In the case of Hollerbach v. U. S. (233 U. S. 165), the syllabus says: A positive statement in a contract as to present conditions of the work must be taken as true and binding upon the Government, and loss resulting from a mistaken representation of an essential condition should fall upon it rather than on the contractor, even though there are provisions in other paragraphs of the contract requiring the contractor to make independent investigations of facts.

Under a cost-plus-a-fee contract with the United States, the general intent is that the contractor will accomplish the work and that he will be paid whatever it costs him to do so, plus a fee. It may be agreed that the cost of this, that, or another thing will not be considered to be a part of the cost of the work. Any provision reciting such an agreement must be specific. All costs not so specifically excluded constitute the cost of the work whether they are specifically mentioned in the contract or not. It does not follow that the contractor would be free to make needless or extravagent expenditures because he would then be violating the general intent of the contract and the contracting officer would be warranted in disallowing reimbursement.

Coming now to some specific cases, it is found that there were many decisions of the Comptroller of the Treasury upon matters involved in various cost-plus contracts executed during the World War and in a number of cases such decisions were overruled by the Courts.

It is well known that past decisions of the Comptroller General have been based generally upon strict constructions of the law and the provisions of contracts. Court decisions, including some of the Supreme Court of the United States, show that the powers of the Comptroller have often been exceeded; the force of his decisions is thus weakened and the degree of weight to which they are entitled is diminished.

In the case of Bates & Rogers Construction Co. v. U. S. (58 Court of Claims 392), decided May 28, 1923, the syllabus included the following:

Where plaintiff, acting under instructions of the representative on the work of the contracting officer, took out policies of liability insurance, and its action in taking out such insurance was subsequently approved by the contracting officer, the premiums paid on such policies by plaintiff were part of the cost of the work under said contract, and plaintiff is entitled to recover the amount of such premium withheld by the Government.

The question of payment in a similar case had been submitted to the Comptroller of the Treasury, who decided that the amount paid for insurance should not be reimbursed. This case was not appealed by the Government, the parties having stipulated that the decision of the Supreme Court of the United States in the case of Mason and Hanger, mentioned below, should control.

The case of Mason and Hanger Co. v. U. S. was tried in the Court of Claims and decided April 18, 1921. It was appealed by the Government, judgment having been rendered for the plaintiff. The decision of the Court of Claims was affirmed by the Supreme Court, December 4, 1922 (260 U. S. 323). The syllabus is as follows:

A building contract, made through the War Department, provided that the contractor should be reimbursed for such actual net expenditures in the performance of the work as might be approved or ratified by the contracting officer, including "such bonds, fire, liability, and other insurance as the contracting

officer may approve or require;" that monthly statements of cost should be made, upon which, in case of disagreement, the decision of the contracting officer should govern; and that statements so made and all payments made thereon should be final and binding on both parties. Held, that where a payment made by the contractor as a premium on its bond to secure the performance of the contract was thus approved and repaid as part of the cost of the work, the decision and action of the officer were conclusive, and that the Comptroller of the Treasury was without power to deduct the amount from other moneys due the contractor, upon the ground that the expense was not among those for which the contract promised reimbursement.

In the case of James Stewart and Co., decided March 3, 1924 (59 Court of Claims 295), the syllabus is as follows:

Where it was necessary for a cost-plus contractor during the World War to employ men, designated as "expediters," to travel around to different places to secure labor and the prompt delivery of materials for the work under the contract, and the employment of such men received the approval of the Government officer in charge of the work, the expense of their employment was part of the cost of the work.

Where a cost-plus contractor was required to pay war taxes on freight bills, telegrams, express charges, and passenger fares necessary in the prosecution of the work under his contract, such expenses were a part of the cost of the work.

The expenses of the expediters were disallowed by the Comptroller of the Treasury (26 Comp. Dec. 688. February 26, 1920). The war taxes were disallowed by the Navy Department. Each was

wrong.

In a decision dated November 21, 1919 (26 Comp. Dec. 401), the Comptroller of the Treasury held that the cost of a small publication by cost-plus contractors for the purpose of stimulating their workmen and improving the morale of the job was not one of the "actual and essential elements" in the cost of the work for which reimbursement was authorized. Here the Comptroller appears to have assumed to determine a fact which was for final determination by the contracting officer and thus exceeded his powers. He might with equal assumption have decided that the pay of any particular employee of the contractor was not an essential element of cost because the work could have been completed without his employment. Had this case been taken to the courts, there can be little doubt that the Comptroller would have been overruled.

Some earlier decisions of the Comptroller of the Treasury were more liberal and indicated a broader concept of the relationship of the Government to the people, as represented by individuals. In a decision dated August 3, 1918, the syllabus is as follows:

Customs dues being a part of the cost of material, reimbursement is authorized, together with the percentage thereon, for duty paid by contractors under cost-plus contracts in connection with the importation of material for Government use.

As the employment of a broker to make entry of material is customary and time saving, a fee paid therefor by a contractor is a proper item of charge under a cost-plus contract and may be reimbursed.

In a decision dated September 11, 1918 (25 Comp. Dec. 222) the Comptroller of the Treasury properly held that workmen's compensation insurance was a proper and necessary item of general overhead expense of a contractor, and premiums necessarily paid for such insurance came within the cost allowed to a contractor under cost-plus-profit contracts. In that case the contract contained no

specific provision for workmen's compensation insurance or for reimbursement to the contractor either for premiums to be paid for such insurance or for sums actually expended for workmen's compensation for injuries sustained in the course of their employment.

Recent decisions of the Comptroller General have indicated a trend toward a more liberal interpretation of the relationship between the Government and its contractors, and this seems to be more consistent with the attitude of the courts. Administrative officers should not allow fear of a possible adverse ruling by the Comptroller General to influence them to make decisions which would, in their opinion, be detrimental to the interests of the United States or unjust to the contractors.

The practical interpretation of the provisions of a cost-plus contract by the contracting officer carries much weight, as is indicated by the following statement taken from the opinion of the Supreme Court of the United States in the case of Mason and Hanger above mentioned:

What is the import of this practical interpretation? The Government does not contend that the words of the contract were dictated by statute. They are, therefore, the words of the contracting officer to express and provide for the purpose of the Government in exercise of the duty with which he was charged, and used as a declaration and measure of the rights and obligations of the parties to the contract. His subsequent conduct is necessarily to be considered a definition of them. The officer is in a sense a party to the contract, not only representing but speaking for the impersonality of the Government. Competent, therefore, it would seem, to declare the meaning of the contract.

Where the Government enters into a construction contract based upon competitive bids, it is, aside from its direct interests, morally bound, in fairness and justice to the unsuccessful bidders, to interpret the provisions of the contract strictly and to require full compliance therewith. Officers in charge of contract work are indoctrinated in that requirement, and they are aware of the fact that the Navy Department, naval accounting and disbursing officers, and the Comptroller General take that view. However, and this is of great importance, a cost-plus construction contract sets up an entirely different character of relationship between the contracting parties. Speaking generally, in the competitive-contract procedure the contractor ordinarily undertakes to accomplish a project which has been fully described by plans and specifications and the contracting officer undertakes nothing except to have the contract price paid as provided in the contract. The relationship is in no sense that of partnership or quasi partnership. The Government merely stands by to see that the work is done according to the contract. The contractor does the work in his own way within the contract provisions, and the Government takes no part in determinations as to construction methods or other operations of the contractor, except, on appropriate occasions, to give or offer advice. The relationship is, in effect, that of vendor and vendee. It is known in advance just what the Government is to get and what it is to pay. If each party to the contract performs in accordance with the contract provisions, and no untoward events develop, there is no occasion for conferences or collaboration. This is all the opposite of the cost-plus-a-fixed-fee contract procedure. Under such a contract the parties are, in effect, partners or coadventurers, particularly in the sense that each assumes risks. At the time the con

tract is entered into it is known only in a general way what is to be done. The details of the work unfold as it progresses. They are worked out by cooperation between the parties. The Government is continuously striving to get results in the most certain, speedy, and economical manner possible and the contractor, contributing the skill, energy, and resources of his organization and risking its reputation, is striving for the same end. On the Government side emergency requirements of great importance are involved and on the contractor's side his reputation and future welfare are at stake. There is every reason for sincere teamwork.

Sincere team work can only come where there is mutual confidence and trust and a genuine disposition to play fair and to compromise differences.

Following the World War period, the Navy Department had no authority for the use of the cost-plus method of contracting until the act of April 25, 1939, Public, No. 43, Seventy-sixth Congress, entitled "An act to authorize the Secretary of the Navy to proceed with the construction of certain public works, and for other purposes."

On May 17, 1938, the President approved an act entitled "An act to establish the composition of the United States Navy, to authorize the construction of certain naval vessels, and for other purposes." Section 10 of that act is as follows:

SEC. 10. (a) The Secretary of the Navy is hereby authorized and directed to appoint a board consisting of not less than five officers to investigate and report upon the need, for purposes of national defense, for the establishment of additional submarine, destroyer, mine, and naval air bases on the coasts of the United States, its territories, and possessions.

(b) The Secretary of the Navy is further directed to cause the report of the board authorized by this section to be transmitted to the Speaker of the House of Representatives during the first session of the Seventy-sixth Congress. The report of the board was transmitted to the Speaker of the House of Representatives and thereafter, on January 19, 1939, the Acting Secretary of the Navy submitted to the Speaker a draft of a proposed bill authorizing the Secretary to proceed with the construction of certain public works which had been recommended by the board as being of "immediate strategic importance as being necessary of accomplishment at the earliest practicable date." The proposed bill contained a provision authorizing cost-plus contracts and in support of such provision the letter of the Acting Secretary of the Navy, transmitting the draft of the bill, included the following statements:

Section 4 of the proposed bill would authorize the Secretary of the Navy to negotiate cost-plus-fixed-fee contracts for construction at places beyond the continental limits of the United States. Such authority would serve three purposes.

(a) It would permit initiating the work at the earliest practicable date since complete plans and specifications will not be necessary under such an arrangement.

(b) It would permit the work to be carried on at a faster rate, since necessary changes in the design and construction procedures which are inevitable in work of this character will be made with a minimum of delay.

(c) It would result in lower ultimate cost to the Government.

The experience of the Navy Department has shown that it is impracticable to obtain competitive bids from reliable and experienced contractors on work at outlying stations except at exorbitant prices. This arises from the fact that unusual hazards, the uncertainty of weather conditions, the distance from material and labor markets, and the cost of overcoming unforeseen construction difficulties all contribute to the element of uncertainty which requires that a

prudent bidder include in his bid a very large item for contingencies. If these contingencies do not arise the Government will pay an excessive profit to the contractor.

The principle of noninsurance of Government property is firmly established. The procedure embodied in section 4 represents no more than an extension of that principle, in that the Government in effect carries the insurance for contingencies which, under ordinary circumstances, would be carried by the contractor and indirectly paid for by the Government.

For work within the continental limits of the United States, where it is practicable to obtain competitive bids and where the contingency item is not large, the usual procedure of competitive bidding is to be preferred. However, in the case of work at outlying stations the procedure recommended in section 4 would be more advantageous to the Government.

Extensive congressional hearings were held on the proposed bill during January and February 1939 and a bill, H. R. 4278, was passed by the House of Representatives on February 23, 1939, and by the Senate on April 19, 1939. It received the approval of the President on April 25, 1939. Section 4 of the act (Public No. 43, 76th Cong.) is as follows:

SEC. 4. (a) To enable the Secretary of the Navy to accomplish without delay or excessive cost those public-works projects authorized by this Act to be located outside the continental limits of the United States, he is hereby authorized to enter into contracts upon a cost-plus-a-fixed-fee basis after such negotiations as he may authorize and approve and without advertising for proposals with reference thereto. Approval by the President shall be necessary to the validity of any contract entered into under authority of this section. The fixed fee to be paid the contractor as a result of any contract entered into under authority of this section shall be determined at or before the time such contract is made, and shall be set forth in such contract. Such fee shall not exceed 10 per centum of the estimated cost of the contract, exclusive of the fee, as determined by the Secretary of the Navy. Changes in the amount of the fee shall be made only upon material changes in the scope of the work concerned as determined by the Secretary of the Navy whose determination shall be conclusive.

(b) Negotiations under this section shall be between the Secretary of the Navy, or a duly authorized representative, and three or more reputable and qualified contracting individuals, firms, or corporations regularly engaged in work of comparable magnitude and class to that contemplated by the negotiations, as determined by the Secretary of the Navy, and contracts may be made with any such individual, firm, or corporation, or with any two or more of them jointly, upon such terms and conditions as the Secretary of the Navy may determine to be fair and equitable and in the interests of the national defense. For each contract entered into under authority of this section the Secretary of the Navy may detail a naval officer to duty, without additional compensation, as an executive representative of the contracting officer. The contract shall provide that the officer so detailed shall have the right to attend any meetings of the board of directors or other executive or administrative board or committee of any corporation, partnership, firm, or syndicate which is or may become a party thereto for the purpose of submitting propositions, propounding questions, and receiving information relative to any matter within the purview of the contract with the intent and for the purpose of safeguarding the interests of the United States, coordinating efforts, and promoting mutually beneficial relationships, and making decisions within the scope of his delegated authority and not in conflict with any provisions of the contract.

(c) In any project the contract for which is negotiated under authority of this section, the Secretary of the Navy may waive the requirement of a performance and a payment bond and may accept materials required for any such project at such place or places as he may deem necessary to minimize insurance costs.

(d) Any contract negotiated under this section may, in the discretion of the Secretary of the Navy, contain provisions under which any loss of or major damage to the plant, materials, or supplies of any contractor, not due to his negligence or fault or to the negligence or fault of his agents or servants, while