4

.

THF:AITORNEY GENERAL
OFTEXAS

Honorable Glbb Gilcrest, President Agricultural and pchanical College of Texas College Station, Texas
Dear Sir: OpinionNo.O-6230 Re: Questions as to the effect,meaning, and application of certain provisions of a contractbetwben 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 opFnionbetween 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 contractNumber d-3102 and supplements thereto, and more particularlyas 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, togetherwith exhlblts containing:resolutions and schedulesauthorizing the issue of bonds for oonstruct1on of a laundry and expansion of power plants at the college; copies and extracts from correspondencebetween certain personnel of the Kavy Department and of the college relating to the contract;principals of contract promulgatedby the Bureau of Naval Personnel; and summaries of costs covering the period fromDecember 1, 1942, through March 31, 19&k, part ofwhich costs, accounting or fFnance officers of the Naval Department had advised the college shouldnot 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, followedby your questions:

"In our opinion the College is entitled to all of the Itemsdisallowed by the Navy Depart-.

Honorable‘Glbb&Fl+i‘&it, pa&’ ? ” ‘~”

016230

ment
. Inasmuch as the Navy Department requests a prompt adjustmentbased 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 followingquestions:
“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,authorizLngthe 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 subsistenceas provided for inArticle 4,

o.fthe 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 SupplementNo. 5 to the contract (adopy of whLoh is Included, in ExhlbFt A) without waiving its right to file a claFm for the amounts disallowed,by signing the supplementunder protest or with reservations? “If so, ~111 you please favor ;s with the )lordLngto insert in the supplement. These questtons are hereinafterrestated and answered categorically. Each one is fgllowedby such explanation and &leoussion as ‘1sdeemed necessary Ln~oraerJo show the reason5 leading ,tothe conp~us~,one stated. Quedlon ‘pS&,,’

1: ,, ,,. “Is this~

contract subjB)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 agriculturaland mechanical college, and In ItsAct establishing theAgrfcultural and Mechanlcal College of Texas, the Texas Legislature accepted the offer thusmaae by the United States Congress. Section 5 of,thisAct creating the College,provided that the control, management and supervision of the Agriculturaland Mechanical College of Texas and the care and preservation of its property, shouldbe 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 thereofprovided that such control,management, etc., subject always to the control of the Legislature, shouldbe committed to an administrativeboard createdby the last named Act.

Article 3~,

Section 48, of the Constitutionof 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 Agriculturaland 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 Institutionsof Higher Education and the terms of the members of the Boards of such institutions.

The Agriculturaland Mechanlcal College of Texas 13 supportedby direct detailed, biennial appropriations of the Texas Legislature, tsee the AppropriationActs of the Regular Session, 48thLegislature,and of preceding sessions)from state,moneysprovidedby taxation. It 1s an~d has been since Its establishmenta creation of the State, directed and controlled by the Legislature.

The Agriculturaland. Mechanical College of Texas, the contractor, is an arm, an lnstrumentalftyof the State of Texas. It is an agency of the State under any reasonable interpretationor understanding of that term.

Codifiedunder Title 50, App. Sec. 1191, United States Code Annotated, isUnited States CongressionalAct of April 28, 1942, C. 427, Title IV, Section 403, 56 Stat. 245, as,amended, the,mostrecent amendmentbe1"k that of February 25, 1944, C. 63, TitleVII, Section 701 (b , 58 Stat. 78.Honorable Gibb Gilcrest, page 4 0-6230

This is the Act popularlyknown as the "RenegotiationAct," 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 contractby a Department with any otherdepartment,bureau, agency, or governmental corporationof the United-States orwFth any Territory, possession, or State or any agency thereof or with any foreign government or any agency thereof; or II

. . . . . . "(2) The Board is authorizedby regulation to interpretand 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 safdAct as last amend2 ea. Its full title Is "War Contract PriceAdjustment 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 theWar Shlpplng Administration,ReconstructionFinance Corporation,and theWar Product

Ion Board. Acting under the provisions of the Act as set out hereinabove, the War Contract PriceAdjustment Board published at fi age 6165 of the Federal Register forWednesday, 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 regulationsdated June 7, 1944, which contained Its interpretation3quoted in part as follows:

"6 1603.341. The mandatory exemptlons. (1) Contractsand subcontractswith otherGovernmental agencies are exemptedby subsection (i) (1) (A). (See 0 1603.343.) I!

. . . . ff6 1603.343 Contracts and subcontractswith other governmentalagencies -- (a) Statutory exemotion. Subsection (i) (1) (A) of the 1943 actHonorab lcrest, page 5 le Glbb Gi G-6230

provides that it shall not apply to: "(A) any contractby a Department with any otherdepartment,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 ion a ,a nd aulication of ext emotion. The War ContractsBoard has adopted the following interpretation: "(1) Under this provision of the act no contractbetween one of theDepartments 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 exemptionprovided by the Act is a mandatory exemptionand as shown here, in the quoted portion of the Board's regulations, it is so recognizedby 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 sameAct containing saidmandatory exemption.

Under the plain provision of the Act hereinabove quoted as under the interpretationand application placed upon such provision of the law by theWar Contract Price AdjustmentBoard,,this contractwith the Agricultural and Mechanical College of Texas, an agency of the State of Texas, is clearly not subject to renegotiation.

QuestionNo. 2:
"Is the College entitled to charge the rates for laundry service and electricity establishedby 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 findHonorable Gibb Gilcrest, page 6 0-6230

within the contract an agreement that the contractorwould furnish these servicesat cost. We do not think the contract evidencesany such agreement.

In Article 3, INSTRUCTION,Subsection (c), the contractor agrees to provide light, heat,water power, janitor servicesand other services and,the Government agrees to pay the contractor the sum of $2,5GG,OGper month, a flat fee for such services. This article contains no agreement that the services therein provided for will be furnishedat cost or upon any otherbasis than the flat fee therein stated.

By the terms of Article 5, Q.UARTERS, Subsection (a), the contractorwill provide light, heat,water and other services. Subsection (b) of this article promises that then Governmentwill pay to the contractor a flat fee of $7,5GO.G0 per month for servicesrendered under this articlewhich"shal1 include use of sheets, services therefor." pillow cases and towels and laundry

We find in this article no covenantnor agreement that the servicesprovidedwill 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 shallbe reduced to actual cost. Article 6 of the contractprovides for revision of ratas atxl relates to Articles 3 and 5 in the samemanner as toArticle 4,with which your next question is concerned. Our view as to the intentand effect of Article 6 will be discussed in connectionwith the answer to the next followlngquestion.

The question as to whether the rates chargedby the College as costs and disallowed as suchby the Finance Offlcers of theNaval Department are actually items of cost or of profit, ix a problem aboutwhich even accountantsmight disagree. Itwould seem that under the College's covenantwith its bona holders the rates bet out in the bona resolutionwould ordinarily be Items of cost since as here used, "cost'means the cost of producing the electricityand the laundry serviceplus 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 fullymaintained, the rates to be charged,we think,may properlybe determined by the will and judgmentof the College.

If the cost as determined and allowed by the Naval Accountants is correct, that fact does not adversely affect

### Honorable CilbbOilcrest, page 7 o-6230

the right Of 

### the contra&or to demandpaymentof 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 manper 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?’ Theanswer 

### to this questlon is, 7es.” In 

### our oplnion the contractor is entitled to demandand collect the amount set out and **agreed** 

### to andpromised to be 

### pald by the 

### termsof 

### 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 en

### listed personnel at the Training 

### Sahool, but **not** 

### to exoeed 1700persons at any 

### one time (orsuch largetr

numberas the Contractor may oonsent to serve). Thehours during 

### which meals are 

### eervedshall 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 oomplywlth Mavystandards.

“(b) TheCtovernment 

### will pay the Contraotor oom

### P ermation for subslstenoe at 

### the rate of 0.925 per manper day, 

### beginnIng wlth Deoember 

### 1, 1942for the number 

### of menrsported by 

### the Commanding O?floer to the oontrao

### tor to ba an **ratLons.n** 

### Obviously no agreement or oovenant forthe payment t’or theae servloes 

### on the basin of coat is contained in this **artlols.** 

### NowhereIn the oontraot havewebeen able to find **any** 

### agreement or provision llmltlng the oompensatlon or reimbursementof the oontraotor to oost only or in **any**

### wayor’ mannerprohlbltlng suoh contraotor from earning, demanding and oolleotlng a 

### profit for f ’urnishlng the servloes, materialsHonorable GlbbCGilcrest,page 

### 8 O-6230

and facilities aantracted for, except in Article 1 (f),which deals with commissioning expenses. Thee agreement in this article~1sthat the Governmentwill pay the contractoran'amount equal,to the reas,onable cost and expenses incurredby the contractordirectly in connectionwith the,acquFsitFon, construction, installationand 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,inthe,-,artlcle to be that of protecting either or both contractingparties as to future commitments or future operationsunder this contract. These rate revi.sions when made ar,eintended to take effect prospectively from their effectivedates. It is not intended that the revised rates be used in calculating the'amountsalready earned and due at the timewhen such revised rates become effective,and It Is not the lntent,lon of the partiesas expressed In this provision of the contract that the.effectFvedate of the revised rates be Itselfmade retroactive. This view is strengthened if strengthbe needed by the language of an Act of Congress of February 25, 

### 1944,C. 

### 63, TitleVIII, Section 801, 58 Stat. 92 codified as Title 50, App. Sec. 1192, U.S.C.A. Subsection (bj, of saidAct is quoted as follows: "When ,theSecretary of a Department deems that the price 'ofany article, or service of any kind, whFch is required by his Department or directly or IndIrectlyrequired, furnished, or offered in connectionwith, or as a part of, the performance or procurement of ang contractwith hisDepartment or of any subcontract thereunder, Is unreasonable or unfair, the Secretarymay 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 servicewhich 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 effectivedate of.the order,whether under existing agreements or otherwise. The order may prescribe the:perl.od~dur1ng which the price SOHonorable Gibb Gilcrest, page 9 

### 0-6230

fixed shallbe effectiveand such other terms and conditionsas the Secretary deems appropriate." (Emphasisours)
The Act ofwhich the above is a portionwas passed and became effective long after the contracthere under discussionwas executedand only some thirty-fivedays before the termination of the contractperiodwith which this opinion Is concerned. It thereforehas no direct relation to or efcect upon this contract. It is, however, considered of some persuasivevalue as tending to show the Congressionalview point or intention toward the revision or fixing of rates and prices.
An attempted application of Article 

### 6 In suchmanner as to deny the view as to its intentionhere expressed and to give a retroactive effect to the revision of rates or to apply such rates retroactivelywould be to ignore or to seek to circumvent the will of Congressas 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 citedmandatorily exempted the class of contractors to which Agriculturaland Mechanical College of Texas belongs from renegotiation.

QuestionNo. 4:
'IIsit possible for the College to execute SupplementNo. 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 supplementunder protest orwith reservations?"
Our answer to this questlon is, @'No." Essentially and fundamentally,a contract Is an agreement. An agreement does not come intobeing 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 suchproposal, 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 isperhaps over simplification,but we do not believe it Ispossible for the College to preserve its legal rights, or the privilege of having any controversyregarding those rights properlypassed upon, by signinga 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 (SupplementNo. 

### 5) the College (contractor) and the department could without controversyagree. If this ispossible, the supplement can be re-written incorporating the agreed items and terms only, then both parties can execute itwlthout either party waiving anything. Operations under such agreement could~thenbe carrled on pending agreement and settlement of the questions as towhich further discussion is required.

As a general commentary In connectionwith all your questions and in the considerationof the contract as a whole, it shouldbe remembered thatwhen itbecomes necessary to legally construe a contract, a cardinalprincipal to be employed in such construction is that when doubt has arisen, suchdoubt is to be resolvedmost strictlyagainstwhichever of the parties has drawn the contract,and liberally in favor of the otherparty or parties to such contract.

We trust that the answers to your 'questions herein contained and thesediscussions may be helpful to you.
Yours very truly
ATTORNEYGENERAL OF TEXAS

By s/RobertF. Cherry Robert F. Cherry

Assistant RFC:ab:wc

APPROVED OCT 

### 4, 1944 s/Carlos C. Ashley FIRST ASSISTANT ATTORNEY GENERAL Approved Opinion CommitteeBy s/GWB Chairman