38

sonable connection charges incident to such services.36 Contracts and amendments to contracts entered into pursuant to the authority granted by the act of 28 August 1958 (Public Law 85-804),37 are required to contain the "Examination of Records" provision. The requirements of Title II, section 4(c), Armed Services Procurement Act and section 304 (c), Federal Property and Administrative Services Act are based on the same fundamental policy.

The Federal Property and Administrative Services Act of 1949 and the Armed Services Procurement Act of 1947 are general legislation of permanent application to a very large percentage of Government procurement. They authorize negotiation of contracts without advertising under specified circumstances in the discretion of the agency head. Since it is well recognized that negotiated contracts are at the same time effective procurement instrumentalities under special circumstances, and require close supervision and control, this legislation would make examination by the Comptroller General a permanent part of procurement procedure on a basis of broad application. This bill would have the effect of extending the examination provisions added to the First War Powers Act of Public Law 921 of the Eighty-First Congress. (S. Rep. No. 603, 82d Cong., 1st Sess.)

While the clause is quite clear on the rights of the Comptroller General to investigate and examine books and records, the enforcement of the right against an unwilling contractor may offer some difficulty and, quite possibly, require assistance from the Department of Justice.39

16. Gratuities (Mar 1952) (ASPR 7-104.16, 3 Oct 1960). This clause implements 5 U.S.C. § 174d (1958) which provides that no money appropriated to the Department of Defense shall be expended under any contract (other than a contract for personal services) un

38 The exemptions are stated in ASPR 7-104.15 (3 Oct 1960) and APP (3 Oct 1960). While the act of 31 Oct 1951, 65 Stat. 700 (now covered by 10 U.S.C. § 2306, 2313 (1958)) was under consideration, it was suggested that negotiated purchases of $1,000 or less be exempted from the "Examination of Records" clause requirement (see 1951 U.S. Code Cong. & Ad. News, p. 2570-2571). S. Rep. No. 603, 1 Aug 1951, 82nd Cong., 1st Sess., commented on this suggestion: "The committee gave consideration to a suggestion that the proposed amendment be modified to exempt contracts and subcontracts involving relatively smaller amounts of money. Since the bill merely authorizes the Comptroller General of the United States to examine such contracts or the records relating thereto, the committee was of the opinion that this exemption was unnecessary, and, therefore, reported the bill without amendment, and urges its adoption by Congress." (1951 U. S. Code Cong. & Ad. News, p. 2569, 2570). When interpreting a substantially similar provision of the Independent Offices Appropriation Act for 1953, 66 Stat. 396, which extended the Examination of Records requirement to negotiated contracts of the Atomic Energy Commission, the Comptroller General approved an exemption of subcontracts and purchase orders identical with that stated in subparagraph (b) of the ASPR 7-104.15 clause. 32 Comp. Gen. 277, 279 (1954). 87 50 U.S.C. §§ 1431-1435 (1958).

88 ASPR 17-206.

In Ms. Comp. Gen. B-121884, 3 Dec. 1954, the Comptroller comments on a situation in which the contractor disputed the applicability of the clause to certain of his books and records and recognizes that the aid of the Attorney General might be required. Such aid, it may be assumed, would take the form of an application for injunctive relief, because damages for the contractor's refusal to permit examination of books and records appear to be inadequate.

less such contract provides that the Government may terminate the right of the contractor to proceed if it is found that gratuities were offered or given by the contractor to an officer or employee of the Government with a view toward securing favorable treatment. In order for the Government to terminate the contract under the "Gratuities" clause, there must be a finding by the Secretary of the Army or his duly authorized representative that the gratuities were offered or given by the contractor or his agent or representative. The mere fact that the finding has been made does not serve automatically to terminate the contract. After such findings have been made, termination may be effected, at the Government's option, by written notice to the contractor; and, once such termination has been made, then the Government becomes entitled to the damages and other remedies prescribed by the clause. The mentioned finding will be made, if appropriate, only after a hearing of which the contractor has been notified and at which he has been given an opportunity to be present. Rules governing the notice and hearing in cases where a violation of the "Gratuities" clause is involved are promulgated in Appendix "D" to the Armed Services Procurement Regulation.40 In view of the substantial number of purchases made by the military departments through open-end contracts of the General Services Administration," the question whether such contracts must contain the Gratuities clause is an important one. The question arises when the Army (or other military department) issues a delivery order to a person or firm listed on a Federal Supply Schedule contract. The purchase will be paid for with Army funds.2 The Comptroller General has ruled 43 that the gratuities provisions apply to contracts which were made under the control of officials of the military departments. The opinion indicates that the deciding factor is whether the military departments must make the purchase through General Services Administration. The military departments (and other Government agencies) are required to place orders for certain items under Federal Supply Schedule contracts and are also required

40 ASPR Appendix "D" (3 Oct 1960). As of 1955, one or two isolated complaints had arisen under Army contracts since the first enactment of the statute and review of those indicated that no punitive action was warranted. JAGT 1955/3934, 7 Apr 1955. 41 These contracts cover a variety of items, chiefly in the field of common administrative supplies and certain services. The contracts are entered into under the authority of 201 of the Federal Property and Administrative Services Act, 63 Stat. 383, as amended, 40 U.S.C. § 481 (1958). Federal Supply Schedules are the most important of such contracts. They are catalogue-style lists of supplies or services offered by persons or firms throughout the country and they show the prices at which the offers are made. The schedules are issued on a national, zone or regional area basis.

GSA Reg. 1-II-303.03a (2 Dec 1955). Any federal agency desiring to purchase from a vendor listed on a Federal Supply Schedule issues its order directly to the vendor, receives and inspects the supplies or services itself, and makes payment itself without referring the transaction to GSA. ASPRV, part 1, deals with procurement under Federal Supply Schedule contracts.

43 34 Comp. Gen. 39 (1954).

ASPR 5-103.

to place orders under area utility contracts negotiated by the General Services Administration. Because such orders are not subject to exercise of discretion or choice by officials of the military departments, payments may be made from Defense appropriations even though the military department delivery order or the General Services Administration contract does not contain the "Gratuities" provision. However, when the use of GSA contracts is optional,45 the issuance of an order against them is under the control of officials of the military departments and subject to their discretion and choice. In such cases the order or the contract should contain the "Gratuities" clause.46

IV. Additional Clauses

17. General. Certain standard clauses, although not required by statute or Executive Order, are prescribed for use where it is desired to include the subject matter of the clauses in contracts. Such clauses are known as "additional clauses" and are contained in paragraph 7–105 Armed Services Procurement Regulation (22 July 1960). Important among the additional clauses, and not treated elsewhere in this text, are the following provisions.

18. Approval of contract (July 1949) (ASPR 7-105.2, 22 July 1960). At the present time, several kinds of Army contracts are required to be approved at an echelon higher than the Contracting Officer. For example, contracts for stenographic reporting services, for personal services of experts or consultants; certain contracts for construction and rehabilitation of installations; certain architectengineer contracts; and certain utility service contracts require the approval of higher authority before they become binding." This approval requirement may extend also to modification of contracts by change order or supplemental agreement.48 Where APP requires Army contracts or modifications of contracts, to be approved by higher authority, the "Approval of Contract" clause is required to be used." Where the contractor and Contracting Officer negotiate

45 ASPR 5-104 and 5-105.

46 The Comptroller General pointed out: "However, as to orders or contracts of the military departments placed under such contracts as are made by your agency, where the use thereof is optional with those departments, it appears that the intent of the enactment would require inclusion of the clause in question in the order or contract. Whether in such cases the original contract of your Administration [the General Services Administration] should include a statement to the effect that the clause would be required in orders or contracts placed by any of the Defense agencies, or leave the inclusion of the clause in each individual agreement as a matter for negotiation between the parties-which would in effect leave the contractor under no obligation to accept orders from such departments-appears to be a matter for determination by you and these agencies." 34 Comp. Gen. 39, 40 (1954).

Cf. APP 30-204 (2 Jan 1958). In addition, approvals by higher authority may be required by regulations of the Technical Services. See, for example, the approval requirements established by the Ordinance Corps for letter contracts. OPL 3-405.3a. (24 August 1960).

48 APP 30-204.9 (2 Jan 1958).

40 APP 30-204.16 (5 Aug. 1960).

an agreement subject to the clause, the contract is not binding on the parties until the written approval of the officer named in the clause (or that of his representative) is secured. The same result is reached where an Invitation for Bids includes the "Approval of Contract" clause,50 and where the notice of award indicates that the award is subject to approval.

Illustrative case: A bidder on a contract for the installation of certain electrical equipment was notified that award had been made to him. The notice contained the statement: "If approval of the contract is required by its express terms the contract is not fully executed until such approval is obtained." The formal contract furnished to the bidder contained a statement substantially equivalent to the "Approval of Contract" clause: "This instrument shall be subject to the written approval by or on behalf of the Commanding General, Headquarters Second Army, and shall not be binding until so approved." No written approval was given by the mentioned officer or other person. Held, "It is well settled that where a contract contains a clause which makes its final execution dependent upon the approval of the head of a department or some supervising official of the Government, it is not a binding obligation until such approval is had *** while the award *** purported to obligate Blum Electric, Inc., the Government was not to be obligated until the formal contract was approved in writing by or on behalf of the Commanding General, Headquarters Second Army. To be enforceable a contract must bind both parties ***. Also, an acceptance to be effective must be unequivocal and unconditional * * *. tuality of obligation is an essential element of every enforceable contract and where only one party is bound, mutuality is absent," (31 Comp. Gen. 477 (1952).)

Mu

Note that the Comptroller General has reached an inconsistent result in a subsequent decision involving the same approval conditions as those in the illustrative case." 51

50 14 Comp. Gen. 170 (1934), citing Monroe v. United States, 184 U.S. 524 (1902); Darragh v. United States, 33 Ct. Cl. 377 (1898); Filor v. United States, 76 U.S. (9 Wall.) 45 (1869).

61 33 Comp. Gen. 180 (1953). This decision does not cite 31 Comp. Gen. 477 (1952) supra. In this decision the Comptroller General held that the notice of award (although qualified in the same way as the award in the illustrative case, supra) had the effect of binding the bidder, although the Government was not to be regarded as bound until the required approval was given. In reaching this decision, Comptroller General relled on District of Columbia v. Singleton, 81 A.2d 335 (D. C. Munic. Ct. 1951), aff'd, 198 F.2d 945 (D.C. Cir. 1952), where a statute was held to justify the rule that the District of Columbia was not bound on a contract until the District Commissioners had approved it, while bidders were bound once award was made. Comp. Gen. also relied on a line of cases holding that contract formalities (such as the former statute requiring that contracts be reduced to writing, Rev. Stat. § 3744, repealed by act 21 Oct. 1941, 55 Stat. 743) were for the benefit of the United States and could not be to protect persons who contract with the United States. These cases seem to indicate that the absence of such formalities may entitle the United States (but not the contractor) to resist suit and that lack of mutuality of enforcement is no objection. United

19. Bill of materials (Apr 1955) (ASPR 7-105.6, 22 July 1960). A Bill of Materials is a report by a supplier which specifies the quantities of various materials required to produce a designated quantity of supplies of a particular kind. A Bill of Materials may be required if the Contracting Officer shall determine that such a bill is necessary to develop materials or components requirements for production and maintenance programs, for industrial mobilization purposes, etc. 1f the Contracting Officer makes a determination to this effect, he may require the contractor to deliver the Government a "Bill of Materials." The Government may obtain a Bill of Materials by a contract separate from any other agreement or it may provide in a contract for supplies that the contractor furnish a Bill pertaining to the supplies manufactured under the contract. The contractor may obtain compensation for submitting Bills either as a part of the contract unit price or as a separately priced item. A Bill of Materials, once available, may be useful not only in connection with preparing invitations or requests for proposals for future procurements but also in connection with auditing them.52 In case the Contracting Officer decides to obtain a Bill from a contractor furnishing supplies, the contract shall specify: (1) whether the Bill shall be furnished for all or for only part of the supplies to be delivered pursuant to the contract; (2) whether the Bill shall be furnished in summary or in detail or both; (3) the compensation to be paid the contractor for furnishing such Bill or any revisions thereto; or a statement that the price of the item to which the Bill relates includes compensation for the furnishing of such Bill; (4) the number and kind of copies of such Bill to be furnished; and (5) delivery dates.58

States v. New York & Porto Rico Steamship Company, 239 U.S. 88 (1915); Clark v. United States, 95 U.S. 539 (1897); Ackerlind v. United States, 240 U.S. 531 (1916); Purcell Envelope Company v. United States, 249 U.S. 318 (1919); and American Smelting and Refining Company v. United States, 259 U.S. 75 (1922), were all cited. It would seem, however, that the "Approval of Contract" clause involves more than a mere formality and that the principle of mutuality of obligation rather than that of mutuality of enforcement is applicable.

See Contract Audit Manual (SR 36–70–1, 18 Jun. 1952), par. 4–1.308 (20 Oct. 1953). 58 ASPR 7-105.6 (22 July 1960).