and contract provide at paragraph 11 of the Special Provisions in part as follows:

11. PATENT INDEMNITY (PREDETERMINED).

If the amount of this contract is in excess of $5,000, the Contractor shall indemnify the Government and its officers, agents, and employees against liability, including costs, for infringement of any United States letters patent (except letters patent issued upon an application which is now or may hereafter be kept secret or otherwise withheld from issue by order of the Government) arising out of the manufacture or delivery of supplies or out of construction, alteration, modification, or repair of real property (hereinafter referred to as "construction work") under this contract, or out of the use or disposal by or for the account of the Government of such supplies or construction work. * *

The letter of May 7, 1959, from the attorneys for the successful bidder, enclosed with your letter of May 12, indicates that your position that performance in conformity with the specification must necessarily result in infringement of your patent may be disputed. The patent indemnity clause quoted in part above provides for the indemnification of the Government and its agents by the contractor for any liability for infringement of any patent arising out of the manufacture of the supplies. Under such circumstances, it has been consistently held that a low bid may not be disregarded merely because it is asserted by a patent owner that his patent will be infringed and that the low bidder is without legal right to manufacture thereunder. B-132468, August 20, 1957.

Even assuming no question as to the patent rights, we held at 38 Comp. Gen. 276 (quoting from the syllabus) :

In a procurement by formal advertising involving a patented article and including in the invitation the patent consent and indemnity clauses, an award is required to be made to the lowest bidder meeting the specifications without regard to possible patent infringement.

The "patent consent" clause referred to above was included in the instant invitation as paragraph 6 of the Special Provisions.

In accordance with the foregoing we conclude that no proper basis has been presented to support a determination that award to the Turner Corporation was improper.

[B-139431]

Maritime Matters-Subsidies-Construction by Applicant in Lieu of Federal Maritime Board-Pacific Coast Preference The requirements in the public financing provisions in section 502 (d) of the Merchant Marine Act, 1936, 46 U.S.C. 1152 (d), for the approval by the Federal Maritime Board of bids submitted by the Pacific coast shipyards for construction of vessels, is applicable in any case where a construction differential subsidy is applied by a Pacific coast applicant under Title V of the Merchant Marine Act, 1936, whether construction is to be done by the Federal Maritime Board or by a domestic shipyard under section 504 of the act, 46 U.S.C. 1154, and even though there may be an increase in cost in Pacific coast preference cases to the United States and to the owner,

To the Chairman, Federal Maritime Board, July 8, 1959:

Reference is made to your letter of April 29, 1959, transmitting a copy of a legal opinion prepared by the General Counsel of the Federal Maritime Board concerning the application of sections 502 (d) and 504 of the Merchant Marine Act, 1936, as amended, 46 U.S.C. 1152(d) and 1154, to the award of a contract for construction of three cargo vessels for American Mail Line, Ltd. You request our opinion as to whether the Federal Maritime Board is required to approve an award to Todd Shipyards Corporation, Los Angeles Division, a Pacific coast shipbuilder, with the attendant increase in cost to the United States and possibly to the owner. In brief, you state the facts to be as follows:

Bids have been received and opened under the Invitation for Bids of American Mail Line, Ltd., for the construction of three cargo ships which are proposed for construction with construction-differential subsidy aid. American Mail Line's application was made under the provisions of section 504 of the Merchant Marine Act, 1936, as amended, whereby American Mail Line proposes to finance the construction of the proposed vessels rather than purchase the vessels from the Board under the provisions of section 502 of the 1936 act, 46 U.S.C. 1152. American Mail Line, Ltd. has as its principal place of business a place on the Pacific coast and intends to operate the proposed vessels in foreign trade in a service, route or line from ports on the Pacific coast of the United States. The opening of bids disclosed that the adjusted price bid of Todd Shipyards Corporation, Los Angeles Division, did not exceed the adjusted price bid of Newport News Shipbuilding and Drydock Company, the low Atlantic coast bidder, by more than six per cent.

It is assumed that your question is based upon a conclusion that the fixed-price bids are not to be considered for award.

Section 502(d) of the Merchant Marine Act, 1936, as amended, reads as follows:

In case a construction differential subsidy is applied for under this title by an applicant who has as his principal place of business a place on the Pacific coast of the United States (but not including one who, having been in business on or before August 1, 1935, has changed his principal place of business to a place on the Pacific coast of the United States after such date) to aid in the construction or reconditioning of a vessel to be operated in foreign trade in a service, route, or line from ports on the Pacific coast of the United States, and the amount of the bid of the shipbuilder on the Pacific coast who is the lowest responsible bidder on such coast for such construction or reconditioning does not exceed the amount of the bid of the shipbuilder on the Atlantic coast of the United States who is the lowest responsible bidder therefor by more than 6 per centum of the amount of the bid of such Atlantic coast shipbuilder, the Commission shall, except as provided in subsection (e), approve such Pacific coast bid, and in such case no payment shall be made to aid in such construction or reconditioning unless the applicant accepts the bid of such Pacific coast shipbuilder and agrees to designate and continue as the home port of the vessel to be constructed or reconditioned a port on the Pacific coast. Nothing in this

section shall be construed as authorizing the Commission to approve a construction differential in excess of 50 per centum of the construction cost of the vessel paid by the Commission.

And section 504 of the act provides as follows:

Where an eligible applicant under the terms of this title desires to finance the construction of a proposed vessel according to approved plans and specifications rather than purchase the same vessel from the Commission as hereinabove authorized, the Commission may permit the applicant to obtain and submit to it competitive bids from domestic shipyards for such work. If the Commission considers the bid of the shipyard in which the applicant desires to have the vessel built fair and reasonable, it may approve such bid and become a party to the contract or contracts or other arrangements for the construction of such proposed vessel and may agree to pay a construction-differential subsidy in an amount determined by the Commission in accordance with section 502 of this title, and for the cost of national-defense features. The construction-differential subsidy and payments for national-defense features shall be based on the lowest responsible domestic bid. No construction-differential subsidy, as provided in this section, shall be paid unless the said contract or contracts or other arrangements contain such provisions as are provided in this title to protect the interests of the United States as the Commission deems necessary. Such vessel shall be documented under the laws of the United States as provided in section 503 of this title. The contract of sale, and the mortgage given to secure the payment of the unpaid balance of the purchase price, shall not restrict the lawful or proper use or operation of the vessel, except to the extent expressly required by law.

We believe it important to note that the construction-differential subsidy provisions of Title V of the act, 46 U.S.C. 1151, provide alternate methods of financing the construction of a vessel for which a construction-differential subsidy is sought. Either the Federal Maritime Board may build the vessel and sell it to the applicant under section 502 (a), 46 U.S.C. 1152 (a), or the applicant may finance the construction of the vessel and the Board may permit the applicant to obtain and submit competitive bids from domestic shipyards for such work under section 504. With respect to the latter, if the Board considers the bid of the shipyard in which the applicant desires to have the vessel built fair and reasonable, it may approve the bid, become a party to the contract, and agree to pay a construction-differential subsidy in an amount determined in accordance with section 502 of the act, and for the cost of national defense features.

Under either method of financing, however, the shipowner is an "applicant" for a construction-differential subsidy under Title V of the act, and under either plan the subsidy payment is absorbed by the Government. The basic difference between the two sections is in the method of financing the construction of the vessel. However, section 502(d) prescribes an added provision requiring the approval of a bid from the lowest responsible Pacific coast bidder if the amount of his bid does not exceed the amount of the lowest responsible bid of the shipbuilder on the Atlantic coast by more than 6 per centum of the amount of such Atlantic coast bid. In addition, in order to clarify the calculation of the construction-differential subsidy in such a cir

cumstance, section 502 (d) further provides that the subsidy payment shall not exceed 50 per centum of the construction cost of the vessel. A review of the legislative history of the two sections fails to disclose any conclusive evidence as to whether the provisions of section 502(d) are or are not intended to apply in the case of construction under section 504. The language of section 502(d) read literally would seem to be applicable in any case where a construction differenential subsidy is applied for under this title by an applicant who has as his principal place of business a place on the Pacific coast of the United States. The last sentence of 502(d), however, which was added by the 1938 amendments and which limits the subsidy, including the Pacific coast preference, to 50 percent of the construction cost, uses the phrase "cost of the vessel paid by the Commission." Under section 504 such total cost is not paid by the Commission since the applicant pays his portion. However, similar inconsistencies are found in other sections of Title V. We are not inclined to give as much weight to the phrase "paid by the Commission", which was added in 1938, as we are to the phrase "under this title", which was a part of the original act.

American Mail Line, Ltd. has its principal place of business on the Pacific coast and has applied for a construction differential subsidy under Title V of the act. While such application involves private financing under section 504, the fact remains that section 504 is a part of Title V and, therefore, the application is made under Title V. In view of the precise language of section 502(d) which states: "(d) In case a construction-differential subsidy is applied for under this title by an applicant who has as his principal place of business a place on the Pacific coast of the United States ***" [Italics supplied], and the absence of any legislative history to the effect that section 502(d) is not intended to apply where application is made under section 504, we agree with the opinion of your General Counsel that section 502(d) is for application in the American Mail Line

case.

It is recognized that the effect of applying section 502 (d) results in additional cost to the Government and could result in additional cost to the applicant where, as in the present case, the acceptance of the Pacific coast bid may result in the difference between foreign costs and domestic costs exceeding the 50 percent construction differential limitation. However, this would also be the result in the case of public financing where a Pacific coast preference is for application. Application of section 502(d) would also make inoperative, in Pacific coast preference cases, that part of section 504 which gives the applicant a right to construct a vessel in a yard of his choice. However, it must be noted that such right did not exist under section 504 as orig

inally enacted, and we are unable to locate any convincing evidence that Public Law 705, 75th Congress, 46 U.S.C. 1112 which amended section 504 in 1938 to give an applicant the right to accept a higher bid if he paid the difference, was intended to override, replace, or re-. peal the application of section 502(d) to section 504 construction. While these factors are of serious consequence, we do not believe they can serve to overcome the specific provisions of section 502(d). The remedy for any inequities that result, or for any adverse effect on new construction, lies in amendment of the act.

[B-138335]

Contracts-Labor Costs-Estimates v. Actual Costs-Quarterly Computations

Where the method of computing quarterly labor costs under a contract for furnishing metals to the Government was based on estimates for certain fringe benefits (holiday pay, vacation pay and Christmas bonus), because the actual costs were not known until the last quarter of the year and then the difference between the actual and estimated costs of the fringe benefits was included in the fourth quarter average hourly labor costs so that under the escalation clause and due to uneven deliveries between quarters this method resulted in greater overall payments by the Government, no objection to the use of such method based on estimates need be made in the absence of a provision requiring a uniform basis for each quarterly computation.

To the Administrator, General Services Administration, July 9, 1959:

Reference is made to your letter of January 2, 1959, with enclosures, requesting our opinion concerning the manner in which one of the three escalation factors provided in contract No. DMP-80, dated May 29, 1953, with International Nickel Company of Canada, Limited, should be applied in making adjustments in the contract price of the metallic nickel and copper furnished thereunder to the United States.

Under the contract-which was entered into pursuant to the authority contained in the Defense Production Act of 1950, 50 U.S.C. App. 2061-it was agreed that INCO would furnish to the Government 120,000,000 pounds of nickel and 100,000,000 pounds of copper conforming to certain specifications, to be delivered f.o.b. certain of the contractor's plants in Canada in not less than minimum carload lots at or before the expiration of five years and seven months from the first day of the month next succeeding the month during which the contractor received an executed counterpart of the contract, at the rate of at least 2,000,000 pounds a month for the nickel and at the rate of at least 1,666,666 pounds a month for the copper. The prices per pound to be paid for the nickel and copper, respectively, were fixed by the contract at 87.70 cents (Canadian) and 27 cents (Canadian). Of