Where an employee has been granted a periodic within-grade salary advancement under the act of August 1, 1941, as of the beginning of a particular quarter, his right to another such periodic salary advancement, other conditions being met, after 18 or 30 months' service from that date is not affected by a meritorious salary advancement granted within such period pursuant to the act.

A period of 18 or 30 months is not required to elapse between meritorious-as distinguished from periodic-within-grade salary advancements under the act of August 1, 1941, but only one such meritorious advancement may be made within each of the 18 or 30-month periods applicable to periodic advancements. Acting Comptroller General Elliott to the Chairman, War Production Board, March 12, 1942:

I am in receipt of letter dated February 20, 1942, from the Acting Director of Personnel, War Production Board, as follows:

In connection with the application of the act of August 1, 1941 (Public Law 200, 77th Congress), the opinion of the Comptroller General is requested as to the proper procedure under the following circumstances:

1. An employee has received a salary advancement effective October 1, 1941, in accordance with the Mead-Ramspeck Act. On December 1, 1941, the employee transferred to another independent Government establishment.

Question: Under the law and providing all other regulations have been complied with, is the hiring agency bound to pick up the employee at a rate of compensation which will include administrative promotion payments?

2. An employee has received a salary advancement effective October 1, 1941, in accordance with the Mead-Ramspeck Act. In recognition of especially meritorious services an additional increase has been granted effective November 1, 1941, in accordance with section 7 (f) of the act.

Question: In computing eligibility for subsequent promotion under the act, would the eighteen (18) or thirty (30) month period start to run from October 1, 1941, or November 1, 1941?

In decision of February 21, 1942, B-23577, 21 Comp. Gen. 791, a copy of which is enclosed, involving the transfer or reappointment of employees from one position to another in the same Federal agency, it was held as follows (quoting from the syllabus):

The vested right of an employee to retain a periodic or meritorious withingrade salary advancement granted pursuant to the act of August 1, 1941, maintains only so long as he remains in the position in which the advancement was granted, but, upon the transfer, promotion, or reduction of an employee from one position to another with different duties and responsibilities, whether in the same or different grade, it is within administrative discretion under section 10 of the Classification Act of 1923 to fix his initial salary in the new position at such prescribed rate of the grade as will save to him the benefit of a withingrade salary advancement to which he previously had become entitled.

Where during the period of delay between the effective date-October 1, 1941— of the first periodic within-grade salary advancements under the act of August 1, 1941, and the actual payment of such advancements, employees who were entitled to the advancements as of October 1, 1941, were transferred at the same or reduced salaries to other positions, either in the same or different grade, with different duties and responsibilities, it is within administrative discretion to fix at this time their initial salaries, effective on the date of the transfer, in the new positions at such prescribed rate of their grades as will save to them the benefits of the salary advancements to which they previously had become entitled.

Also, the same rules are applicable upon transfer or reappointment from one Federal agency to another. Under these rules question 1 is answered in the negative. That is to say, the matter is one of administrative discretion and subject to the availability of funds.

That portion of section 7 of the Classification Act which was added by section 2 of the act of August 1, 1941, Public Law 200, 55 Stat. 613, 614, provides, in pertinent part, as follows:

(b) All employees compensated on a per annum basis, and occupying permanent positions within the scope of the compensation schedules fixed by this act, who have not attained the maximum rate of compensation for the grade in which their positions are respectively allocated, shall be advanced in compensation successively to the next higher rate within the grade at the beginning of the next quarter, following the completion of: (1) Each eighteen months of service if such employees are in grades in which the compensation increments are $60 or $100, or (2) each thirty months of service if such employees are in grades in which the compensation increments are $200 or $250, subject to the following conditions:

(1) That no equivalent increase in compensation from any cause was received during such period, except increase made pursuant to subsection (f) of this section;

(f) Within the limit of available appropriations, and in recognition of especially meritorious services, the head of any department or agency is authorized to make additional within-grade compensation advancements, but any such additional advancements shall not exceed one step and no employee shall be eligible for more than one additional advancement hereunder within each of the time periods specified in subsection (b). All actions under this subsection and the reasons therefor shall be reported to the Civil Service Commission. The Commission shall present an annual consolidated report to the Congress covering the numbers and types of actions taken under this subsection.

Under said provisions the periodic within-grade salary advancement based on longevity, efficiency rating, and certificate of service and conduct may be made effective only at the beginning of the quarter. The beginning of the quarter on which an employee attains eligibility for a periodic increase in compensation fixes the beginning of the 18 or 30 months' period through which he must serve before becoming eligible for another periodic increase. During each of these periods of 18 or 30 months an employee may be granted one additional meritorious promotion in his grade under the provisions of subsection (f) of the quoted statute which is not to be regarded as an "equivalent increase in compensation." See the express exception to subsection (b) (1) of the statute. See, also, answer to question numbered 3, decision of February 21, 1942, B-23577, supra.

Referring to question 2, the 18 or 30 months' period started to run from October 1, 1941. Assuming all other conditions of the statute to have been met, the employee would be entitled to the next periodic increase in the grade on April 1, 1943, if the steps in his grade are $60 or $100, and on April 1, 1944, if the steps in his grade are $200 or $250. The employee will be eligible for the next additional meritorious increase in his grade at any time on or after April 1, 1943, or April 1, 1944, as the case may be. A period of 18 or 30 months is not required to elapse between meritorious promotions, but only one meritorious promotion may be made within each of the 18 or 30 months' periods applicable to the automatic promotions. Question 2 is answered accordingly.

(B-23293)

CONTRACTS-COST-PLUS-SUBCONTRACTS ON A COST-PLUS-APERCENTAGE-OF-COST BASIS

A subcontract entered into on a cost-plus-a-percentage-of-cost basis by a War Department cost-plus-a-fixed-fee contractor is in contravention of the spirit and purpose of the act of July 2, 1940, providing that "the cost-plus-a-percentage-of-cost system of contracting shall not be used under this section," and such a subcontract may not be regarded as creating any binding obligation on the United States to reimburse the prime contractor for any payments made in accordance with its terms.

Comptroller General Warren to the Secretary of War, March 13, 1942:

I have your letter of January 21, 1942, transmitting for advance decision bureau voucher No. ORD-781, in the sum of $10,280.84, covering reimbursement to Day & Zimmermann, Inc., a cost-plus-a-fixed-fee contractor, of amounts paid for gang loading equipment furnished under contract No. W-ORD-487, dated November 4, 1940.

The contract provided for the furnishing of architectural and engineering services, including the designing of plans and specifications, technical supervision of plant construction, procurement of equipment, and operation of an ordnance plant near Burlington, Iowa. Article II-A provides, in part, as follows:

1. The contractor shall, as an independent contractor and not as an agent of the Government, purchase or produce, including necessary engineering and designing, all machinery and the equipment therefor, jigs, fixtures, tools, gages (both working and inspection), and miscellaneous factory equipment necessary for a plant of the type and capacity described in article I-A of title I hereof (all of the above being sometimes hereinafter referred to as "Equipment"); shall supervise its installation; and shall do all other things necessary and incident to the engineering, designing, purchase or production and supervision of the installation of the equipment of the plant.

In addition to the fixed fee which the contractor was to be paid for its services thereunder, article V-A-1 of the contract provided that the contractor should be reimbursed for its actual expenditures, including, among others, the following:

a. All labor, materials, tools, machinery, motor vehicles, office equipment and supplies, other equipment, other supplies, facilities, services, power, and fuel necessary for either temporary or permanent use for the benefit of the work, under titles II and IV including the training of personnel. All articles of machinery or equipment valued at $300 or less shall be classed as tools and shall be charged directly to the work. Title thereto shall thereupon pass to the Government. b. All subcontracts and contracts for technical services made in accordance with titles II and IV.

Pursuant to the provisions of article II-A, supra, the contractor entered into an agreement dated September 29, 1941, with the Western Electro-Mechanical Co., Inc., hereinafter called the company, under which the company was to manufacture certain equipment, tools, and machinery to be installed in the ordnance plant, and the above-mentioned bureau voucher covers reimbursement to the prime contractor for payments made to the company under said agreement. However,

it appears that doubt has arisen in the Finance Department with respect to the legality of the agreement between the prime contractor and the company, for the reason that in the opinion of the Finance Department the agreement provides for payment to the company on a cost-plus-a-percentage-of-cost basis contrary to section 1 of the act of July 2, 1940, Public No. 703, 54 Stat. 712, which act authorizes the Secretary of War to enter into various contracts for the purpose of strengthening the national defense. Section 1 thereof provides, in pertinent part, as follows:

Provided further, That the cost-plus-a-percentage-of-cost system of contracting shall not be used under this section; but this proviso shall not be construed to prohibit the use of the cost-plus-a-fixed fee form of contract when such use is deemed necessary by the Secretary of War.

The pertinent terms of the agreement between the prime contractor and the company as well as the views of the Ordnance Department in the matter, are set forth in fourth indorsement of January 5, 1942, from the Chief of Ordnance to the Chief of Finance, which indorsement is as follows:

1. In compliance with 1st indorsement, Office, Chief of Finance, dated November 18, requesting remark on voucher in favor of Day and Zimmermann, Inc., Philadelphia, Pennsylvania, in the amount of $10,280.84, there is presented herewith the opinion of the Ordnance Department with reference to both the legality of the subcontract, as questioned in paragraph 2 of basic communication, and the reimbursement claimed thereunder.

2. It is the opinion of the Ordnance Department that the subcontract procedure followed by Day & Zimmermann was within their legal rights considering both the inhibition stated in Public No. 703, 76th Congress, approved July 2, 1940, and the prime contract itself, and the following argument is presented in support of this opinion.

3. You are, of course, aware of the pressing necessity of the Government for ordnance of all sorts, the very specialized nature of ordnance work itself, and, correlary thereto, the need for, and difficulty of obtaining prime and subcontractors with the technical experience, background and "know-how," that is required for the construction, equipping and operation of ordnance plants and facilities therefor.

Defense work of various sorts including that mentioned above was authorized by the Congress in Public No. 703, 76th Congress, approved July 2, 1940, and similar defense laws. The War Department, under authority of these laws, determined to harness our national productive capacity and to get expeditious action on these and other phases of the national defense work by securing all available contractors who are capable of acting immediately. These contractors required generally that they be given full freedom of operation so that they could make the best possible use of their organizational and managerial abilities, and of their contacts with others who are capable of assisting in a subordinate and auxiliary way. In the negotiation of contracts, therefore, the prime contractors were considered by the negotiators as independent contractors and so designated in many contracts; this for the further reason that Congress, the War Department and the country look to these contractors for immediate results, and it was thought best that they be not hampered in their defense contract activities by inhibitions and prohibitory statutes enacted to limit certain action by Government agencies. This is not to say that the limitations in the defense acts, and in the contracts themselves were not to be observed, when applicable, by the various parties to such contracts. But, consistent with the required scope of action that must of necessity be given to these prime and subcontractors in order to carry out their defense activities, there should not be applied inhibitions against them unless such restrictions have been specifically enacted by the Congress or placed in the contracts with reference to these parties.

It is in respect to the application of such an inhibition that the following case, illustrative of others, is presented:

Day & Zimmerman, Inc., prime contractors with Ordnance under Contract No. W-ORD-487, made a subcontract with Western Electro Mechanical Company wherein it was provided that Western Electro would

(a) Manufacture tools, equipment, and machinery as the prime contractor directed,

(b) Process, change, alter, and assemble equipment manufactured under (a) above,

(c) Rent a loft to provide additional space at a rental rate not in excess of $100 per month and provide the necessary lights, and other facilities during the rental period,

(d) Provide office facilities, drafting tables, lights, to such of the prime contractor's employees as the division manager of the California unit may designate,

(e) Provide shop facilities, including use of machinery to such of the contractor's employees as are designated by the division manager of the California unit.

(g) Provide the services of Mr. W. W. Scherer to expedite and supervise the work being done for the contractor in shops other than in the Mechanical Company's shops.

In consideration, Day & Zimmerman agreed to pay to Western Electro, "as full compensation and payment," the following:

For work under (a) and (b): The cost of all labor (computed at current union rates) times 2.75, plus the cost of all materials and purchases times 1.10. For work under (c): The actual cost of the rental of the loft plus 1.10 times other incidental expenses in connection with the rental.

For word under (d): At the rate of $0.50 per hour for each of the contractor's employees using the facilities.

For work under (e): $1.00 per hour for each of the contractor's employees using the facilities.

For work under (g): $300.00 per month.

It is not amiss to say as an aside that Western Electro, and many other specialized manufacturers of machines, machine tools, jigs, dies, and the like are greatly affected by the fluctuating costs of labor and materials common to a wartime economy. As a result, these manufacturers refuse to set a fixed price on those services which are susceptible to abnormal variation. The prime contractors are, therefore, put in the position of having to agree to the terms offered by subcontractors, or alternatively to seek others in what might be termed a "demand market" where very few capable manufacturers, if any. are available, and thus, through delay, sacrifice the objective expediency of the national defense program.

To get back to the main point, a question then came up as to the right of reimbursement of the prime contractor for payments made by him to the subcontractor, with reference to work under (a), (b), and (c) of the Western Electro contract, in view of the inhibition in Public No. 703, 76th Congress, approved July 2, 1940, wherein it was provided "that the cost-plus-a-percentageof-cost-system of contracting shall not be used under this section."

On presentation of the question to the Ordnance Department, the matter was duly considered and the opinion was reached that the inhibition in Public No. 703 restricts only the Government since section I thereof specifically states:

*

66 g * * The Secretary of War is authorized, out of the moneys appropriated for the War Department for national-defense purposes for the fiscal year ending June 30, 1941 *, (3) to enter into such contracts (for construction, development of plants, etc.) *, and to amend or supplement such existing contracts, as he may deem necessary to carry out the purposes specified in this section:

*

"Provided further, That the cost-plus-a-percentage-of-cost system of contracting shall not be used under this section; but this proviso shall not be con