In addition it may be observed that if Davis-Bacon workers are given priority over the United States, payment to them by the Government would relieve the surety pro tanto from its liability to the workers on its payment bond, and it is debatable whether the Government could obtain redress from the surety as subrogee of the workers.

In any event, we now conclude that the Government has priority for set-off of its claims against amounts withheld from a contractor, for whatever reason, and if the withheld amounts are insufficient to satisfy the Government's claims, the workers are left to their remedies against the contractor and the surety.

In the present matter you are advised, in answer to your question, that all withheld sums should be applied, first, in liquidation of indebtedness to the Government arising under the contract, and the balance applied against other indebtedness of the contractor to the United States.

The enclosures with the letter of March 19, 1965, are returned herewith.

[B-152306]

Contracts Architect, Engineering, Etc., Services-Fees-Limitations

The authority in 38 U.S.C. 5002 to procure architect-engineer services at "reasonable compensation" in connection with the construction, remodeling, repair, etc., of Veterans Administration hospitals and other facilities without regard to the advertising requirement of 41 U.S.C. 5, and free of the 6-percent fee limitation prescribed in section 304 of the Federal Property and Administrative Services Act of 1949, as amended (41 U.S.C. 254 (b)), is affected by Public Law 89-343, dated November 8, 1965, making the restrictions of title III of the 1949 act, including the 6-percent limitation payable under architect-engineer contracts, directly applicable to procurements by the executive agencies of the Government regardless of the statutory negotiation authority utilized, and architect-engineer contracts negotiated under 38 U.S.C. 5002 for Veterans Administration facilities are, therefore, subject to the 6-percent fee limitation after the effective date of the 1965 act.

Contracts Architect, Engineering, Etc., Services-Fees-Limitations

The 6-percent fee limitation on architect-engineer contracts prescribed by section 304 of the Federal Property and Administrative Services Act of 1949, as amended (41 U.S.C. 254(b)), is not restricted to cost-plus-a-fixed-fee contracts but the limitation applies to all contracts regardless of type, notwithstanding the format of the section deals with fees authorized for cost-type contracts, the terms of the limitation itself applying "to contracts" for architect-engineer services "relating to any public work or utility project," and the Armed Services Procurement Act of 1947, after which the 1949 act for civilian agencies is patterned, applying the architect-engineer fee limitation to all contracts, an anomalous situation would be created if the 6-percent fee limitation prescribed by 41 U.S.C. 254 (b) on architect-engineer services was restricted to cost-plus-a-fixedfee contracts.

277-066 O-68-14

Corregidor-Bataan Memorial Commission-Memorial Construction by Veterans Administration-Architect, Engineering, Etc., Services-Fee Limitation

An architect-engineer contract for the design, etc., of the Corregidor-Bataan Memorial executed under the authority of 38 U.S.C. 213, and subject to the procurement statutes applicable to the Veterans Administration should have been negotiated on the basis of the 6-percent fee limitation in section 304 of the Federal Property and Administrative Services Act of 1949, as amended (41 U.S.C. 254 (b)), absent a contrary intent in 38 U.S.C. 213. However, no action will be taken on the excessive fee paid to the architect-engineer under the contract on the basis that a Government-wide review is currently being conducted of architect-engineer contracting procedures, but future architect-engineer contracts authorized under 38 U.S.C. 213 should be made subject to the restrictive provisions of title III of the 1949 act.

To the Administrator, Veterans Administration, August 31, 1966:

Your letter dated July 27, 1966, requested our decision on the following questions:

(1) Are architect-engineer contracts negotiated in connection with the construction of VA facilities subject to the provisions of section 304 of the Federal Property and Administrative Services Act, as amended (41 U.S.C. 254), and

(2) Do the fee limitations on architect-engineer contracts contained in section 304(b) of such Act apply only to cost-plus-a-fixed-fee contracts or to all architect-engineer contracts regardless of type?

With reference to your first question, the opinion is expressed that the provisions of 38 U.S.C. 5002 authorize the negotiation of architectengineer contracts independent of the provisions of title III of the Federal Property and Administrative Services Act of 1949, as amended, and the restrictions therein. The cited authority provides:

The construction of new hospitals, domiciliaries and out-patient dispensary facilities, or the replacement, extension, alteration, remodeling, or repair of all such facilities shall be done in such manner as the President may determine. The President may require the architectural, engineering, constructing, or other forces of any of the departments of the Government to do or assist in such work, and he may employ individuals and agencies not connected with the Government, if in his opinion desirable, at such compensation as he may consider reasonable. [Italic supplied.]

Section 310(b) of the Federal Property and Administrative Services Act of 1949, as amended, 41 U.S.C. 260(b), provides:

(b) Reference in any Act, except subsection (a) of this section, to the ap plicability of section 5 of Title 41, to the procurement of property or services by the General Services Administration or any constituent organization thereof, or any other executive agency delegated authority pursuant to section 252 (a) (2) of this title, shall be deemed to be reference to section 252(c) of this title.

The language "or any other executive agency delegated authority pursuant to section 252 (a) (2)" was inserted by section 6 of Public Law 85-800. In commenting on this provision, the Senate Committee on Government Operations stated in S. Rept. No. 2201 that:

Section 6 is technical. It would amend section 310(b) of the Federal Property and Administrative Services Act of 1949 to provide that agencies authorized to observe in procurement the advertising and negotiation procedures of title III of that Act need not observe the kindred requirements of section 3709, Revised Statutes. Existing exemptions from the applicability of section 3709, Revised Statutes, are automatically transferred and preserved.

The authority to negotiate and enter into contracts without advertising is frequently granted by providing, in effect, that contracts may be made without regard to any other provision of law. See 38 U.S.C. 216(b) (6); id. 1820(b); id. 4202(6); id. 5013; 40 id. 609 (a); 42 id. 1870 (c); 16 id. 831h(b); 12 id. 1750c(f); 2 id. 135a; 22 id. 294; id. 2393 (a); Public Law 85-804, 72 Stat. 972, 50 U.S.C. 1431. Under the terms of 41 U.S.C. 260(a), neither the General Services Administration nor any other executive agency-within the scope of authority delegated by the Administrator of General Services-is subject to the provisions of 3709, Revised Statutes, 41 U.S.C. 5. However, when the Congress has previously granted a complete exemption from the advertising requirement by authorizing the making of contracts without regard to 3709, Revised Statutes, it is clear, particularly in view of the above-quoted legislative history, that it was not intended by the enactment of the 1949 act to make contracts under the former authorization subject to the restrictions of title III. Moreover, 41 U.S.C. 260 (b) provides that when section 3709, Revised Statutes, is inapplicable to a particular procurement, section 252(c) shall likewise be inapplicable to that procurement.

Accordingly and in view of the authority in 38 U.S.C. 5002 to procure architectural, etc., services "at such compensation as he [the President] may consider reasonable," that is, without regard to 3709, Revised Statutes, which, in turn, must also be regarded as providing authority to procure such services notwithstanding the restrictions of title III, it is our opinion that the 6-percent fee limitation prescribed by 41 U.S.C. 254 (b) was not applicable to architect-engineer contracts negotiated under the authority of 38 U.S.C. 5002.

However, you recognize that the restrictions of 41 U.S.C. 254 (b) now may be applicable to architect-engineer contracts negotiated under the authority of 38 U.S.C. 5002 by reason of the provisions of Public Law 89-343, enacted November 8, 1965, which amended the Federal Property and Administrative Services Act of 1949, as amended, to make title III thereof directly applicable to procurements effected by the executive agencies of the Government. Public Law 89-343 amended 41 U.S.C. 252 (c) (15) to provide that contracts for purchases and services may be negotiated if:

(15) otherwise authorized by law, except that section 254 of this title shall apply to purchases and contracts made without advertising under this paragraph. H. Rept. No. 1166, 89th Cong., 1st sess., contains the following comment on the above-proposed amendment:

The bill also makes other improvements in procurement. Under this bill, certain limitations of section 304 of the Federal Property and Administrative Services Act of 1949, as amended, concerning fees of cost-type contracts, contingent fees, examination of records, etc., would become applicable to contracts negotiated by executive agencies under any law, not only title III.

Section 2(b) of the bill would add: "Section 304 shall apply to such purchases and contracts" to paragraph (15) of section 302(c). The effect of this addition would be to make the restrictions of section 304, which are applicable to contracts negotiated under paragraphs (1) to (14) of section 302(c) similarly applicable to contracts negotiated under paragraph (15). The restrictions in section 304 pertain to limitations on the use of cost-type contracts, inclusion of a covenant against contingent fees, inclusion of an examination-of-records clause, etc. The amendment, therefore, would provide uniformity in the requirements applicable to negotiated contracts.

It thus appears to be the clear intention of the Congress in enacting Public Law 89-343 to place all negotiated contracts, regardless of the statutory negotiation authority utilized, under the restrictions of title III of the Federal Property and Administrative Services Act of 1949, as amended, including the 6-percent limitation on fees payable under architect-engineer contracts.

Therefore, you are advised that architect-engineer contracts negotiated under 38 U.S.C. 5002 on and after the effective date of Public Law 89-343 would be subject to the fee limitation of 41 U.S.C. 254 (b). Turning to your question No. 2 you advise that the 6-percent fee limitation on architectural or engineering services prescribed by section 304 (b) of the Federal Property and Administrative Services Act of 1949, 41 U.S.C. 254 (b), has been interpreted in administrative determinations of the Veterans Administration as fixing a limitation on fees in architect-engineering contracts only when such contracts are of the cost-plus-a-fixed-fee type. However, it is recognized by the Veterans Administration that there is a basis for contending that the 6-percent fee limitation applies to all such contracts regardless of type. Section 304 (b) provides as follows:

The cost-plus-a-percentage-of-cost system of contracting shall not be used, and in the case of a cost-plus-a-fixed-fee contract the fee shall not exceed 10 per centum of the estimated cost of the contract, exclusive of the fee, as determined by the agency head at the time of entering into such contract (except that a fee not in excess of 15 per centum of such estimated cost is authorized in any such contract for experimental, developmental, or research work and that a fee inclusive of the contractor's costs and not in excess of 6 per centum of the estimated cost, exclusive of fees, as determined by the agency head at the time of entering into the contract, of the project to which such fee is applicable is authorized in contracts for architectural or engineering services relating to any public works or utility project). * [Italic supplied.]

The codification of this section in Title 41 of the U.S. Code followed the exact language of the 1949 act, but the section caption "Requirements of Negotiated Contracts" in the 1949 act was changed in the code to read "Negotiated contracts," and subsection (b) now bears the caption "Barred contracts; fee limitation," etc. The format of subsection (b) which deals specifically with the fees authorized for costtype contracts could lead to the conclusion that the 6-percent fee limitation, being one of the enumerated fee limitations of cost-type contracts, is applicable only when architect-engineer services are procured under cost-type contracting. In fact, there is some support in

the legislative history of the Federal Property and Administrative Services Act of 1949, for such a restrictive interpretation. H. Rept. No. 670 on H.R. 4754 (which was enacted as the 1949 act) contained the following statement:

(b) This subsection [304 (b)] prohibits the cost-plus-a-percentage-of-cost system of contracting and prescribes maximum fees in connection with cost-plus-afixed-fee contracts.

It is clear from an analysis of H.R. 4754 that the Congress intended to restate, as far as possible, for the civilian agencies of the Government the applicable provisions of the Armed Services Procurement Act of 1947 (now 10 U.S.C. 2301 et seq.). S. Rept. No. 338, 81st Cong., on the proposed legislation stated with reference to title III:

Title III extends to the General Services Agency the principles of the Armed Services Procurement Act of 1947, with appropriate modifications principally designed to eliminate provisions applicable primarily to the military. The Administrator of General Services under certain circumstances is also permitted to delegate to any other executive agency, not named in the Armed Services Procurement Act, authority, under certain circumstances, to make purchases and contracts pursuant to the provisions of title III. This title provides for the modernization of procurement methods and procedures. It clarifies and preserves the formal advertising method of procurement, but at the same time, under proper control, authorizes negotiation in certain classes of cases. This title is designed to cope with future as well as presently existing situations, and to constitute a comprehensive code of procurement methods and procedures.

In testifying on H.R. 1366-which was enacted as the Armed Services Procurement Act of 1947-Under Secretary of War Royall stated before Subcommittee No. 6 of the Committee on Armed Services:

In

I call your attention to the fact that there is an increase in the permissible percentage of fee allowed in cost-plus-fixed-fee contracts under this bill. Normally, as you all know, there was a 7-percent limit during the war. some classes of cases, there was a 6-percent limit. The proposed bill would prescribe a 15-percent limit in the case of research and development, a 6-percent limit in the case of management-architect-engineer contracts, which was the form used in so many construction contracts-and a 10-percent limit for the others.

In H. Rept. No. 109 on H.R. 1366, the Committee on Armed Services stated on page 20 after detailing the fee limitations of section 4 of the bill:

However, the committee anticipates considerably more difficulty in peacetime, so that we are recommending that the services be authorized to pay fees up to 15 percent on research and development contracts, up to 6 percent on contracts for architectural or engineering services and up to 10 percent on all other cost-plus-a-fixed-fee contracts.

The Congressional Record of March 20, 1947, at page 2399, contained the following statement of Congressman Jack Z. Anderson, Chairman of the Committee on Armed Services:

In the case of cost-plus-a-fixed-fee contracts, section 4 provides that the fee shall not exceed 10 percent of the estimated cost of the contract, exclusive of the fee. There are two exceptions to this requirement. In the case of research and development contracts a maximum fee of 15 percent is authorized, and in the case of contracts for architectural engineering services related to any public