COL. H. V. BROWN, U.S. ARMY, MAY 9, 1944:

THERE HAS BEEN RECEIVED FROM THE DIRECTOR, FISCAL DIVISION, ARMY SERVICE FORCES, BUREAU VOUCHERS NOS. 275, 429 AND 469, IN THE AMOUNTS OF $14,415.95, $4,095.30 AND $738.71, RESPECTIVELY, IN FAVOR OF HUGHES TOOL COMPANY, A COST-PLUS-A-FIXED-FEE CONTRACTOR, UNDER CONTRACT NO. W 535 AC- 23989, DATED JANUARY 15, 1942, WITH THE REQUEST THAT AN ADVANCE DECISION BE RENDERED ON THE PROPRIETY OF THEIR PAYMENT.

THE VOUCHERS COVER PROPOSED PAYMENTS TO THE HUGHES TOOL COMPANY FOR LOSSES SUSTAINED BY THE CONTRACTOR, IN THE OPERATION OF A CAFETERIA, IN CONNECTION WITH THE CONTRACT WORK. WITH RESPECT TO THE PARTICULAR ITEM OF COST HERE INVOLVED, ARTICLE 3 (B) OF THE CONTRACT PROVIDES, AS TO ALLOWABLE ITEMS OF COST, IN PART, AS FOLLOWS:

FOR PURPOSES OF DETERMINING THE AMOUNTS PAYABLE TO THE CONTRACTOR UNDER THIS CONTRACT, ALLOWABLE ITEMS OF COST WILL BE DETERMINED BY THE CONTRACTING OFFICER IN ACCORDANCE WITH REGULATIONS FOR THE DETERMINATION OF THE COST OF PERFORMING A CONTRACT AS PROMULGATED BY THE TREASURY DEPARTMENT IN SECTION 26.9 OF CHAPTER I OF TITLE 26 OF CODE OF FEDERAL REGULATIONS, AS CONTAINED IN T.D. 5000 * * *.

SAID TREASURY DECISION 5000 SETS FORTH UNDER SECTION 26.9 PARAGRAPH (A) THEREOF, THE FOLLOWING GENERAL RULE FOR THE GUIDANCE OF THE CONTRACTING OFFICER IN DETERMINING WHETHER AN EXPENSE INCURRED BY THE CONTRACTOR IS AN ALLOWABLE ITEM OF COST:

THE COST OF PERFORMING A PARTICULAR CONTRACT OR SUBCONTRACT SHALL BE THE SUM OF (1) THE DIRECT COSTS * * * AND (2) THE PROPER PROPORTION OF ANY INDIRECT COSTS * * * INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT OR THE SUBCONTRACT.

THUS, IT WOULD SEEM THAT ONE OF THE GENERAL CRITERIA OR TESTS TO BE APPLIED IN DETERMINING WHETHER THE EXPENDITURES INVOLVED CONSTITUTE PROPER ITEMS OF COST IS: WERE SUCH EXPENDITURES NECESSARY TO THE PERFORMANCE OF THE CONTRACT WORK? IN THIS CONNECTION THE CONTRACTOR IN ITS LETTER OF NOVEMBER 8, 1943, TO THE ARMY AIR FORCES REPRESENTATIVE STATES, IN PART, AS FOLLOWS:

1. THE STRUT PLANT WAS BUILT FOR THE DEFENSE PLANT CORPORATION AND WAS STARTED ON JULY 10, 1941, ON A SITE NINE MILES FROM THE CENTER OF THE CITY OF HOUSTON AND OUTSIDE THE CITY LIMITS.

2. IT WAS BUILT ESPECIALLY FOR THE MAKING OF AIRPLANE STRUTS AND IT HAS BEEN USED EXCLUSIVELY FOR THE PURPOSE OF PERFORMING THE ABOVE CONTRACT AT ALL TIMES.

AT THE TIME THE STRUT PLANT WAS BUILT, IT WAS APPARENT THAT SOME ARRANGEMENTS WOULD HAVE TO BE MADE FOR FEEDING THE EMPLOYEES, SINCE THE PLANT IS LOCATED IN THE COUNTRY, NINE MILES FROM THE DOWNTOWN DISTRICT. THERE WAS NO EATING HOUSE WITHIN SEVERAL MILES OF THE PLANT AND NONE NEARER THAN NINE MILES THAT COULD ACCOMMODATE OUR EMPLOYEES, AND TRANSPORTATION WAS A CRITICAL PROBLEM.

WE WERE ABLE TO ARRANGE WITH THE HOUSTON-ELECTRIC COMPANY TO GIVE US SHUTTLE BUS SERVICE FROM THE END OF THE NEAREST LINE, SOME TWO MILES AWAY, AT SHIFT CHANGE TIME ONLY.

THE PLANT STARTED OPERATION THE LATTER PART OF FEBRUARY, AND BY AUGUST OUR EMPLOYMENT HAD REACHED APPROXIMATELY 1,000, AND IT WAS FELT THAT THERE WAS ENOUGH POTENTIAL BUSINESS THERE TO INTEREST A CATERER IN MAKING A CONTRACT TO OPERATE AN EATING FACILITY. WE APPROACHED HENKE AND PILLOT AND J. WEINGARTEN, TWO OF THE LARGEST AND MOST RESPONSIBLE FOOD FIRMS IN THE CITY, AND WERE TURNED DOWN VERY EMPHATICALLY. * * *

THE ABOVE DETAILED HISTORY OF THE CAFETERIA OPERATIONS IS GIVEN YOU, TO SHOW THAT THE EXPENSE INCURRED WAS NECESSARY AND DIRECTLY IN CONNECTION WITH THE SUBJECT CONTRACT, AS IT WOULD HAVE BEEN ABSOLUTELY IMPOSSIBLE TO KEEP EMPLOYEES TO OPERATE THE PLANT, UNLESS WE TOOK CARE OF THE FOOD SITUATION.

SINCE IT APPEARS THAT THERE WERE NO ADEQUATE LUNCHEON FACILITIES WITHIN A RADIUS OF SEVERAL MILES FROM THE CONTRACT PLANT AND THAT WITHOUT FACILITIES AS HERE INVOLVED THE CONTRACTOR WOULD HAVE BEEN UNABLE TO OBTAIN OR RETAIN EMPLOYEES "TO OPERATE THE PLANT," IT NECESSARILY MAY BE PRESUMED THAT THE OPERATION OF THE CAFETERIA WAS INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT. MOREOVER, IT APPEARS THAT THE CONTRACTING OFFICER HAS APPROVED THE EXPENDITURES AS BEING ALLOWABLE ITEMS OF COST UNDER THE CONTRACT TERMS.

FURTHERMORE, THE RECORD INDICATES THAT THE CAFETERIA WAS OPERATED SOLELY FOR THE PERFORMANCE OF THE INSTANT CONTRACT AND THAT THE CONTRACTOR TOOK EVERY REASONABLE CARE TO KEEP THE LOSSES TO A MINIMUM.

ACCORDINGLY, THE VOUCHERS, TOGETHER WITH THE SUPPORTING PAPERS, ARE RETURNED HEREWITH, AND YOU ARE ADVISED THAT PAYMENT THEREON IS AUTHORIZED, IF OTHERWISE CORRECT.