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increase the House conferees declined to yield, but it being established that a great deal of extra work has been given to the paymasters of the Navy by the adoption of a cost-accounting system in the navy yards and stations and a new system of storekeeping on board ship which tends to economy and better supervision of bookkeeping methods and of care in the conservation of naval stores, the House conferees agreed to an increase of 20 clerks to paymasters, designating 10 for the cost-accounting officers and 10 for the general storekeepers afloat. In attempting to carry out this agreement reached by the conferees of the Senate and House the words "not exceeding ten clerks” were inserted after the word “afloat” in the Senate amendment, which, in effect, not only restricted the clerks to general storekeepers afloat to 10, but included in its limitation the clerks to general storekeepers ashore. At present, under existing law, the latter have 27 clerks, and the restriction thus will cause the discharge of 17 clerks after July 1, 1911, instead of providing for an increase of 10. The language of the bill under consideration corrects the situation so as to conform to the intention of the conferees of both Houses and requires no increase in the appropriation act as passed.
Section 2 authorizes the Secretary of the Navy to make partial payments from time to time during the progress of work under existing contracts and contracts hereafter made for public purposes under the Navy Department not in excess of the value of the work already done, making ample provision for the protection of and security for the interests of the United States. On the 19th day of April, 1911, the House passed House joint resolution 1, striking out the provision of the naval appropriation act for the fiscal year ending June 30, 1912, providing for partial payments to be made on work in progress under the Navy. Department up to 90 per cent of the value of completed work. This provision was improperly incorporated into the act because of an error in the enrolling of the act and was not agreed to by the conferees of both houses. The conference report of both houses eliminated this provision from the bill, and it being no proper part of the act it was eliminated by House joint resolution 1.
The following is a letter from the Secretary of the Navy to the chairman of the Committee on Naval Affairs of the House of Representatives, which states the situation relating to partial payments on work in progress with special reference to the amendment of House joint resolution 1 rather than its repeal.
Washington, April 15, 1911. MY DEAR CONGRESSMAN: I have the honor to invite your attention to my letter of the 3d of February last to the then chairman of the committee requesting that a provision be inserted in the naval bill authorizing the Secretary of the Navy to make partial payments, not in excess of the value of the work already done under public contracts, and stating the reasons on which such request was based.
In the naval act as passed there is included a provision authorizing partial payments under such contracts not in excess of 90 per cent of the value of the work already done. This provision, which it was intended to omit when the bill was last considered in each House, was, through inadvertence, incorporated in the bill as actually passed and approved, and House joint resolution No. 1 of the present session of Congress provides for its repeal on account of the error in enrollment.
Under date of the 10th instant the department addressed a letter to Hon. John J. Fitzgerald, chairman of the Committee on Appropriations, who had called for an expression of opinion in the premises, requesting that said provision instead of being repealed be retained and amended so as to authorize payments under the Navy contracts not in excess of the value of the work done, as originally recommended. Inasmuch, however, as this matter comes under the cognizance of the Naval Committee, its attention is invited to the following.
Section 3648 of the Revised Statutes, taken from the act of January 21, 1883 (Stat. 3, p. 723), provides that "No advance of public money shall be made in any case whātever. And in all cases of contracts for the performance of any service or the delivery of articles of any description for the use of the United States payments shall not exceed the value of the service rendered or of the articles delivered previously to such payments."
Under contracts for building naval vessels or the machinery therefor, delivery is not contemplated until the entire structure is finished and tested, but it has been the practice to make partial payments under such contracts during the progress of the work, and this practice has prevailed from a very early period, though record can not now be found showing the ground on which it was sanctioned.
Originally a reservation of 10 per cent or more was made from each installment and the sum thereof, together with the last installment in entirety, was held back until preliminary acceptance and delivery as a protection for the Government against the contingency of having to pay for any minor defects or deficiencies in the vessel or machinery. Latterly, however, owing to the great increase in the cost of the larger vessels, running up above $3,000,000, it was found that the customary reservation from the installments as earned provided a greater sum than was considered necessary for the Government's protection and added an expense to the financing of the work that had to be paid by the Government indirectly as part of the price bid.
Therefore the method was adopted for all vessels of dividing the contract price into a larger number of installments, 50 for the largest vessels, to be paid without reservations, and securing the necessary protection against defects and deficiencies by withholding the last two or three installments, as the case requires, until preliminary acceptance and delivery. Payments are restricted to, though in fact they rarely equal, the value of the work already done, and further protection against failure of the contractor or loss by fire or other circumstance has been secured by bond with satisfactory security, insurance, and provision for lien in favor of the Government on the vessel or machinery so far as completed and materials on hand, and by giving the Government the right to forfeit the contract if the construction is not advanced satisfactorily and take possession of the work and the contractor's plant for the purpose of completion at the contractor's expense.
The accounting officers of the Treasury have uniformly acquiesced in the making of partial payments under said contracts, and the department had, consequently, entertained no doubts as to the legality of the contract provisions relating thereto, but recently the accounting officers decided that under a contract of the War Department for powder the making of partial payments before delivery was contrary to the provisions of section 3648 and therefore illegal. Apprehension that this ruling would be applied to the contracts for naval vessels induced the department to request, on the 3d of February, as stated, the enactment of a provision authorizing partial payments.
Ii the limitation now contained in the naval act of March 4, 1911, be repealed, the accounting officers would, it is assumed, disallow the payments already stípulated for in existing contracts and inhibit provision for such payments in future contracts.
Should such a situation arise, the Government would be exposed to suits for damages, whether the claims were valid or not, on account of nonpayment as stipulated in the existing contracts, and it would be obliged to pay under future contracts the cost of financing the undertaking in each case. For the vessels last authorized this item, made up of sums ranging from $3,000 for each $500,000 submarine boat to $50,000 for a $6,000,000 battleship, would amount to approximately $100,000 in excess of their cost under the previous plan of making partial payments. For these burdens no compensating advantage would be derived by the Government from the proposed repeal of the provision under discussion.
The department feels warranted in saying that the Government's interests have not been disadvantaged or jeoparded in any respect by making partial payments under the contracts for naval vessels or by not withholding a reservation from each of such payments; that the cost of every vessel paid for in installments has been actually less than it would have been otherwise; that competition for the contracts has been enlarged and additional pecuniary advantages thereby gained, and that no useful purpose can be served from other considerations by limiting, as said act does, payment to a sum less than the value of the work already done.
In view of the foregoing it is urgently recommended that the provision in question be not repealed, but that it be retained and amended by striking out the words “ninety per centum of," occurring in the twelfth line, page 3 of said joint resolution, so that payments under all contracts of this department may be made as heretofore, in the Secretary's discretion, in installments not exceeding the value of the work already done. Faithfully, yours,
G. v. L. MEYER. Hon. LEMUEL P. PADGETT, M. C., Chairman Committee on Naval Affairs,
House of Representatives. Under dates of April 18 and April 20, 1911, the Attorney General of the United States, in response to a request from the Secretary of the Navy, rendered the following opinions relating to partial payments on work in progress:
SECRETARY OF THE NAVY-PARTIAL PAYMENTS UNDER CONTRACTS FOR PUBLIC PUR
DEPARTMENT OF JUSTICE,
April 18, 1911. Sir: I am in receipt of your letter of 17th instant, advising me that it is proposed by joint resolution No. 1 of the present session of Congress to strike from the naval appropriation bill of March 4, 1911, the clause authorizing the Secretary of the Navy to make partial payments from time to time during the progress of the work under contracts made under the Navy Department for public purposes, not in excess of 90 per cent of the value of work already done, etc.,
and asking my opinion as to whether, in the event of the repeal of that clause, the Navy Department would be justified in continuing to make partial payments as provided for in existing contracts made prior to March 4, and in providing for such payments under future contracts for ships, armor plate, and other objects.
It is an old-established rule that where no actually existing case is presented, but the Attorney General is asked for his opinion uopn a future hypothetical case, he declines to answer the question. (19 Op., 414; 20 Op., 289, id., 729.) If the joint resolution referred to should pass, and a question should then be presented arising before you for determination, I will then take pleasure in advising you.
It is perhaps proper, however, to state that Attorney General Brewster advised the Secretary of the Navy, by an opinion dated January 22, 1885 (18 Op., 105), that section 3648 of the Revised Statutes does not preclude a payment in any case where the money has been actually earned and the Government has received an equivalent therefor, its object being to prevent payments being made to contractors in advance of the performance of their contracts, whether for services or supplies.
In 1894 Attorney General Olney advised the Secretary of the Treasury that section 3648, Revised Statutes, prevented the making of partial payments on account of work performed in the construction of a revenue cutter where neither the statute under which the work was done nor the contract gave the Government the ownership of the boat before its completion or a lien on the uncompleted vessel for such part payments. He mentioned the fact that the contracts for building vessels for the Navy Department contained special stipulations giving the United States a lien upon the work done and paid for. (20 Op., 746.) This decision was followed by the Comptroller of the Treasury in the matter of partial payments on account of a contract to manufacture and sell powder for the use of the Army. (17 Comp. Dec., 231.)
The general rule would therefore seem to be well recognized that, in the absence of statutory prohibition, partial payments may be made on account of work done in the construction of vessels for the Navy if (1) title to the vessel shall have passed to the United States at the time of such payments, or (2) a lien shall have been created by law or contract upon the unfinished vessel to the amount of such partial payments. I am, respectfully, yours,
GEORGE W. WICKERSHAM. The SECRETARY OF THE NAVY.
OFFICE OF THE ATTORNEY GENERAL,
Washington, D. C., April 20, 1911. The SECRETARY OF THE Navy.
SIR: I have conferred with the solicitor for your department with respect to the effect upon contracts made through your department for the construction of vessels subsequent to the enactment and in conformity with the naval appropriation act of March 4, 1911, of the passage of a joint resolution striking from that act the clause authorizing the Secretary of the Navy to make partial payments from time to time during the progress of the work, not in excess of 90 per cent of the work already done, etc.
Independently of the authority granted by the naval appropriation act, the right of the department to make partial payments on account of construction work as carried on either pursuant to stipulations in contracts already made or in contracts hereafter made, depends upon (1) the title to the vessel being vested in the United States at the time of such partial payments, or (2) the creation of a valid lien upon the unfinished vessel to the amount of such partial payments. The effect of a sien resulting wholly from contract with the United States has not, so far as I am aware, been absolutely declared by the Supreme Court of the United States
In the recent case of United States v. Ansonia Brass & Copper Co. such a lien was under consideration, but the case went off on the construction of the contract by which the lien was created, and which contract, it was held, did not reserve to the Government a lien superior to that of contractors for labor and material who had contributed to the work, but, on the contrary, recognized the fact that such other liens might arise.
The provision in the naval appropriation act of 1911 authorizing partial payments removes all doubt on this point, and the contracts for construction made by the Navy Department since that act were undoubtedly entered into in reliance upon that provision. To now repeal that authorization would undoubtedly occasion considerable embarrassment to the Navy Department and, in all probability, would lead to litigation. The right of the department to continue to make partial payments under those contracts after such repeal would certainly be subject to question and, without anticipating now precisely how the question might arise or how it should be determined, I can foresee very considerable embarrassment to the department as a result of such action. Respectfully,
Geo. W. WICKERSHAM,
Attorney General. In response to a letter from the chairman of the Committee on Naval Affairs of the House of Representatives, inquiring as to the necessity for any legislation whatever relating to this subject, the Attorney General, under date of April 24, 1911, wrote as follows:
DEPARTMENT OF JUSTICE,
Washington, D. C., April 24, 1911. Hon. L. P. PADGETT, M. C.,
Chairman Committee on Naval Affairs, House of Representatives. MY DEAR MR. PadGETT: I have your favor of 21st instant. I understand from your letter exactly the situation with respect to the naval bill more accurately than I have done before. It is impossible to express with any confidence a clear opinion as to whether, under the law existing prior to the passage of the last naval appropriation bill, the Secretary of the Navy could legally contract for and make partial payments in the construction of naval vessels. I inclose a copy of a letter which I wrote to the Secretary of the Navy on this subject, which embodies my opinion as far as I feel justified in giving it.
What the Supreme Court will say when the question comes squarely before it is a matter of conjecture, and as the question does not seem to be settled by authority, all counsel can do is to form an opinion of what the law ought to be. I am not prepared to say, as a matter of law, that the Secretary can not make partial payments, because I think that, if he can secure by contract å lien on the vessel under construction to the amount of the payments, he has authority to make them. The difficulty arises entirely with respect to the creation of such lien, and that depends (1) upon the law of the particular State where the construction is being carried forward; (2) upon the terms of the contract made through the Navy Department with the Government for the construction of the vessel; and (3) the steps taken to assure the department of the payment of all other claims which might be entitled, under the State law, to a lien on the vessel in process of construction. Faithfully, yours,
GEO. W. WICKERSHAM,
Attorney General. It will be seen from the above correspondence that it has been the custom of the Navy Department for many years to make partial payments from time to time on work in progress, for the value of the work already done, securing the United States against loss by sufficient
contract, bond, liens, and insurance, and such payments were not questioned until the Comptroller of the Treasury rendered a recent decision that, under a contract of the War Department for powder, making partial payments before delivery was contrary to the provisions of section 3648 of the Revised Statutes and therefore illegal, and owing to the apprehension of the Secretary of the Navy that the same ruling would be applied to contracts under the Navy Department, he requests this legislation. In view of the opinion of the Attorney General set forth above that in the absence of such legislation it is impossible to state what the courts will hold owing to the difficulty arising with respect to the creation of a lien, depending (1) upon the law of the particular State where the construction is being carried forward; (2) the terms of the contract; (3) steps taken to assure the department of the payment of all other claims which might be entitled under the State law to a lien on the vessel in process of construction, the committee deems the legislation necessary.
If the legislation is not enacted payments may be delayed to the time of the full completion and acceptance by the Government of the vessels or other work authorized and the Navy Department will be unable to comply with the terms of existing contracts, and submit the United States to endless claims and litigation in suits for damages. In addition to this expense will be the increased cost of ship. construction, as the bidders will increase the amount of their bids by reason of the long-deferred payments and consequent increase of cost in financing the work and maintenance of their establishments. It is therefore the opinion of the committee that in the interest of economy, and to enable the Navy Department to comply with the terms of its existing contracts, that the bill should pass.