4 . 

THF:AITORNEY GENERAL 

OFTEXAS 

Honorable Glbb Gilcrest, President 

Agricultural and pchanical College of Texas 

College Station, Texas 

Dear Sir: Opinion No.O-6230 

Re: Questions as to the effect, meaning, 

and application of certain provisions 

of a contract betwben the United 

States of America and Agricultural 

and Mechanical College of Texas. 

On September 19, 1944, you adressed to this office 

a letter requesting the opinion of the Attorney General upon 

four questions contained In such letter. These questions, 

you explained, had arisen out of a difference of opFnion between certain representatives of the Bureau of Naval Personnel purporting to act on behalf of the United States Government and the Agricultural and Mechanical College of Texas as 

to the meaning and effect of contract Number d-3102 and supplements thereto, and more particularly as to the effect, 

legality, and validity of certain articles and seotions of 

sald contract and its supplements. 

You attached to your letter a copy of the contract 

In question, together with exhlblts containing: resolutions 

and schedules authorizing the issue of bonds for oonstruct1on 

of a laundry and expansion of power plants at the college; 

copies and extracts from correspondence between certain personnel of the Kavy Department and of the college relating to 

the contract; principals of contract promulgated by the Bureau of Naval Personnel; and summaries of costs covering the 

period from December 1, 1942, through March 31, 19&k, part 

of which costs, accounting or fFnance officers of the Naval 

Department had advised the college should not be allowed. 

We thank you for providing this complete file, 

since it has aided us very materially in the consideration 

of the questions submttted. 

Here set out Is the penultimate paragraph of your 

letter, followed by your questions: 

"In our opinion the College is entitled to 

all of the Items disallowed by the Navy Depart- 
. 

Honorable ‘Glbb &Fl+i‘&it, pa&’ ? ” ‘~” 016230 

ment . Inasmuch as the Navy Department requests 

a prompt adjustment based on the amounts alsal-- 

lowed and has dlsaontlnuecl payments under the contract as of June 30, 1944, we would like to have 

your advise as to how to proceed and submit the 

following questions: 

“1 . Is this contract, subject to ren,egotiatlon? 

“2. Is the College entitled to charge the 

rates for laundry service and electricity established by the resolutlons,authorizLng the lssuance of revenue bonds,for the construction of the 

laundry an8 the expansion of the power plant? 

“3. Is the College entitled to the 92.5 

cents per man per day for subsistence as provided 

for in Article 4, o.f the contract or are these 

payments sub.ject to adjustment on the basis of 

actual cost? 

“4 . Is it possible for the Co,llege to execute Supplement No. 5 to the contract (a dopy of 

whLoh is Included, in ExhlbFt A) without waiving 

its right to file a claFm for the amounts disallowed, by signing the supplement under protest 

or with reservations? 

“If so, ~111 you please favor ;s with the 

)lordLng to insert in the supplement. 

These questtons are hereinafter restated and answered categorically. Each one is fgllowed by such explanation and &leoussion as ‘1s deemed necessary Ln~oraer Jo show 

the reason5 leading ,to the conp~us~,one stated. 

Quedlon ‘pS&,,’ 1: ,, ,,. 

“Is this~ contract sub jB)ot to renegotiation?” 
Honorable Gibb Gilcrest, page 3 0-6230 

part of the Texas Legislature occurred after the Congress of 

the United States by an Act passed July 2, 1862, donated one 

hundred and eighty thousand acres of land to each State for 

the purpose of building an agricultural and mechanical college, and In Its Act establishing the Agrfcultural and Mechanlcal College of Texas, the Texas Legislature accepted 

the offer thus maae by the United States Congress. Section 

5 of,this Act creating the College, provided that the control, management and supervision of the Agricultural and Mechanical College of Texas and the care and preservation of 

its property, should be subject to the laws creating and-- 

governing the University of Texas. That law (Chapter 116, 

General Laws of the 7th Legislature of Texas, 1858) in See-- 

tion 3 thereof provided that such control, management, etc., 

subject always to the control of the Legislature, should be 

committed to an administrative board created by the last 

named Act. 

Article 3~, Section 48, of the Constitution of Texas, 

confers upon the State Legislature the right to levy taxes 

for the maintenance and support of the AGrlcultural and Mechanical College of Texas. 

Article 7, Section 13, of the Constitution of Texas, 

makes and constitutes the Agricultural and Mechanical College 

of Texas a branch of the Unlverslty of Texas. 

Article 7, Section 16, of the Constitution of Texas, 

empowers the Legislature to fix the terms of all officers of 

the State Institutions of Higher Education and the terms of 

the members of the Boards of such institutions. 

The Agricultural and Mechanlcal College of Texas 13 

supported by direct detailed, biennial appropriations of the 

Texas Legislature, t see the Appropriation Acts of the Regular Session, 48th Legislature, and of preceding sessions)from 

state,moneys provided by taxation. It 1s an~d has been since 

Its establishment a creation of the State, directed and controlled by the Legislature. 

The Agricultural and. Mechanical College of Texas, 

the contractor, is an arm, an lnstrumentalfty of the State 

of Texas. It is an agency of the State under any reasonable 

interpretation or understanding of that term. 

Codified under Title 50, App. Sec. 1191, United 

States Code Annotated, is United States Congressional Act of 

April 28, 1942, C. 427, Title IV, Section 403, 56 Stat. 245, 

as,amended, the,most recent amendment be1 

"k 

that of February 

25, 1944, C. 63, Title VII, Section 701 (b , 58 Stat. 78. 
Honorable Gibb Gilcrest, page 4 0-6230 

This is the Act popularly known as the "Renegotiation Act," 

and contains this provision, quoted In part as follows: 

"(I) Contracts exempted: Board's interpretatton and aoolication of exemotlons 

"(1) The provisions of thLs section 

shall not apply to -- 

"(A) any contract by a Department 

with any other department, bureau, agency, or governmental corporation of 

the United-States or wFth any Territory, 

possession, or State or any agency thereof or with any foreign government or any 

agency thereof; or 

II . . . . . . 

"(2) The Board is authorized by regulation to interpret and apply the exemptions 

provided for In paragraph (1) (A), . . .' 

The 'Board' mentioned in the above quoted subsection 

of the Act is an agency created by the safd Act as last amend2 

ea. Its full title Is "War Contract Price Adjustment Board" 

and it is made up of duly appoInted personnel one each from 

the War Department, Navy Department, Treasury Department, 

United States Maritime Commission, or the War Shlpplng Administration, Reconstruction Finance Corporation, and the War 

Product Ion Board. 

Acting under the provisions of the Act as set out 

hereinabove, the War Contract Price Adjustment Board published 

at 

fi 

age 6165 of the Federal Register for Wednesday, June 7, 

194 over the Seal of said Board, and the signature of James 

S, F$eight, Lieutenant, U.S.N.R., Secretary of said Board, 

certain renegotiation regulations dated June 7, 1944, which 

contained Its interpretation3 quoted in part as follows: 

"6 1603.341. The mandatory exemptlons. 

(1) Contracts and subcontracts with other Governmental agencies are exempted by subsection (i) 

(1) (A). (See 0 1603.343.) 

I! . . . . 

ff6 1603.343 Contracts and subcontracts with 

other governmental agencies -- (a) Statutory exemotion. Subsection (i) (1) (A) of the 1943 act 
Honorab le Glbb Gi lcrest, page 5 G-6230 

provides that it shall not apply to: 

"(A) any contract by a Department with 

any other department, bureau, agency, or 

governmental corporation of the United States 

or with any Territory, possession, or State, 

or any agency thereof or with any foreign 

government or any agency thereof; 

"(b) bteroreta t ion a nd, a aulication of exemotion. The War Contracts Board has adopted the 

following interpretation: 

"(1) Under this provision of the act no 

contract between one of the Departments and any 

other federal, local or foreign government agency 

is subject to rengotiation. A municipal torpor.- 

ation, whether acting in a proprietary or governmental capacity, is considered to be an agency 

of a State for the purpose of this exemption. 

The exemption provided by the Act is a mandatory 

exemption and as shown here, in the quoted portion of the 

Board's regulations, it is so recognized by the Board. It 

may be pointed out also that the reference contained in 

paragraph (e) of Article L, RENEGOTIATION, of the "general 

provis+ons' section of the contract is a reference to this 

self same Act containing said mandatory exemption. 

Under the plain provision of the Act hereinabove 

quoted as under the interpretation and application placed 

upon such provision of the law by the War Contract Price Adjustment Board,, this contract with the Agricultural and Mechanical College of Texas, an agency of the State of Texas, 

is clearly not subject to renegotiation. 

Question No. 2: 

"Is the College entitled to charge the rates 

for laundry service and electricity established by 

the resolutions authorizing the issuance of revenue 

bonds for the construction of the laundry and the 

expansion of the power plant?" 

We answer this question, 'Yes," but not necessarily 

as cost items. 

Our answer would be different were we able to find 
Honorable Gibb Gilcrest, page 6 0-6230 

within the contract an agreement that the contractor would 

furnish these services at cost. We do not think the contract 

evidences any such agreement. 

In Article 3, INSTRUCTION, Subsection (c), the contractor agrees to provide light, heat, water power, janitor 

services and other services and,the Government agrees to pay 

the contractor the sum of $2,5GG,OG per month, a flat fee for 

such services. This article contains no agreement that the 

services therein provided for will be furnished at cost or 

upon any other basis than the flat fee therein stated. 

By the terms of Article 5, Q.UARTERS, Subsection 

(a), the contractor will provide light, heat, water and other 

services. Subsection (b) of this article promises that then 

Government will pay to the contractor a flat fee of $7,5GO.G0 

per month for services rendered under this article which"shal1 

include use of sheets, 

services therefor." 

pillow cases and towels and laundry 

We find in this article no covenant nor agreement 

that the services provided will be rendered at cost or upon 

any other basis than the flat fee therein set out and agreed 

to. Nor do we find in any other part of the contract any 

agreement providing that the flat fee contained in the various 

articles of the contract shall be reduced to actual cost. 

Article 6 of the contract provides for revision of ratas atxl 

relates to Articles 3 and 5 in the same manner as to Article 

4, with which your next question is concerned. Our view as 

to the intent and effect of Article 6 will be discussed in 

connection with the answer to the next followlng question. 

The question as to whether the rates charged by the 

College as costs and disallowed as such by the Finance Offlcers 

of the Naval Department are actually items of cost or of profit, ix a problem about which even accountants might disagree. 

It would seem that under the College's covenant with its bona 

holders the rates bet out in the bona resolution would ordinarily be Items of cost since as here used, "cost' means the 

cost of producing the electricity and the laundry service plus 

the cost of servicing the bonds. However, the bond resolution 

and the covenants contained therein, require the charging of 

such rates only to the extent necessary to acquire and preserve intact the capital or reserve account. So long as such 

reserve fund is fully maintained, the rates to be charged, we 

think, may properly be determined by the will and judgment of 

the College. 

If the cost as determined and allowed by the Naval 

Accountants is correct, that fact does not adversely affect 
Honorable Cilbb Oilcrest, page 7 o -6230 

the right Of the contra&or to demand payment of the rates 

oharged as an ltem of profit to which it 1s entitled under 

the terms of the contract so long as the resultant total demend for serrrlaes rendered under these artloles of’ the contract does not exceed the fee which the government promised, 

in the contraat, or by voluntary modlf’loatlon thereof, to 

pay for such services. 

Question No. 3: 

‘IS the College entitled to the 92.5 cents 

per man per day for subsUtanae GUI provided 'for 

in Article 4 of the Contract or are these payments 

subject to adjustment on the basis o? aotual cost?’ 

The answer to this questlon is, 7es.” In our oplnion the contractor is entitled to demand and collect the amount 

set out and agreed to and promised to be pald by the terms of 

the contract. 

Hera set out in full is Artlole 4 

“ARTICLE 4. SXlWISTlWC& 

“(a) The- Contrattor. ~1;; Feparp 

of this contraat: 

and serve three 

meals per aay co me navy waineee) ana enlisted personnel at the Training Sahool, but 

not to exoeed 1700 persons at any one time 

(or such largetr number as the Contractor may 

oonsent to serve). The hours during which 

meals are eerved shall be as ~peolfled by 

the Commanding Offloer of the Training School, 

and the quality, quantity and type of food 

and the purohase, preparation and serving of’ 

all food shall oomply wlth Mavy standards. 

“(b) The Ctovernment will pay the Contraotor oomP 

ermation for subslstenoe at the rate of 

0.925 per man per day, beginnIng wlth Deoember 1, 1942 for the number of men rsported by the Commanding O?floer to the oontraotor to ba an ratLons.n 

Obviously no agreement or oovenant for the payment 

t’or theae servloes on the basin of coat is contained in this 

artlols. Nowhere In the oontraot have we been able to find 

any agreement or provision llmltlng the oompensatlon or reimbursement of the oontraotor to oost only or in any way or’ 

manner prohlbltlng suoh contraotor from earning, demanding 

and oolleotlng a profit for f’urnishlng the servloes, materials 
Honorable Glbb CGilcrest, page 8 O-6230 

and facilities aantracted for, except in Article 1 (f), which 

deals with commissioning expenses. Thee agreement in this 

article ~1s that the Government will pay the contractor an'amount equal,to the reas,onable cost and expenses incurred by 

the contractor directly in connection with the,acquFsitFon, 

construction, installation and completion of the Items listed 

inSchedule 2 and this agreement is llmlted to ArtLcle 1 -- 

that is, the commissioning expense. 

Article 6 of the contract is anagreement that the 

rates of payment provided In Articles 3, 4 and 5, may be revised from ,ti.me'to time, and contains the procedure according 

to which such,revision is to be,made. The revision contemplated and expressed in this article is a revision of rates 

to be arrived at by agreement between the parties to the 

contract, or in,case of failure to agree, by appeal to the 

Secretary of the Navy. The purpose of such revision, we think, 

is clearly lndlcated,in the,-,artlcle to be that of protecting 

either or both contracting parties as to future commitments 

or future operations under this contract. These rate revi.sions 

when made ar,e intended to take effect prospectively from their 

effective dates. It is not intended that the revised rates 

be used in calculating the'amounts already earned and due at 

the time when such revised rates become effective, and It Is 

not the lntent,lon of the partiesas expressed In this provision of the contract that the.effectFve date of the revised 

rates be Itself made retroactive. This view is strengthened 

if strength be needed by the language of an Act of Congress 

of February 25, 1944, C. 63, Title VIII, Section 801, 58 Stat. 

92 codified as Title 50, App. Sec. 1192, U.S.C.A. Subsection 

(bj, of said Act is quoted as follows: 

"When ,the Secretary of a Department deems 

that the price 'of any article, or service of any 

kind, whFch is required by his Department or directly or IndIrectly required, furnished, or offered in 

connection with, or as a part of, the performance 

or procurement of ang contract with his Department 

or of any subcontract thereunder, Is unreasonable 

or unfair, the Secretary may require the person 

furnishing or offering to furnish such article or 

service to negotiate to fix a fair and reasonable 

price therefor. If such person refuses to agree 

to a price for such article or service which the 

Secretary considers fair and reasonable, the Se,cretarg by order may fix the price payable to such 

person for furnLsh1ng, s.uch article or service 

after the effective date of. the order, whether 

under existing agreements or otherwise. The order 

may prescribe the:perl.od~dur1ng which the price SO 
Honorable Gibb Gilcrest, page 9 0-6230 

fixed shall be effective and such other terms and 

conditions as the Secretary deems appropriate." 

(Emphasis ours) 

The Act of which the above is a portion was passed 

and became effective long after the contract here under discussion was executed and only some thirty-five days before 

the termination of the contract period with which this opinion 

Is concerned. It therefore has no direct relation to or efcect upon this contract. It is, however, considered of some 

persuasive value as tending to show the Congressional view 

point or intention toward the revision or fixing of rates and 

prices. 

An attempted application of Article 6 In such manner as to deny the view as to its intention here expressed 

and to give a retroactive effect to the revision of rates or 

to apply such rates retroactively would be to ignore or to 

seek to circumvent the will of Congress as clearly expressed 

in Subsection (I) of Title 50, App. Section 1191, U.S.C.A. 

Such retroactive application would in effect be renegotiation; 

and as pointed out in our discussion of question No. 1 hereof 

Congress has in the Act and subsection last cited mandatorily 

exempted the class of contractors to which Agricultural and 

Mechanical College of Texas belongs from renegotiation. 

Question No. 4: 

'IIs it possible for the College to execute 

Supplement No. 5 to the contract (a copy of which 

is included in Exhibit A) without waiving its 

right to file a claim for the amounts disallowed, 

by signing the supplement under protest or with 

reservations?" 

Our answer to this questlon is, @'No." 

Essentially and fundamentally, a contract Is an 

agreement. An agreement does not come into being until both 

or all the parties to the proposed agreement each, and all 

together, consent to each and all the Items or terms contained 

in such proposal, or until all have agreed and consented to 

strike or eliminate from such proposal those Items or terms 

to which they cannot all give their assent. This is perhaps 

over simplification, but we do not believe it Is possible for 

the College to preserve its legal rights, or the privilege of 

having any controversy regarding those rights properly passed 

upon, by signing a contract to all the terms of which it cannot agree and at the same time protesting it. 
Honorable Gibb Gllcrest, page 10 0-6230 

It seems fair to assume from your letter and the 

file accompanying it that as to some of the provisions of the 

proposed new contract (Supplement No. 5) the College (contractor) and the department could without controversy agree. 

If this is possible, the supplement can be re-written incorporating the agreed items and terms only, then both parties 

can execute it wlthout either party waiving anything. Operations under such agreement could~then be carrled on pending 

agreement and settlement of the questions as to which further 

discussion is required. 

As a general commentary In connection with all your 

questions and in the consideration of the contract as a whole, 

it should be remembered that when it becomes necessary to 

legally construe a contract, a cardinal principal to be employed in such construction is that when doubt has arisen, 

such doubt is to be resolved most strictly against whichever 

of the parties has drawn the contract, and liberally in favor 

of the other party or parties to such contract. 

We trust that the answers to your 'questions herein 

contained and these discussions may be helpful to you. 

Yours very truly 

ATTORNEY GENERAL OF TEXAS 

By s/Robert F. Cherry 

Robert F. Cherry 

Assistant 

RFC:ab:wc 

APPROVED OCT 4, 1944 

s/Carlos C. Ashley 

FIRST ASSISTANT 

ATTORNEY GENERAL 

Approved Opinion Committee By s/GWB Chairman