#### MASON & HANGER COMPANY v. THE UNITED STATES.1

[No. 34208.

Decided April 18, 1921.]

*On the Proofs.*

*Contract; bond for performance; premium part of cost.*— Where a bond for faithful performance of the work under a cost-plus contract is required by statute and by the contract itself, the *239premium paid on the same by plaintiff is part of the cost of the work under the contract, and plaintiff is entitled to recover the amount of such premiums deducted by the auditor from other moneys due said plaintiff.

*Same; liability, burglar and hold-up insurance; premium part of cost.*— Where the plaintiff, acting under the instructions of the contracting officer, took out liability and burglar and hold-up insurance, and its action in taking out such insurance was subsequently approved by the contracting officer, the premiums on the same paid by plaintiff were part of the cost of the work under the contract, and plaintiff is entitled to recover the amount of such premiums withheld by the Government.

Campbell, *Chief*Justice, dissenting.

*The Reporters*statement of the case:

*Mr. George A. King*for the plaintiff. *King ds King*and *Mr. George R. Shields*were on the briefs.

*Mr. John E.*Hoover, with whom was *Mr. Assistant Attorney General Frank*Davis, *jr.,*for the defendant. *Messrs. Frank E. Scott*and *William F. Norris*were on the briefs.

The following are the facts of the case as found by the court:

I. The plaintiff, a corporation organized under the laws of the State of West Virginia, entered into a contract in writing with the United States on June 20,1917, for the construction of buildings and other utilities at Camp Zachary Taylor near Louisville, Ky. A copy of said contract is attached to the petition as Exhibit A, and is made a part hereof by reference.

II. Maj. William A. Dempsey was the contracting officer named in the contract at the time of its execution. On July 16, 1917, Col. I. W. Littell, Q. M. C., was, by order of the Secretary of War, substituted for said.Maj. Dempsey as contracting officer in this contract, as provided for in Article XV of the contract.

III. Before this contract, or any other contract for cantonments or other construction for war purposes, was signed, negotiations were entered into between the War Department and the various surety companies as to the premium to be *240charged on bonds, the Secretary of War having directed that such premiums should be treated as part of the cost of the work. As the result of these negotiations the surety companies agreed to charge a premium of 1 per cent upon the penalty of the bond, their premium theretofore having been 2 per cent on the amount of work involved.

The War Department decided to fix the bond for the construction of each of the 16 cantonments for the National Army under the cost-plus system at $250,000. The contract of the plaintiff was to construct one of these cantonments, and its bond was fixed at $250,000.

Col. Littell, in charge of cantonment construction, notified both the plaintiff and the contracting officer that the rate had been fixed at 1 per cent, and directed the constructing quartermaster to refuse to transmit any bond not conforming to the requirement of the War Department as to premium. The contractor furnished a bond, with the Fidelity & Deposit Co. of Maryland as surety, in the sum of $250,000, which bond was required and approved by the contracting officer; and in accordance with the arrangement which had been made by the surety company with the War Department the Fidelity & Deposit Co. of Maryland fixed the premium at 1 per cent, or $2,500, and the plaintiff paid the said sum to said surety company, and subsequently the said sum of $2,500 was paid to the plaintiff by the United States in August, 1917, as a part of the costs of the work. Five hundred or more of such payments were made by the United States to contractors who had cost-plus contracts with the United States.

In January, 1920, in pursuance of a decision of the Comptroller of the Treasury that such premiums on surety bonds were not allowable under cost-plus contracts, said sum of $2,500 was deducted from a sum of money otherwise due the plaintiff, and it has not since been restored or paid to it.

IV. The plaintiff, during the progress of the work, also paid a premium on the bond required to be given and which was given by Scherich & Mayer, subcontractors. The premium on said bond was $450, or 1 per cent on the amount of the bond. This sum was paid by the United States in August, 1917. It was deducted from a sum of money otherwise due the plaintiff, and it has not since been restored or paid to it. *241The voucher covering both of these deductions the plaintiff receipted under protest.

Y. Acting under instructions of the constructing quartermaster, who was the representative on the work of the contracting officer, the plaintiff took out policies of insurance of the following character: Public liability insurance, automobile liability insurance, and burglary and holdup insurance, and paid premiums to the insurance company amounting to the sum of $9,114.52. Maj. Dempsey, who on July 16, 1917, had ceased to be the contracting officer, on July 17, 1917, refused to approve the payment of premiums on these policies; but upon full payment of these premiums a voucher for the same was submitted by the plaintiff to the constructing quartermaster at the place of construction and by him transmitted to the War Department. On December 22,1917, Col. I. W. Littell, the contracting officer, approved the action of the plaintiff in taking out the policies of insurance above referred to and authorized and directed the constructing quartermaster to pay to the plaintiff the'sum of $9,114.52, the amount of the premiums paid by it on said policies. The said quartermaster submitted the question of payment of the aforesaid amount to the Comptroller of the Treasury, who decided that the' said amount should not be paid to the plaintiff, and said amount has not been paid by the United States to the plaintiff.

1

 Appealed.

Hat, Judge,

delivered the opinion of the court:

This is a suit brought by the plaintiff to recover the sum of $12,064.52. This sum is made up of items which the plaintiff claims it is entitled to by reason of the fact that the items so claimed should have been paid by the defendant under the contract which is based upon the system of cost of construction plus a fee. The contract provides that the plaintiff shall be reimbursed for such of its actual net expenditures in the performance of the work as may be approved or ratified by the contracting officer. For its own services the plaintiff was to receive a fee based upon a sliding scale with a maximum limit.

There is no dispute as to the facts. The plaintiff made the expenditures, but the defendant contends that the bond *242for performance required by Article IX of tbe contract is not a bond within the discretion of the contracting officer to approve or require, and that the expenditure of $2,500, the premium on the bond, did not fall within the expenditures provided for in Article II of the contract. It is difficult to understand why the premium on such bond is not a part of the cost of the contract. It had to be given and approved before the contract could take effect; it was a cost which the contractor was called upon to incur; it was a cost morer over which the contract itself provided for; it can not be said that it is separate and distinct from the contract, and not a part of it. It was a bond which was required by statute, and before being accepted had to be approved by the contracting officer. Act of Feb. 24, 1905, 33 Stat. 811; act of Aug. 13,1894, 28 Stat. 279. Army Regulations, Par. 569.

The bond in this case was required and approved by the contracting officer; the premium on the bond was paid by the United States to the plaintiff in accordance with paragraph h, Article II, of the contract. More than two years after this payment was made to the plaintiff it was deducted from money otherwise due the plaintiff. In view of what has been said, and in view of the fact that the United States entered .into negotiations with the various surety companies for the purpose of having them reduce their premiums on such bonds before this or any similar contracts were executed, thus showing their purpose and intention to pay the cost of such bonds, the court is of opinion that the premium on this bond is properly payable by the United States under the terms of the contract.

The next item of the claim is the amount of premiums of insurance paid by the plaintiff. These premiums were paid by the plaintiff, and such payment was approved by the contracting officer, and having been so approved under Article II of the contract the payment must be allowed.

A judgment under Findings III, IV, and V in the sum of $12,064.52 will be entered for the plaintiff. It is so ordered.

Graham, *Judge;*DowNey, Judge, and Booth, Judge, concur.

*243Campbell, *Chief*Justice,

dissenting:

I dissent from the judgment as to the two items involving cost of contractor’s and subcontractor’s bonds.