
    CENTRAL CONSTRUCTION CORP. v. THE UNITED STATES
    [No. B-223.
    Decided April 4, 1927]
    
      On the Proofs
    
    
      Cost-plus contract; termination of subcontract; settlement vjith subcontractor; attorneys’ fees us part of cost — At the request of a contracting officer a Government contractor lets out a portion of its work to a subcontractor. The work of the subcontractor proves unsatisfactory to the contracting officer and he requests the contractor to take it over and make a settlement with the subcontractor. For this purpose the contractor, without first obtaining the approval of the contracting officer, employs a firm of attorneys who- in the settlement effect a saving which is of material benefit to the Government. Payment of the attorneys’ fees is afterwards approved by the contracting officer as a part of the cost of the work, but .is disallowed by the accounting officer. Helé, that the attorneys’ fees so paid and approved are a part of the cost for which the contractor is entitled to reimbursement, that the action of the contracting officer was conclusive and the accounting officer without authority to refuse allowance.
    
      Same; expense of defending suit for false arrest — -Where a Government contractor employs a firm of attorneys to defend a suit brought against it for an alleged false arrest made at the instance of agents of the Department of Justice, the attorneys," fees are not a part of the cost, of the contract work, notwithstanding the contracting officer approves their payment as such.
    
      The Reporter's statement of the case:
    
      Mr. George R. Shields for the plaintiff. Mr. George A. King and King <& King were on the brief.
    
      Mr. John G. Ewing, with whom was Mr. Assistant Attorney General Herman J. Galloway, for the defendant. Mr. Frank J. Keating was on the brief.
    The court made special findings of fact, as follows:
    I. The Central Construction Corporation, plaintiff herein, was organized under the laws of the State of Pennsylvania, with its principal office and place of business in Harrisburg.
    II. On November 23, 1911, the plaintiff entered into a formal contract with the United States, represented by Jay E. Hoffer, colonel, Ordnance Department, United States Army, as contracting officer for the erection of a gas-shell filling station at Gunpowder Neck, Md., although the actual work of construction had been commenced some weeks prior to that date. The contract provided, among other things, that the contractor should receive its costs of construction plus a profit of 10 per cent on all such costs (except cost of premium on bond), all as allowed and determined by the contracting officer. A copy of the contract is attached to plaintiff’s petition herein, marked “Exhibit A,” and is by reference made a part of this finding. The said contract was by supplemental agreement dated July 2, 1918, modified so tliat the total fee to the contractor in no event should exceed the sum of $250,000.
    III. On November 13, 1917, the plaintiff, at the request and with the approval of Edwin M. Chance, captain. Ordnance Department, in charge of the design, construction, and ojieration of the gas-shell filling station at Gunpowder Neck, Md., employed the Dorsey-Miller Co., of Baltimore, Md., as a subcontractor for the construction of a dock or pier for the United States on the Bush Eiver at the reservation. The work was to be done under United States Ordnance Department regulations as to cost, and the Dorsey-Miller Co. was to receive a fee of 10 per cent on the actual cost of construction. After the work undertaken by the Dorsey-Miller Co. was more than one-half completed Captain Chance became dissatisfied with the methods of operation and the progress being made by the Dorsey-Miller Co. He requested the plaintiff to take over the plant and equipment of the Dorsey-Miller Co. and to make a settlement with them for the work which they had already completed, and for the materials which they had on hand, and to then complete the work on its own account.
    IY. In its negotiations for a final settlement the Dorsey-Miller Co. made certain demands for work which it had completed and for materials which it had furnished, which demands the plaintiff and the Government auditor considered excessive. The plaintiff thereupon, but without first having obtained the authority and approval of the contracting officer, engaged the law firm of Willis & Willis, of Baltimore, Md., to continue negotiations with the Dorsey-Miller Co. As a result of the efforts of counsel, the Dorsey-Miller Co. agreed to accept in full settlement of its claim a sum approximately $8,000 less than it had at first demanded. Payment was made by the United States to the Dorsey-Miller Co. of the amount that had been agreed upon in settlement and a complete release was obtained from the Dorsey-Miller Co.
    V. Messrs. Willis & Willis charged the plaintiff the sum of $1,000 for their services in effecting the. Dorsey-Miller Co. settlement. Their bill was paid by the plaintiff, and on March 15, 1919, a public voucher for payments on contract was prepared, which was certified as correct by the plaintiff and by tlie accountant in charge and by the audit clerk cost-accounting branch of the Government, and was approved for payment by the officer in charge cost accounting branch, and by the contracting officer in charge of the work. The disbursing officer of the United States, however, refused to make payment, and sent the voucher to the Auditor for the War Department, -where the claim was disallowed. The plaintiff has not been reimbursed for the amount paid by it to counsel, Messrs. Willis & Willis.
    VI. The construction of the gas-shell filling plant was of an urgent character and was incident to a great deal of other emergency war work going on at the reservation in which other contractors were engaged. The several contractors ■who wrere engaged in construction there were often in competition with each other for laborers, and an objectionable practice grew up of laborers who had agreed to work for one contractor being persuaded on arrival at the reservation to enter the employ of one of the other contractors. One of the men who was active in promoting this practice was named West. The Government desired to put a stop to this practice. Officers acting under the direction of the United States Department of Justice were sent to the reservation, and on one occasion, finding West intoxicated at the railroad station, had him arrested on the charge of drunkenness and disorderly conduct, but he was subsequently released. Thereafter he sued the Central Construction Co. for $10,000 for alleged false arrest. The plaintiff again and without having obtained the authority and approval of the contracting officer employed Messrs. Willis & Willis, of Baltimore, this time to defend it in the defense of this suit, which suit on trial was dismissed. Messrs. Willis & Willis made a charge of $500 for their services and incurred necessary expenses amounting to $2.65. Their bill wras paid by the plaintiff, and on May 2, 1919, public voucher for payment by contractor ivas approved and certified correct by the plaintiff and by the accountant in charge, and by the audit clerk, cost accounting branch of the United States, and was approved for payment by the officer in charge, cost accounting branch, and by the contracting officer in charge of the work. The disbursing officer declined to make payment on presentation of the voucher and sent it to the Auditor for the War Department for settlement, who disallowed the claim. The plaintiff had not been reimbursed for the amount of the costs incurred and paid by it.
    The court decided that plaintiff was entitled to recover, in part.
   Hat, Judge,

delivered the opinion of the court:

This is a suit brought by the plaintiff to recover from the United States the sum of $1,502.65. Two items make up this sum. The first item is the sum of $1,000 paid by the plaintiff to Willis & Willis, attorneys of Baltimore.

This item of the claim is founded on a contract made November 23, 1917, between the plaintiff and the United States for the construction of a gas-shell filling station at Gunpowder Neck, Md. The contract was on a cost-plus basis. The contract provided for the payment of the actual cost of “all materials actually used, of all laborers necessarily employed, of outside superintendent, of all drayage, freight, and express charges, of premium on bond when required, and of all other necessary costs which may be approved in writing by the contracting officer or his duly accredited representative, and the United Stat.es will also pay to the contractor as a profit a sum equal to 10 per cent on all such costs (except cost of premium on bond) all as allowed and determined by the contracting officer.”

The term “ contracting officer ” was defined in the contract as follows: “Wherever the term contracting officer is used in this contract the same shall be construed to mean his successor or successors, his duly authorized agents or representatives, or any person designated by the Chief of Ordnance, from time to time, to act as contracting officer.” During the time here involved Capt. Edwin M. Chance was the duly authorized agent of the contracting officer.

On November 13, 1917, the plaintiff, at the request of the defendant, employed the Dorsey-Miller Co. as a subcontractor for the construction of a dock for the United States on the Bush River at the reservation. The work was to be done under United States Ordnance Bureau regulations as to costs, and the Dorsey-Miller Co. was to receive a fee of 10 per cent on the actual cost of construction. After the work undertaken by the Dorsey-Miller Co. was more than one-ha-lf completed the contracting officer, Captain Chance, became dissatisfied with the methods of operation and the progress being made by the Dorsey-Miller Co. He requested the plaintiff to take over the plant and equipment of the Dorsey-Miller Co. and to make a settlement with them for the work which they had already done, and for the materials which they had on hand, and to then complete the work on its own account.

In its negotiations for a final settlement the Dorsey-Miller Co. made certain demands for work which it had completed and for materials which it had furnished, which demands the plaintiff and the Government auditor considered excessive. Legal questions were involved, and suit was threatened by the Dorsey-Miller Co. The plaintiff thereupon engaged the law firm of Willis & Willis to take up the negotiations with the Dorsey-Miller Co. As a result of the efforts of Willis & Willis the Dorsey-Miller Co. agreed to accept in full settlement of its claim $8,000 less than it had first demanded. Payment was made by the United States to Dorsey-Miller Co. of the amount so agreed upon, and as a result of the action of the plaintiff in securing the services of Willis & Willis the United States was saved the sum of $8,000.

Willis & Willis charged the sum of $1,000 for their services. This sum the plaintiff paid to them on March 15, 1919. A voucher for the payment of the said sum of money was approved by the contracting officer. The disbursing officer of the United States refused to make payment and his action was upheld by the Auditor for the War Department. The plaintiff has not been reimbursed for the amount so paid by it.

The only question for our consideration is whether or not the payment of the $1,000 to Willis & Willis is a part of the cost of the work contemplated by the contract. If it can be said to be a part of the cost of the work, then the payment having been approved by the contracting officer was a payment for which the plaintiff is entitled to be reimbursed.

Ordinarily we would not hold that fees to counsel were necessarily a part of the cost of the work contemplated in contracts of this character. But in this case the plaintiff was requested by the contracting officer to perform certain services for the benefit of the Government, and in the course of the work under the contract these services could not be properly performed in the interest of the Government without the employment of agencies equipped for their effective performance. The plaintiff had to employ such agencies and was, in effect, authorized to do so, and having employed them and paid them their reasonable charges, the plaintiff should be reimbursed the amount so paid, especially in view of the fact that the Government, and not the plaintiff, benefited. We think that any cost which was incurred as a result of the settlement made by the plaintiff at the request of the Government with the Dorsey-Miller Co. is a part of the cost of the work contemplated by the contract and that the contracting officer was acting within the scope of his authority when he approved the payment of $1,000 to Willis & Willis. His decision and action in the matter were conclusive, and it was beyond the power of the Auditor for the War Department to refuse payment. United States v. Mason & Ranger Co., 260 U. S. 323; and Mason & Hanger Co. v. United States, 56 C. Cls. 238.

The second item of the plaintiff’s claim is for the sum of $502.65, paid by it to Willis & Willis for defending a 'suit brought against it by one West for alleged false arrest. The arrest was made by officers of the United States and the plaintiff was in no wise connected with it. It was the plaintiff’s misfortune if it was singled out from other contractors on the reservation and made defendant in such a suit. But it was not a part of the cost of the work contemplated by the contract. It is true that the contracting officer approved the payment of this item, but when he did so he was clearly acting outside of the scope of his authority, and his action can not be ratified.

Judgment will be entered for the plaintiff in the sum of $1,000. It is so ordered.

Moss, Judge; Graham, Judge; Booth, Judge; and Campbell, Ghief Justice, concur.  