Officer deducted the amount in suit, namely, $ 7,251.61 from the final voucher of the plaintiff which was paid October 3, 1946. Thereafter, in accordance with the terms of the contract, the plaintiff wrote to the Chief of the Bureau of Ships (see that portion of the contracts entitled 'Disputes,' supra) on December 6, 1946, protesting the withholding of the money from its final payment and requested his decision concerning the disputed matters. The contents of this letter (Exhibit P. 3) are as follows:
'Reference is made to Navy contracts numbers NObs 220 and NXS 1114 formerly NOS 1114A.
'On the final payment voucher covering the above numbered contracts there was withheld payment totalling $ 7,251.61 pursuant to exceptions of the General Accounting Office. Reference is made to the said voucher for allocation of the total amount between the two contracts.
'The above amount represented payments under the subject contracts made by the contractor for legal fees, contributions to charities and also a disallowed credit for miscellaneous income. These items may be particularized as follows:
'Services performed by attorneys for which legal retainer fees were paid include among other things: (a) Services in connection with the drawing up of labor contracts with the union. (b) Services for frequent consultation regarding the interpretations of various clauses in the union contract and claims made by the union thereunder. (c) Services for defense in court action of a case brought by an employee discharged in accordance with the union agreement in which the contractor and the union were co-defendants. (d) Services in connection with salary and wage stabilization laws. (e) Services for employment contracts made with supervisors and other officials who were employed during the period of yard expansion for the purpose of expediting the war effort. (f) Attendance and advice at all Board of Director's meetings. (g) Services in connection with the formulating of approximately ten or twelve contracts with sub-contractors for the purpose of expediting the war effort. (h) Advice in connection with numerous wartime regulations including the G.I. Bill of Rights. (i) Services for leases negotiated for additional warehouses and other buildings during the war period.
'The retainer fees allowed did not cover work done on financial management and reorganization of the Company or for the procurement of government contracts. Fees paid for work on reorganization of the company, etc. were billed separately and were disallowed by the Navy Department in their entirety. The services above enumerated were ordinary and necessary legal fees required from time to time in connection with the work done under the subject contracts.
'Contributions to Charities
'Article 13, paragraph (i) of the contract states that costs shall be determined in accordance with section 26.9 ofTD 5000. Paragraph (g)(4) of section 26.9 states that allowable miscellaneous and administrative expenses include (among others): -- 'contributions to local charitable or community organizations to the extent constituting ordinary and necessary business expenses.'
'Expense ruling E-11 of the Revised Cost Inspection Manual of the Bureau of Supplies and Accounts states that voluntary payments to community chests, etc. for which no services are received are not allowable on and after 1 October 1944. Rulings of the Cost Inspection Service prior to the issuance of the above-mentioned ruling indicated that such expenses were allowable as ordinary and necessary business expenses where they were reasonable and in line with previous years' policies. No contributions were reimbursed to the contractor subsequent to 1 October 1944.
'These expenditures made by the contractor were reasonable, in line with those of previous years, were allowable by contractual agreement, and were in accordance with expense rulings formulated by the Navy Department.
'Credits for Miscellaneous Income
'Generally speaking, credits for miscellaneous income were included in the overhead apportionment made to all contracts. However, the Canteen Company of Philadelphia, Pennsylvania requested permission of the contractor, to install vending machines in the contractor's yard. In return for granting this right to the Canteen Company, the contractor was to receive a commission on the sales. The machines were relatively small and were placed in various locations throughout the yard. All installations and service work was performed by the Canteen Company. Periodically, the contractor received a check for commissions from the vending machine company. No verification of this miscellaneous income was made by the contractor.
'Since there was no expense to the contractor or the government in connection with this income, nor did it arise through use of the contractor's and/or the government's facilities, it is submitted that such income is attributable to extraneous operations and should therefore, not be included for purposes of overhead apportionment.
'The contractor hereby requests the Chief of the Bureau of Ships, or other proper officer, to render a decision with reference to the disputed matters set out above pursuant to the respective disputed articles of the subject contracts and the directives of the Secretary of the Navy pertaining to disputes under Navy contracts. It is the contractor's intention to avail itself of its right of appeal to the Navy Department Board of Contract Appeals, if the decision referred to above is adverse. Such decision is requested for the purpose of laying a proper foundation for such appeal. The contractor requests a hearing, if appropriate, and notice thereof should be sent to its attorney, Know-Henderson, Esquire, 1035 Land Title Building, Philadelphia, Pennsylvania.'
Reply to this letter was made on December 30, 1946, by the Assistant General Counsel of the Navy (Exhibit P. 4) and the contents are as follows:
'This will acknowledge receipt of your letter of December 9, 1946 enclosing the contractor's letter of December 6 to the Chief of the Bureau of Ships and requesting an administrative denial of the subject claim as a foundation for an administrative appeal to the Navy Board of contract Appeals preceding suit in the Court of Claims.
'The amounts constituting the claim were allowed as reimbursable items of cost by the Navy Cost Inspector, to which exception was originally taken by the Comptroller General in the following amounts:
1. Legal fees $ 1,985.60 $ 3,667.05
2. Donations 495.91 504.61
3. Credit for Misc.
Income 421.18 598.44
$ 2,902.69 $ 4,770.10
Total $ 7,672.79
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