#### J. HENRY MILLER, INC., v. THE UNITED STATES

[No. D-315.

Decided February 20, 1928]

*On the Proofs*

*Cost-plus contract; change order; cost of trmel to and from*work.— A contract with the Secretary of the Navy for construction wort at Annapolis at cost plus a fee of 10 per cent included as part of the cost the transportation, not involving repeated travel, of skilled labor to and from the site. Due to a scarcity of labor the Chief of the Bureau of Yards and Docks issued a “ change ” order including as part of the cost repeated travel which in the opinión of the officer in charge was absolutely necessary. The contract further provided: “ Rates of pay higher than those prevailing or established in the vicinity at the time of making the contract will not be authorized by the officer in charge, except on the approval of the Chief of the Bureau of Yards and Docks.” In lieu of paying a necessary increase in wages to cover the cost of daily travel of skilled labor to and from work the contractor paid the cost of such travel, which was approved by the officer in charge and inured to the benefit of the Government. *Held,*that in view of the provision quoted the Bureau of Yards and Docks had authority to issue the said order and the contractor was entitled to recover the cost of such travel plus the stipulated fee.

*The Reporter's*statement of the case:

*Mr. George A. King*for the plaintiff. *Messrs. Roger O'Donnell*and *George R. Shields*and *King & Ki/ng*were on the briefs.

*Mr. Dan M.*Jaohson, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant.

The court made special findings of fact, as follows:

I. The plaintiff, J. Henry Miller, Incorporated, is a corporation organized under the laws of the State of Maryland, with office and place of business in Baltimore of said State.

II. Under date of July 23, 1917, the plaintiff entered into a contract, numbered 2416, with the United States, represented by the Secretary of the Navy for the doing of certain construction work at the Naval Academy, on the basis *600of actual cost as therein defined plus a fee of 10 per cent on such cost.

On August 22, 1917, the same parties made a similar contract for other work at Annapolis, numbered 2550, to be done on the same basis.

Each of the contracts so made defined “ cost of the work ” quite fully, one paragraph of such definition .including the following:

“(c) Transportation to and from the site of the necessary skilled men for the economical and efficient prosecution of the work. The necessity for such transportation shall be determined by the officer in charge. Such transportation shall not involve repeated travel.”

III. The “ officer in charge ” of the work under both contracts was the Public Works Officer, Commander H. G. Taylor, U. S. N. It soon developed that the large amount of public work ,in progress at Annapolis occasioned by war activities of the Government was such as to render necessary the procurement from outside sources and the housing at other points of a very large part of the skilled labor required. On April 18, 1918, the officer in charge reported this situation to the Bureau of Yards and Docks and asked for a change in the contract that would permit the payment, in proper cases, of the cost of transporting workmen to and from the work as a part of the cost of the work, his letter be.ing as follows:

“ 2416-10

“ 2550-10 _ Apr. 18, 1918.

_ “ From: Officer in Charge.

“To: Bureau of Yards and Docks.

“Subject: Contract 2416, Extension to Bancroft Hall, and

Contract 2550, High-Power Radio Station.

“ 1. In subparagraph *(c)*of paragraph (3) of Addendum No. 1 to these contracts it states that cost of the work shall include ‘ transportation to and from the site of the necessary skilled men for the economical and efficient prosecution of the work * * *. Such transportation shall not include repeated travel.’

“ 2. In view of the large amount of work now being performed under contract at this station involving a considerable amount of labor, more than is available in this vicinity, it has become necessary on the part of the contractors to *601obtain some of the labor from Baltimore, paying their transportation to and from their homes to the site.

“ 3. In order that the work may be carried on efficiently and completed at as early a date as practicable it is recommended that the bureau modify this addendum to such an extent as to permit the contractors to pay the transportation of such men from Baltimore to the site of the work, as in opinion of the officer in charge is absolutely necessary.

“ II. G. Tayloe.”

IV. In compliance with the recommendations of the officer in charge, the Chief of the Bureau of Yards and Docks issued the following change order:

*“*With reference to your contract No. 2550 of August 22, 1917, for the construction of a building for officers’ quarters, you are informed that, pursuant to paragraph 17 of the general provisions of the contract, clause (c), paragraph 3, of Addendum No. 1 to said general provisions, dated July 10, 1917, is hereby so modified as to read as follows:

“(c) Transportation to and from the site of the necessary skilled men for the economical and efficient prosecution of the work. The necessity for such transportation shall he determined by the officer in charge. Such transportation shall not involve repeated travel, except where, in the opinion of the officer in charge, it is absolutely necessary.”

On the same date an exactly similar change order was issued under contract 2416, similarly signed and addressed.

The “ change orders ” so issued were in the exercise of a supposed authority given by paragraph 17 of the general provisions of the contract specifications as follows:

“ 17. *Changes.-*— The Government reserves the right to make ,such changes in the contract, plans, and specifications as may be deemed necessary or advisable, and the contractor agrees to proceed with such changes as directed in writing by the Chief of the Bureau of Yards and Docks. The cost of said changes shall be estimated b}>' the officer in charge, and, if less than $500, shall be ascertained by him. If the cost of ,said changes is $500 or more, as estimated by the officer in charge, the same shall be ascertained by a board of not less than three officers or other representatives of the Government. The cost of the changes as ascertained above, when approved bjr the Chief of the Bureau of Yards and Docks, shall be added to or deducted from the contract price, and the contractor agrees and consents that the contract price thus increased or decreased shall be accepted in *602full satisfaction for all work done under the contract: *Provided,*That the increased cost shall be estimated actual cost to the contractor at the time of such estimate and that the decreased cost shall be the actual or market value at the time the contract was made, both plus a profit of 10 per cent.”

Y. The contractor, in lieu of increasing the wages of workmen procured from Baltimore and adjacent points ¿sufficient to cover the cost of daily travel to and from the work at Annapolis, paid the cost of their transportation daily from Baltimore and other near-by points to and from the work at Annapolis. It regularly submitted receipted invoices covering the expenses thus incurred and was reimbursed the expense so incurred as a part of the cost thereof plus 10 per cent thereon as by the contract^ provided.

The expense so reimbursed under contract 2416 was $21,296.90. The fee paid thereon was $2,129.69, a total of $23,426.59.

The expense so reimbursed under contract 2550 was $4,347.75, with 10 per cent thereon, $434.77, totaling $4,782.52.

VI. Under date of January 10, 1919 (25 Comp. Dec. 489), the Comptroller of the Treasury ruled that the change orders of April 26, 1918, were not legal authority for reimbursing the contractor the cost of repeated travel of workmen as a part of the co,st of the work. The amounts previously reimbursed the contractor, with fee thereon as stated in Finding Y, were thereafter deducted from moneys otherwise due and payable and not later paid to or reimbursed the contractor.

Another item of cost of repeated travel of workmen under contract 2416 similarly reimbursed, amounting to $1,095.55, has never been deducted from moneys due contractor on settlement or otherwise.

The contractor incurred a further actual expense, under contract 2416, of $4,726.89, no part of which, because of the ruling of the Comptroller of the Treasury, was ever reimbursed the contractor or any fee thereon paid.

Likewise under contract 2550 the' contractor incurred an expense of $403.23, no part of which was reimbursed or any fee thereon paid.

*603The total cost of transportation of workmen reimbursed and later checked or never reimbursed under both contracts was $30,714.17. The allowable fee (10%) thereon was $3,077.48. The total due on such account would be $33,852.25.

VII. On February 12, 1919, the officer in charge wrote and sent the following letter:

“ 2416-10 Feb. 12, 1919.

“ From: Officer in Charge.

“ To: Bureau of Yards and Docks.

“Subject: Contract 2416, Extension to Bancroft Hall.

“ Reference: *(a)*Letter from J. Henry Miller, Inc., dated February 11th, 1919.

*“(b)*Officer in charge letter to Bureau Yai’ds & Docks #2416-10, #2550-10 of April 18th, 1918.

*“(e)*Bureau Yards & Docks letter to J. Henry Miller, Inc., #2416, dated April 26,1918.

*“(d)*Comptroller of the Treasury letter AO 2900 to Secretary of the Navy, dated January 10, 1919.

“Enclosure: *(a).*Reference *(a).*

“ 1. There is forwarded herewith letter from the contractors, J. Henry Miller, Inc., in which they have requested reconsideration of a ruling made by the Comptroller of the Treasury in disallowing payments made for transportation to and from the site in connection with their contract #2416, Extension to Bancroft Hall.

“ 2. This contract, which is on a cost plus percentage basis provides that payment will be made for transportation to and from the site of the necessary skilled men for the economical and efficient prosecution of the work, but that such transportation shall not include repeated travel.

“3. In reference *(b)*the officer in charge recommended to the bureau that the contract be modified to such an extent as to permit the contractors to pay the transportation of such men to and from the site of the work as in the opinion of the officer in charge was absolutely necessary. This recommendation was made because of the fact that there was but a small amount of labor in Annapolis and its vicinity available for the work, and that in view of the large amount of work being performed on other Government contracts in and about Baltimore, that to obtain sufficient labor to prosecute the work efficiently it would either become necessary to pay the transportation of the men or to allow them an increase in their rate of pay sufficient to pay for the trans*604portation. As any increase in wages would have been, in all probability, met by an equal increase on other work _ in this vicinity and arrangements could have been made with the railroad company to transport the labor at a reasonable price, it was believed by the officer in charge that the most economical method would be to allow the contractors to pay for the transportation.

*“*4. In accordance with the above recommendation, the bureau, in reference (e), informed the contractors that- the general provisions of the contract were modified to permit the payment to the contractors for—

“ ‘ transportation to and from the site of the necessary skilled men * * *, such transportation shall not involve repeated travel, except where, in the opinion of the officer in charge, it is absolutely necessary.’

and in accordance with this the officer in charge approved the vouchers forwarded herewith, payments for which have been disallowed under the ruling of the comptroller, reference *(d).*

*“ 5.*There is no doubt, in the opinion of the officer in charge, that a considerable saving was effected by the payment of transportation of the men, as the only other way of obtaining sufficient men would have been to have increased their hourly rate and, with the considerable amount of overtime work at that time, the increased compensation that would have been paid these men would have greatly exceeded the amount which was actually paid for their transportation.

“ 6. The contractors acted in good faith upon what they considered was proper authority from the bureau, and under these circumstances it is recommended that the bureau take such steps as it may deem desirable to obtain from the Comptroller a recommendation of this matter.

“ H. G. Tatuoe.”

VIII. Failing to obtain a modification of the Comptroller’s ruling, the Secretary of the Navy recommended Congressional relief (Report No. 731, House of Representatives, 66th Cong.; 2nd Sess.), but without result.

IX. An audit made later by the General Accounting Office of the accounts of officers making payments under the two contracts involved discloses that the contractor in numerous cases paid for labor and materials sums slightly in excess of what such labor and materials, on proper computations, were worth and was reimbursed, to the extent of such errors, in excess of what should have been paid. The total of all such *605errors in extension, addition, and multiplication amounts to $461.74, and this sum stands on the books of the General Accounting Office as a charge against J. Henry Miller, Inc. The contractor actually paid out the sums for which reimbursement was allowed, but such payment and the reimbursement thereof as a cost of the work were each $461.74 in excess of what should have been paid out or. reimbursed. The contractor consents that this sum may be set off against the amount of the unpaid transportation costs listed in Finding VI.

The court decided that plaintiff was entitled to recover.

Moss, Judge,

delivered the opinion of the court:

On July 23, 1917, plaintiff entered into a contract, numbered 2416, with the Government for the'performance-of certain construction work at the Naval Academy at Annapolis, for. which plaintiff was to receive actual cost, plus a fee of 10 per cent on such cost. On August 22, 1917, the same parties made a similar contract, numbered 2550, for other work at Annapolis, to be done on the same basis. Included in each of the contracts under definition, “ cost of the work,” is the following provision:

> “ (c) Transportation to and from the site of the necessary skilled men for the economical and efficient prosecution of the wrork. The necessity for such transportation shall be determined by the officer in charge. Such transportation shall not involve repeated travel.”

It developed that on account of the large amount of public work in progress at Annapolis it would be necessary to procure a large part of the labor required under these contracts from outside points. The officer in charge of the work under these contracts, Commander H. G. Taylor, U. S. Navy, brought the situation to the attention of the Bureau of Yards and Docks in a letter in which it was stated:

> “ 3. In order that the work may be carried on efficiently and completed at as early a date as practicable, it is recommended that the bureau modify this addendum to such an extent as to permit the contractors to pay the transportation of such men from Baltimore to .the site of the work as in the opinion of the officer in charge is absolutely necessary.”

*606The Bureau of Yards and Docks thereupon issued an order which contained the following provision:

> “ (c) Transportation to and from the site of the necessary skilled men for the economical and efficient prosecution of the work. The necessity for such transportation shall be determined by the officer in charge. Such transportation shall not involve repeated travel, except where, in the opinion of the officer in charge, it is absolutely necessary.”

Acting under this order plaintiff procured labor from Baltimore and adjacent points, and paid the cost of daily travel to and from the site of the work at Annapolis. It regularly submitted receipted invoices covering the expense so incurred as a part of the cost of the work, plus 10 per cent thereon, and same were, regularly and in due course, allowed and paid by defendant. Thereafter under a ruling of the Comptroller of the Treasury (25 Comp. Dec. 489) the amounts previously reimbured plaintiff were deducted from moneys otherwise due plaintiff. The total of such reimbursements, and subsequent deductions, was $33,390.51. This action is for the recovery of that sum.

It is contended by the defendant that the modification of the contract was without authority of law, and the increase in cost growing out of such modification was without consideration.

The court is unable to agree with defendant’s theory of the case. The contract provided in paragraph 5 as follows:

> “ Similarly, in the employment of all labor under the contract, rates of pay shall be subject to the approval of the officer in charge, and only such pay will be authorized by him as is considered fair and equitable, and established, as, or comparable- with prevailing rates of wages paid at the yard or station, or in the vicinity where the work is being performed. Kates of pay higher than those prevailing or established in the vicinity at the time of making the contract will not be authorized by the officer in charge, except on the approval of the Chief of the Bureau of Yards and Docks.”

The situation at the time of the modification of the "contract, with reference to labor, required either making provision for housing additional labor from outside sources, or providing such general increase in labor rates as would per*607mit outside labor to travel daily to and from Annapolis and still receive the same net rate of wages as applied in the locality, or to provide for the daily cost of travel for outside labor to and from Annapolis. The latter plan was considered by the officer in charge as the one most favorable to the interest of the Government. Accordingly, the officer in charge requested, and the Bureau of Yards and Docks issued, the order hereinabove set forth. The Bureau of Yards and Docks had authority to issue such order, and the Government benefited thereby. The plaintiff is entitled to recover, and it is so ordered.

Geaham, *Judge;*Booth, *Judge;*and Campbell, *Qhief*Justice, concur.