B-56812, APRIL 5, 1946, 25 COMP. GEN. 695

B-56812, APRIL 5, 1946, 25 COMP. GEN. 695

CONTRACTS - MODIFICATION - WAGE INCREASES PURSUANT TO NATIONAL SHIPBUILDING WAGE CONFERENCE EXISTING FIXED-PRICE AND TIME AND MATERIAL SHIP-REPAIR CONTRACTS OR FIXED -PRICE SHIP CONSTRUCTION CONTRACTS, NOT CONTAINING LABOR ESCALATOR CLAUSES EXCEPT FOR WAGE INCREASES GRANTED PURSUANT TO GOVERNMENT MANDATORY ORDERS, MAY NOT BE AMENDED SO AS TO REIMBURSE CONTRACTORS FOR THE COST OF PUTTING INTO EFFECT THE VOLUNTARY RETROACTIVE WAGE INCREASE ADOPTED BY THE NATIONAL SHIPBUILDING WAGE CONFERENCE ON FEBRUARY 18, 1946.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE NAVY, APRIL 5, 1946:

I HAVE YOUR LETTER OF MARCH 28, 1946, REQUESTING MY OPINION WITH RESPECT TO THE LEGALITY OF PROPOSED AMENDMENTS BY THE NAVY DEPARTMENT TO ITS EXISTING SHIP-CONSTRUCTION AND SHIP-REPAIR CONTRACTS--- SAID AMENDMENTS TO BE MADE IN ACCORDANCE WITH A PROPOSED STATEMENT OF POLICY ENCLOSED WITH YOUR LETTER--- IN ORDER TO AFFORD REIMBURSEMENT, IN WHOLE OR IN PART, TO CONTRACTORS FOR THE 18 CENTS PER HOUR WAGE INCREASE ADOPTED AT THE NATIONAL SHIPBUILDING WAGE CONFERENCE ON FEBRUARY 18, 1946, AND APPROVED BY THE NATIONAL WAGE STABILIZATION BOARD AND STABILIZATION ADMINISTRATOR ON FEBRUARY 26, 1946.

THE FACTS AND CIRCUMSTANCES RELATIVE TO THE PROPOSED AMENDMENTS ARE STATED IN YOUR LETTER AS FOLLOWS:

ON MAY 16, 1942 THE GOVERNMENT, REPRESENTED BY THE WAR PRODUCTION BOARD, THE NAVY DEPARTMENT AND THE UNITED STATES MARITIME COMMISSION, THE SHIPBUILDING AND SHIP-REPAIR INDUSTRY, REPRESENTED BY SOME ONE HUNDRED AND TWENTY SHIPBUILDING AND SHIP-REPAIR YARDS, AND LABOR REPRESENTATIVES OF THE INDUSTRIAL UNION OF MARINE AND SHIPBUILDING WORKERS OF AMERICA ( CIO) AND THE METAL TRADES DEPARTMENT OF THE AMERICAN FEDERATION OF LABOR BY MUTUAL AGREEMENT ADOPTED AMENDMENTS TO THE SHIPBUILDING ZONE STANDARDS AGREEMENTS. UNDER THESE AMENDMENTS IT WAS PROVIDED THAT THE WAGE RATES THEREIN ESTABLISHED SHOULD REMAIN IN EFFECT UNTIL JUNE 1, 1943, ON OR ABOUT WHICH DATE A WAGE REVIEW SHOULD BE CONDUCTED UNDER PROCEDURES TO BE DEVELOPED BY THE SHIPBUILDING STABILIZATION COMMITTEE OF THE WAR PRODUCTION BOARD AND THAT THEREAFTER ANNUALLY A LIKE REVIEW WAS TO BE CONDUCTED BY THAT COMMITTEE. IN 1943 AND 1944 THE SHIPBUILDING STABILIZATION COMMITTEE REFERRED THE MATTER OF THE ANNUAL WAGE REVIEW TO THE WAR LABOR BOARD WHICH HELD THAT NO INCREASES WERE APPROPRIATE FOR THOSE YEARS. IN 1945, WHEN THE WAR LABOR BOARD REFUSED TO ACCEPT THE REFERRAL, THE SHIPBUILDING STABILIZATION COMMITTEE, REPRESENTING THE SHIPBUILDING INDUSTRY, LABOR AND THE GOVERNMENT PROCUREMENT AGENCIES, ADOPTED A RESOLUTION CALLING FOR A NATIONAL CONFERENCE TO CONDUCT THE 1945 WAGE REVIEW.

THE NATIONAL CONFERENCE CONVENED ON DECEMBER 4, 1945, AND SHORTLY THEREAFTER ESTABLISHED ITS RULES OF PROCEDURE, INCLUDING RULE NO. 7 WHICH PROVIDED THAT ON MATTERS OF PROCEDURE ONLY, A MAJORITY RULE SHOULD GOVERN, BUT THAT ON MATTERS OF SUBSTANCE INVOLVING ANY ITEM ON THE AGENDA, A UNANIMOUS AGREEMENT WAS NECESSARY. THE FOREGOING RULE REMAINED IN EFFECT UNTIL FEBRUARY 18, 1946, WHEN THE REPRESENTATIVES OF LABOR MOVED TO AMEND THE RULES TO PERMIT MATTERS OF SUBSTANCE ON THE AGENDA TO BE DECIDED BY A MAJORITY RATHER THAN A UNANIMOUS VOTE. THIS MOTION WAS CARRIED BY A TWO- TO-ONE VOTE. LABOR AND GOVERNMENT VOTING FOR AND MANAGEMENT OPPOSED. REPRESENTATIVES OF LABOR THEN MOVED THE ADOPTED OF THE FOLLOWING RESOLUTION:

"EFFECTIVE AS OF DECEMBER 4, 1945, THE WAGE RATE FOR STANDARD SKILLED MECHANICS AND FOR STANDARD FIRST CLASS SKILLED MECHANICS SHALL BE INCREASED BY 18 CENTS PER HOUR; A CORRESPONDING INCREASE OF 18 CENTS PER HOUR SHALL ALSO BE PLACED IN EFFECT AS OF DECEMBER 4, 1945, FOR ALL OTHER EMPLOYEES AND CLASSIFICATIONS OF EMPLOYEES IN THE SHIPBUILDING INDUSTRY COVERED BY ZONE TANDARDS; THAT SUCH INCREASE BE SUBMITTED TO THE NATIONAL WAGE STABILIZATION BOARD FOR APPROVAL; AND SHOULD THE NATIONAL WAGE STABILIZATION BOARD FAIL TO APPROVE THE INCREASE OF 18 CENTS PER HOUR AS PROPOSED ABOVE, OR THE EFFECTIVE DATE OF DECEMBER 4, 1945, THIS WAGE REVIEW SHALL BE DEEMED NOT TO HAVE BEEN COMPLETED AND THE CONFERENCE SHALL BE RECONVENED FOR THE PURPOSE OF ACTING FURTHER ON THIS WAGE REVIEW.'

THE RESOLUTION PROPOSED WAS ADOPTED BY A TWO-TO-ONE VOTE, LABOR AND GOVERNMENT VOTING FOR AND MANAGEMENT AGAINST. SUBSEQUENTLY, THE ACTION OF THE CONFERENCE WAS SUBMITTED TO THE NATIONAL WAGE STABILIZATION BOARD AND TO THE STABILIZATION ADMINISTRATOR FOR APPROVAL PURSUANT TO EXECUTIVE ORDER NO. 9697 AND WAS APPROVED BY THE BOARD AND BY THE STABILIZATION ADMINISTRATOR ON FEBRUARY 26, 1946. IN ITS RULING APPROVING THE INCREASE THE BOARD STATED:

"THAT THE BOARD EXPRESSES NO OPINION WHATSOEVER ON THE ISSUE WHICH HAS BEEN RAISED AS TO WHETHER THE RESOLUTION OF THE NATIONAL SHIPBUILDING CONFERENCE ON FEBRUARY 18, 1946, WAS OR WAS NOT ADOPTED PURSUANT TO THE RULES OF THE CONFERENCE; OR ON THE ISSUE OF WHETHER THAT RESOLUTION HAS OR HAS NOT ANY BINDING EFFECT AS UPON THE PARTIES TO THE CONFERENCE. THE BOARD DOES NOT CONSIDER THESE DISPUTES ISSUES TO BE PROPERLY WITHIN ITS JURISDICTION TO DETERMINE UNDER EXECUTIVE ORDER 9697.'

THE PACIFIC COAST REPAIR AGREEMENT AND AMENDMENTS THERETO, TO WHICH GOVERNMENT, LABOR, AND PACIFIC COAST SHIP-REPAIR YARDS ARE PARTIES, HAS THE EFFECT OF APPLYING WHATEVER MAY BE THE THEN PREVAILING NEW CONSTRUCTION RATES TO THE SHIP-REPAIR YARDS ON THE PACIFIC COAST WITH THE ADDITION OF 11.6 PERCENT DIFFERENTIAL.

WHETHER THE INDUSTRY MEMBERS WILL VOLUNTARILY ACCEDE TO THE ACTION TAKEN AT THE CONFERENCE AND PUT THE INCREASE INTO EFFECT RETROACTIVELY TO DECEMBER 4, 1945 WILL, IT IS BELIEVED, DEPEND IN LARGE PART UPON THE EXTENT TO WHICH THE PROCUREMENT AGENCIES ARE WILLING OR ABLE TO AFFORD THEIR CONTRACTORS REIMBURSEMENT IN WHOLE OR IN PART FOR THE INCREASE. UNDER THE DEPARTMENT'S COST-PLUS-A-FIXED-FEE FORM OF SHIP-CONSTRUCTION CONTRACTS AND UNDER ITS FIXED-PRICE CONTRACTS WITH LABOR ESCALATION CLAUSES, CONTRACTORS WILL BE ENTITLED TO REIMBURSEMENT FOR INCREASED COSTS ARISING FROM INCREASES IN HOURLY LABOR RATES AND NO SUBSTANTIAL PROBLEM IS PRESENTED THEREBY.

BY FAR THE LARGEST PROPORTION, HOWEVER, OF THE DEPARTMENT'S SHIP REPAIR WORK PERFORMED SUBSEQUENT TO DECEMBER 4, 1945, HAS BEEN PERFORMED PURSUANT TO FIXED-PRICE JOB ORDER THE DEPARTMENT'S FORM OF FIXED- PRICE MASTER REPAIR CONTRACT. NEITHER THE JOB ORDERS NOR THE FORM OF CONTRACT MAKE ANY PROVISION FOR LABOR ESCALATION, OTHER THAN WITH RESPECT TO MANDATORY ORDERS OF A DULY AUTHORIZED FEDERAL AGENCY WHICH ARE/NOT HERE INVOLVED. IN ADDITION, THERE ARE A SMALL NUMBER OF NAVY TIME AND MATERIAL REPAIR CONTRACTS PURSUANT TO WHICH WORK HAS BEEN PERFORMED DURING THE PERIOD AND UNDER WHICH THE CONTRACTOR IS PAID A FIXED HOURLY RATE FOR LABOR PERFORMED THEREUNDER, PLUS THE COST OF MATERIAL. NO PROVISION IS MADE IN THESE CONTRACTS FOR ANY INCREASE IN THE NEGOTIATED QUARTERLY LABOR RATE FOR INCREASES THEREIN ARISING OUT OF INCREASED LABOR COSTS, EXCEPT WHEN PURSUANT TO RETROACTIVE MANDATORY ORDERS OF THE WAR LABOR BOARD, WITH WHICH WE ARE NOT HERE CONCERNED. THE DEPARTMENT FURTHER HAS A VERY SMALL NUMBER OF FIXED PRICE-SHIP-CONSTRUCTION CONTRACTS WHICH DO NOT CONTAIN PROVISIONS FOR LABOR ESCALATION.

IT IS THE DESIRE OF THE DEPARTMENT TO AMEND THE FOREGOING TYPES OF CONTRACT, HELD BY CONTRACTORS WHO ARE PARTIES TO THE SHIPBUILDING WAGE STABLILIZATION AGREEMENTS AND AMENDMENTS THERETO AND TO THE PACIFIC COAST REPAIR AGREEMENT, TO PROVIDE FOR REIMBURSEMENT FOR THE WAGE INCREASE RECENTLY ADOPTED TO THE EXTENT PROVIDED IN THE ATTACHED PROPOSED STATEMENT OF POLICY. THE QUESTION IS SPECIFICALLY PRESENTED, HOWEVER, WHETHER OR NOT SUCH AMENDMENTS MAY BE CONSIDERED TO BE AMENDMENTS WITH CONSIDERATION AND HENCE WITHIN THE AUTHORITY OF THE DEPARTMENT TO GRANT WITHOUT REFERENCE TO THE SPECIAL CONSIDERATIONS INVOLVED IN THE APPLICATION OF THE FIRST WAR POWERS ACT AS MADE APPLICABLE TO THE DEPARTMENT BY EXECUTIVE ORDER NO. 9001.

IT IS THE VIEW OF THE DEPARTMENT THAT SUCH PROPOSED AMENDMENTS CONSTITUTE AMENDMENTS WITH CONSIDERATION BY REASON OF THE FACT THAT THE DEPARTMENT AND ALL CONTRACTORS TO WHOM SUCH AMENDMENTS WOULD BE OFFERED ARE PARTIES TO THE SHIPBUILDING WAGE STABILIZATION AGREEMENTS AND AMENDMENTS THERETO OR TO THE PACIFIC COAST REPAIR AGREEMENT; THAT AS A PARTY TO SUCH AGREEMENTS THE DEPARTMENT HAS VOTED FOR AN 18 CENTS HOURLY WAGE INCREASE RETROACTIVE TO DECEMBER 4, 1945, AND HAS IN EFFECT INVITED THE CONCURRENCE OF INDUSTRY THEREIN. INDUSTRY IN PUTTING THE INCREASE INTO EFFECT WILL BE ADOPTING AND RATIFYING ACTION TAKEN BY THE OTHER PARTIES TO THE AGREEMENTS AT THE REQUEST OF REPRESENTATIVES OF THE GOVERNMENT AND IN RELIANCE UPON ITS ASSURANCES OF REIMBURSEMENT IN ACCORDANCE WITH THE ATTACHED STATEMENT OF POLICY WHICH THE DEPARTMENT DESIRES TO ISSUE. AS SUCH, IT IS BELIEVED THAT THOSE CONTRACTORS PUTTING THE INCREASE INTO EFFECT WILL HAVE AFFORDED THE GOVERNMENT A SUBSTANTIAL LEGAL CONSIDERATION FOR THE PROPOSED CONTRACT AMENDMENTS.

THE MATTER HAS BEEN CAREFULLY CONSIDERED BUT I AM UNABLE TO AGREE THAT THE THEORY SUGGESTED IN YOUR LETTER, AS QUOTED ABOVE, CONSTITUTES A VALID CONSIDERATION FOR AMENDING EXISTING FIXED PRICE AND TIME AND MATERIAL SHIP REPAIR CONTRACTS OR FIXED PRICE SHIP CONSTRUCTION CONTRACTS SO AS TO IMPOSE UPON THE GOVERNMENT THE OBLIGATION OF REIMBURSING CONTRACTORS FOR THE WHOLE OR ANY PART OF THE WAGE INCREASES WHICH THEY MAY PUT INTO EFFECT. IT APPEARS FROM YOUR LETTER THAT NEITHER OF THE AFORESAID TYPES OF CONTRACTS CONTAINS ANY PROVISION FOR THE PAYMENT OF ADDITIONAL COMPENSATION ON ACCOUNT OF INCREASES IN LABOR RATES EXCEPT WHERE SUCH INCREASES ARE GRANTED PURSUANT TO "MANDATORY ORDERS" OF THE WAR LABOR BOARD OR A DULY AUTHORIZED FEDERAL AGENCY, WHICH SITUATION IS NOT HEREIN PRESENTED. IN SUCH CONNECTION, IT APPEARS THAT THE BASIS FOR THE WAGE INCREASES INVOLVED IS A RESOLUTION ADOPTED AT THE NATIONAL CONFERENCE OF THE SHIPBUILDING STABILIZATION COMMITTEE AND APPROVED BY THE NATIONAL WAGE STABILIZATION BOARD AND THE STABILIZATION ADMINISTRATOR. HOWEVER, IN ITS RULING APPROVING THE INCREASE, AS QUOTED IN YOUR LETTER, THE BOARD EXPRESSLY STATED THAT IT WAS EXPRESSING NO OPINION WHATSOEVER ON THE ISSUE OF WHETHER THE "RESOLUTION HAS OR HAS NOT ONLY BINDING EFFECT UPON THE PARTIES TO THE CONFERENCE.' THUS, WHILE IT IS INDICATED THAT THE MEMBERS OF THE SHIPBUILDING AND SHIP REPAIR INDUSTRY ARE NOT OBLIGATED TO PUT INTO EFFECT THE WAGE INCREASES ADOPTED AT THE CONFERENCE IN ACCORDANCE WITH ANY MANDATORY ORDER OF AN AGENCY OF THE UNITED STATES AUTHORIZED TO ISSUE SUCH ORDER, IT NEVERTHELESS IS PROPOSED TO INDUCE THE INDUSTRY TO PUT THE INCREASED WAGES INTO EFFECT BY UNDERTAKING TO MODIFY EXISTING FIXED PRICE REPAIR OR CONSTRUCTION CONTRACTS SO AS TO OBLIGATE THE UNITED STATES TO REIMBURSE THE VARIOUS CONTRACTORS EITHER IN WHOLE OR IN PART FOR THE INCREASED WAGES. IT IS WELL ESTABLISHED THAT, IN ORDER FOR AN AMENDMENT TO A CONTRACT WHICH IMPOSES ON THE UNITED STATES A GREATER OBLIGATION THAN THERETOFORE ASSUMED, TO BE LEGAL AND VALID, IT MUST BE SHOWN THAT SOME ADDITIONAL BENEFIT INURED TO THE GOVERNMENT AND THE CONTRACTOR WAS REQUIRED TO PERFORM ADDITIONAL WORK OR SERVICES BY REASON OF THE CHANGES EFFECTED BY THE AMENDMENT. THE AMENDMENTS PROPOSED BY YOUR LETTER WOULD NEITHER CONFER ANY GREATER BENEFIT ON THE GOVERNMENT THAN THAT PROVIDED FOR IN THE EXISTING CONTRACTS NOR REQUIRE THE CONTRACTORS TO PERFORM ANY ADDITIONAL WORK THAN IS REQUIRED UNDER EXISTING CONTRACTS. FURTHERMORE, THE MERE FACT THAT THE GOVERNMENT'S REPREENTATIVE ON THE SHIPBUILDING STABILIZATION COMMITTEE MAY HAVE VOTED IN FAVOR OF THE RESOLUTION PROPOSING THE WAGE INCREASES IMPOSED ON OBLIGATION ON THE UNITED STATES TO AMEND ITS EXISTING CONTRACTS SO AS TO REIMBURSE THE CONTRACTORS FOR ANY INCREASED COSTS INCURRED IN PUTTING THE SAID WAGE INCREASES INTO EFFECT.

THERE HAS BEEN CONSIDERED THE STATEMENT IN YOUR LETTER THAT, IF THE SHIPBUILDING AND SHIP REPAIR INDUSTRY DOES NOT PUT INTO EFFECT THE RETROACTIVE WAGE INCREASES VOTED AT THE CONFERENCE, SUBSTANTIAL LABOR DISTURBANCES CAN BE ANTICIPATED WITH CONSEQUENT INTERFERENCE WITH THE GOVERNMENT'S CONSTRUCTION AND SHIP REPAIR PROGRAM. IN SUCH CONNECTION, IT MAY BE SIAD THAT, WHATEVER MEANS MAY BE DECIDED UPON TO INDUCE THE INDUSTRY TO COMPLY WITH THE WAGE INCREASES ADOPTED AT THE CONFERENCE, IT CLEARLY IS BEYOND THE SCOPE OF THE AUTHORITY OF ADMINISTRATIVE OFFICIALS OF THE UNITED STATES TO UNDERTAKE TO ACCOMPLISH SUCH RESULT BY AMENDING EXISTING CONTRACTS SO AS TO PLACE ON THE UNITED STATES THE BURDEN OF THE COST OF THE WAGE INCREASES.