B-28749, OCTOBER 31, 1942, 22 COMP. GEN. 425

B-28749, OCTOBER 31, 1942, 22 COMP. GEN. 425

CONTRACTS - COST-PLUS - EXPENSE INCIDENT TO PURCHASE OF LEGAL PUBLICATIONS THE EXPENSE INCIDENT TO THE PURCHASE BY A COST-PLUS-A-FIXED-FEE CONTRACTOR OF LEGAL PUBLICATIONS PERTAINING TO LABOR LAW, SALES TAXES, ETC., INCURRED IN ORDER TO ACQUIRE THE KNOWLEDGE AND ABILITY TO EFFICIENTLY PERFORM THE CONTRACT WORK, IS AN EXPENSE WHICH IS SO INDIRECTLY ASSOCIATED WITH THE CONTRACT WORK AS TO PERTAIN TO THAT PART OF THE WORK FOR WHICH COMPENSATION IS MADE BY THE FIXED FEE, RATHER THAN AN EXPENSE WHICH IS REIMBURSABLE AS AN ITEM OF COST UNDER THE CONTRACT WHICH, BY REFERENCE TO TREASURY DECISION 5000 CONTROLLING COSTS PAYABLE THEREUNDER, PROVIDES FOR REIMBURSEMENT FOR ITEMS OF INDIRECT EXPENSE INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT.

COMPTROLLER GENERAL WARREN TO COL. F. E. COYNE, JR., U.S. ARMY, OCTOBER 31, 1942:

THERE HAS BEEN RECEIVED, BY REFERENCE FROM HEADQUARTERS, SERVICES OF SUPPLY, FISCAL DIVISION, YOUR LETTER OF JULY 25, 1942, AS FOLLOWS:

1. THERE HAS BEEN PRESENTED TO ME FOR PAYMENT AS A DISBURSING OFFICER VOUCHER IN FAVOR OF THE STUDEBAKER COMPANY, IN AMOUNT OF $150.00, APPLICABLE TO CONTRACT W 535 AC-17399, COVERING REIMBURSEMENT UNDER ACOST- PLUS-FIXED-FEE CONTRACT OF LABOR LAW SERVICE AND WAR LAW SERVICE BY THE COMMERCE CLEARING HOUSE, INC. THIS IS A LOOSE-LEAF SERVICE INTENDED TO BE CUMULATIVE AND CURRENT THROUGH THE SUBSTITUTION OF PAGES IN BINDERS. THE VOLUMES ARE OF NO USE IF THE CURRENT MATERIAL IS NOT RECEIVED AND PLACED IN THEM. VOUCHER ALSO COVERS INTERSTATE SALES TAX SERVICE FOR THE YEAR ENDING MARCH 1, 1943, FOR REFERENCE TO THE SALE OR USE OF PERSONAL PROPERTY, OR TAX UPON GROSS RECEIPTS OF CERTAIN BUSINESSES.

2. THE DOUBT EXISTING IS WHETHER THIS AMOUNT IS CONSIDERED A REIMBURSABLE ITEM IN VIEW OF THE FACT THAT IT IS NOT SPECIFICALLY MENTIONED AS ALLOWABLE, EITHER IN ACCORDANCE WITH THE TERMS OF CONTRACT W 535 AC-17399 OR UNDER TD 5000.

BY THE TERMS OF CONTRACT NO. W 535 AC-17399, THE STUDEBAKER CORPORATION AGREED TO MANUFACTURE AND DELIVER TO THE GOVERNMENT CERTAIN SPECIFIED ARTICLES FOR A FIXED-FEE IN ADDITION TO THE COST OF THE ARTICLES. 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 CHAP. 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, EITHER IN WHOLE OR IN PART:

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 SUBCONTRACT.

PURCHASE OF THE LEGAL PUBLICATIONS, FOR WHICH REIMBURSEMENT IS CLAIMED ON THE VOUCHER TRANSMITTED WITH YOUR LETTER, IS NOT PART OF THE DIRECT COST OF PERFORMING THE CONTRACT, AND IS REIMBURSABLE, IF AT ALL, AS AN ITEM OF INDIRECT COST. IN THIS CONNECTION PARAGRAPH (G) OF SECTION 26.9 OF TREASURY DECISION 5000, AND SUBPARAGRAPH (4) THEREOF WHICH IS CITED BY THE CONTRACTOR AS AUTHORITY FOR REIMBURSEMENT, PROVIDE IN PART AS FOLLOWS:

(G) * * * EXPENSES OF DISTRIBUTION, SERVICING AND ADMINISTRATION, WHICH ARE TREATED IN THIS SECTION AS A PART OF GENERAL EXPENSES IN DETERMINING THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT * * * COMPREHEND THE EXPENSES INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT, WHICH ARE INCURRED IN CONNECTION WITH THE DISTRIBUTION AND GENERAL SERVICING OF THE CONTRACTING PARTY'S PRODUCTS AND THE GENERAL ADMINISTRATION OF THE BUSINESS, SUCH AS---

(4) OTHER EXPENSES.--- MISCELLANEOUS OFFICE AND ADMINISTRATIVE EXPENSES, SUCH AS STATIONERY AND OFFICE SUPPLIES * * *.

ACCORDING TO THE ABOVE-QUOTED PROVISIONS OF TREASURY DECISION 5000 ONLY THOSE INDIRECT EXPENSES WHICH ARE "INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT" ARE ALLOWABLE ITEMS OF COST. NEITHER THE CONTRACT NOR TREASURY DECISION 5000 SPECIFICALLY MENTIONS THE PURCHASE OF LEGAL PUBLICATIONS AS AN ITEM OF COST--- ALLOWABLE OR OTHERWISE.

WHILE THE CONTRACT PROVISIONS WITH RESPECT TO REIMBURSEMENT OF COSTS MAY BE EXCEEDINGLY BROAD, THEY DO NOT PROVIDE FOR REIMBURSEMENT OF EVERY EXPENSE INCURRED BY THE CONTRACTOR, AND OBVIOUSLY THE PARTIES INTENDED THAT THE FIXED FEE TO BE PAID FOR PERFORMING THE CONTRACT SHOULD CONSTITUTE COMPENSATION TO THE CONTRACTOR FOR THOSE EXPENSES AND SERVICES WHICH MIGHT BE INCURRED OR PERFORMED IN THE PROPER AND EFFICIENT PROSECUTION OF THE WORK, AS A RESULT OF HAVING THE CONTRACT TO PERFORM, BUT WHICH ARE SO INDIRECTLY ASSOCIATED WITH THE WORK TO BE DONE AS NOT TO CONSTITUTE A REIMBURSABLE COST THEREOF. AMONG SUCH SERVICES ONE OF THE MOST VALUABLE WOULD APPEAR TO BE THE APPLICATION OF THE KNOWLEDGE AND EXPERIENCE OF THE CONTRACTOR'S ORGANIZATION TOWARD SOLVING THE MANIFOLD PROBLEMS INCIDENT TO PERFORMANCE OF THE CONTRACT. IT IS THE CONTRACTOR'S RESPONSIBILITY TO EFFECTIVELY AND EFFICIENTLY PERFORM THE CONTRACT AND TO BEAR THE BURDEN OF SUCH EXPENSES AS NECESSARILY MAY BE INCURRED IN ORDER TO ACQUIRE THE KNOWLEDGE AND ABILITY TO DO SO. UNDER THE CIRCUMSTANCES, AND ASSUMING, AS CLAIMED BY THE CONTRACTOR, THAT THE PUBLICATIONS IN QUESTION ARE NECESSARY TO INTELLIGENT OPERATION AND ADMINISTRATION OF THE CONTRACT WORK, IT MUST BE REGARDED THAT SUCH NECESSITY PERTAINS TO THAT PART OF THE PERFORMANCE OF THE CONTRACT FOR WHICH COMPENSATION IS MADE BY THE FIXED FEE OF SEVERAL MILLION DOLLARS. COMPARE 7 COMP. GEN. 417, WHEREIN PRENTICE- HALL TAX SERVICE WAS HELD NOT TO BE INCLUDED IN OVERHEAD EXPENSES.

ACCORDINGLY, YOU ARE ADVISED THAT ON THE PRESENT RECORD PAYMENT OF THE VOUCHER, WHICH IS RETURNED HEREWITH, IS NOT AUTHORIZED.