Evening star., 1946-08-16
Voiding Of Cost-P|us
War Contract Saved
u. 5. S6,314,571
fFitth OF q Series j
By Joseph HonIon
Washington Correspondent of tn. ST. louis
Post -Dispotoh

Washington Correspondent of III. ST. Louis
post-Dispoteh
The cost-plus percentage of cost
contract, source of many World
War scandals, was revived in sew
eral subcontracts during World War
II with the result that in one in
stance more than $6,0OO.O0O were
recovered from an aircraft manu-
Facturer after an audit by the Gen.
eral Accounting Office.
The manufacturer was the Glenn
L. Martin Co. of Baltimore. which,
n constructing and equipping
giant bomber plant at Middle River.
Nd. entered into cost-plus per-
centage of cost agreements with
several subcontractors.
These payments had been allowed
oy the Army Air Forces, but were
,hroWn out by GAO because Con-
sress, in 1910. had enacted legisla-
ion barring cost-plus percentage
Held Illegal.
The amount recovered from the
Martin Co. was S6,314.571. represent
Ing the total paid under the sub
In this ruling Control
Ter General Warren C. Lindsay
followed the stern Interpretation
he had made in an earlier case on
a much smaller claim-that the
cost-plus percentage of cost con-
tract was illegal and the Govern
ment could not pay any part of It.,
whatever benefits it had derived
from performance of the contract.
The earlier claim was made bv
Day & Zimmerman, Inc, which
sought reimbursement from the
for $l50,194 paid to
who installed equip
nent in the Iowa Ordnance Works
at Burlington. Iowa. When this
;lalm was disallowed. Day & Zlm-
herman sought some sort of settle
nent on the basis of whatever the
value of the work performed was
found to be.
Still. the GAO refused to Weld
and the contractor was out not only
he actual cost of the work. but the
ad6ed percentage for the subcon-
ractor's profit.
Bridges Special Case.
In another coSt-plus percentage
case, involving subcontractors of the
Ford Motor Co. and claims totaline
SAT 240, the Controller Generals
office ruled that because of special
which made it i'm
practical to let the subcontracts on
either a fixed-price or cost-plus fixed
Tee basis. he would not be required
to object If Ford would accept re-
endorsement to the extent of the
subcontractors' actual costs, elm
mating entirely the cost-plus per-
,entage element of the claims.
Even in this decision the Control
Ter General held that the cost plus
percentage subcontracts could not
be recognized as imposing any obli-
CATION on the Government" He
'ould merely that he would not be
'equired, in the special circum-
stances which existed. to object.
Additional instances of substantial
'ecoveries from war contractors op-
Grating under cost-plus fixed fee or
fXed-price agreements. as set out in
,he GAO records, are listed below:
From Boeing Aircraft Co, Seattle.
81 ,567,4ll, representing refunds OBJ
aimed by the company from its sup
pliers, but not credited to the Gov
Another Item of S697,844.
From the Baldwin Locomotive
Works. Baldwin, Pa. $697.844. repre-
ienting reductions granted by sup
pliers in the production of armor
plate for tanks.
From the Gibson Refrigerator Co.
Greenville. Mich, $2l2,593 of over
head charges improperly allocated
to cost plus fixed fee contract.
From Continental Aviation & En-
2ineering Corp, Muskegon. Mich,
sl83.l10 because the company failed
TO allow credit to the Government
on purchases made for the accounts
Of its subcontractors.
From Fairchild Engine & Airplane
Corp, Burlington, N. c., Sl62,996.
This was recovered because the
had not credited the Gov
with amounts due from its
for rejected material or
material furnished to the subcon-
tractors by the prime contractor.
Higher Bidder Ousted.
In the course OF a GAO audit at
the Savage Arms Corp, Chicopee
Falls, Mass, it was noted that parts
were being purchased from a sup
plier at a price higher than the
figure quoted by competitor. AS
result of the GAO protest the con-
tract with the high-price supplier
was Cancelled and a new contract
entered on with the low bidder, re-
sulting In a saving of $123,593.
Illustrative OF waSteful practice
possible when the same contractor
had both cost-plus and fixed-p price
contracts is the condition shown by
a GAO audit of Navy contract
with the Brown Shipbuilding Co..
Inc, Houston, Tex 1t was found
that the company had been paid for
under cost-plus con-
tract, but actually used in construc -
ton under fixed-price contract.