4 .
THF:AITORNEY GENERAL
OFTEXAS
Honorable Glbb Gilcrest, President
Agricultural and pchanical College of Texas
College Station, Texas
Dear Sir: Opinion No.O-6230
Re: Questions as to the effect, meaning,
and application of certain provisions
of a contract betwben the United
States of America and Agricultural
and Mechanical College of Texas.
On September 19, 1944, you adressed to this office
a letter requesting the opinion of the Attorney General upon
four questions contained In such letter. These questions,
you explained, had arisen out of a difference of opFnion be-
tween certain representatives of the Bureau of Naval Person-
nel purporting to act on behalf of the United States Govern-
ment and the Agricultural and Mechanical College of Texas as
to the meaning and effect of contract Number d-3102 and sup-
plements thereto, and more particularly as to the effect,
legality, and validity of certain articles and seotions of
sald contract and its supplements.
You attached to your letter a copy of the contract
In question, together with exhlblts containing: resolutions
and schedules authorizing the issue of bonds for oonstruct1on
of a laundry and expansion of power plants at the college;
copies and extracts from correspondence between certain per-
sonnel of the Kavy Department and of the college relating to
the contract; principals of contract promulgated by the Bu-
reau of Naval Personnel; and summaries of costs covering the
period from December 1, 1942, through March 31, 19&k, part
of which costs, accounting or fFnance officers of the Naval
Department had advised the college should not be allowed.
We thank you for providing this complete file,
since it has aided us very materially in the consideration
of the questions submttted.
Here set out Is the penultimate paragraph of your
letter, followed by your questions:
"In our opinion the College is entitled to
all of the Items disallowed by the Navy Depart-
.
Honorable ‘Glbb &Fl+i‘&it,pa&’ ? ” ‘~”
016230
ment . Inasmuch as the Navy Department requests
a prompt adjustment based on the amounts alsal--
lowed and has dlsaontlnueclpayments under the con-
tract as of June 30, 1944, we would like to have
your advise as to how to proceed and submit the
following questions:
“1 . Is this contract,subject to ren,egotia-
tlon?
“2. Is the College entitled to charge the
rates for laundry service and electricity estab-
lished by the resolutlons,authorizLng the lssu-
ance of revenue bonds,for the construction of the
laundry an8 the expansion of the power plant?
“3. Is the College entitled to the 92.5
cents per man per day for subsistence as provided
for in Article 4,o.fthe contract or are these
payments sub.jectto adjustment on the basis of
actual cost?
“4 . Is it possible for the Co,llegeto exe-
cute Supplement No. 5 to the contract (a dopy of
whLoh is Included,in ExhlbFt A) without waiving
its right to file a claFm for the amounts dis-
allowed, by signing the supplement under protest
or with reservations?
“If so, ~111 you please favor ;s with the
)lordLngto insert in the supplement.
These questtons are hereinafter restated and an-
swered categorically. Each one is fgllowed by such explana-
tion and &leoussion as ‘1s deemed necessary Ln~oraer Jo show
the reason5 leading ,to the conp~us~,onestated.
Quedlon ‘pS&,,’
1: ,, ,,.
“Is this~contract subjB)otto renegotiation?”
Honorable Gibb Gilcrest, page 3 0-6230
part of the Texas Legislature occurred after the Congress of
the United States by an Act passed July 2, 1862, donated one
hundred and eighty thousand acres of land to each State for
the purpose of building an agricultural and mechanical col-
lege, and In Its Act establishing the Agrfcultural and Me-
chanlcal College of Texas, the Texas Legislature accepted
the offer thus maae by the United States Congress. Section
5 of,this Act creating the College, provided that the con-
trol, management and supervision of the Agricultural and Me-
chanical College of Texas and the care and preservation of
its property, should be subject to the laws creating and--
governing the University of Texas. That law (Chapter 116,
General Laws of the 7th Legislature of Texas, 1858) in See--
tion 3 thereof provided that such control, management, etc.,
subject always to the control of the Legislature, should be
committed to an administrative board created by the last
named Act.
Article 3~,Section 48, of the Constitution of Texas,
confers upon the State Legislature the right to levy taxes
for the maintenance and support of the AGrlcultural and Me-
chanical College of Texas.
Article 7, Section 13, of the Constitution of Texas,
makes and constitutes the Agricultural and Mechanical College
of Texas a branch of the Unlverslty of Texas.
Article 7, Section 16, of the Constitution of Texas,
empowers the Legislature to fix the terms of all officers of
the State Institutions of Higher Education and the terms of
the members of the Boards of such institutions.
The Agricultural and Mechanlcal College of Texas 13
supported by direct detailed, biennial appropriations of the
Texas Legislature, tsee the Appropriation Acts of the Regu-
lar Session, 48th Legislature, and of preceding sessions)from
state,moneys provided by taxation. It 1s an~dhas been since
Its establishment a creation of the State, directed and con-
trolled by the Legislature.
The Agricultural and.Mechanical College of Texas,
the contractor, is an arm, an lnstrumentalfty of the State
of Texas. It is an agency of the State under any reasonable
interpretation or understanding of that term.
Codified under Title 50, App. Sec. 1191, United
States Code Annotated, is United States Congressional Act of
April 28, 1942, C. 427, Title IV, Section 403, 56 Stat. 245,
as,amended, the,most recent amendment be1 that of February
25, 1944, C. 63, Title VII, Section 701 (b
"k , 58 Stat. 78.
Honorable Gibb Gilcrest, page 4 0-6230
This is the Act popularly known as the "Renegotiation Act,"
and contains this provision, quoted In part as follows:
"(I) Contracts exempted: Board's interpre-
tatton and aoolication of exemotlons
"(1) The provisions of thLs section
shall not apply to --
"(A) any contract by a Department
with any other department, bureau, a-
gency, or governmental corporation of
the United-States or wFth any Territory,
possession, or State or any agency there-
of or with any foreign government or any
agency thereof; or
II
. . . . . .
"(2) The Board is authorized by regu-
lation to interpret and apply the exemptions
provided for In paragraph (1) (A), . . .'
The 'Board' mentioned in the above quoted subsection
of the Act is an agency created by the safd Act as last amend2
ea. Its full title Is "War Contract Price Adjustment Board"
and it is made up of duly appoInted personnel one each from
the War Department, Navy Department, Treasury Department,
United States Maritime Commission, or the War Shlpplng Admin-
istration, Reconstruction Finance Corporation, and the War
ProductIon Board.
Acting under the provisions of the Act as set out
hereinabove, the War Contract Price Adjustment Board published
at age 6165 of the Federal Register for Wednesday, June 7,
194fi over the Seal of said Board, and the signature of James
S, F$eight, Lieutenant, U.S.N.R., Secretary of said Board,
certain renegotiation regulations dated June 7, 1944, which
contained Its interpretation3 quoted in part as follows:
"6 1603.341. The mandatory exemptlons.
(1) Contracts and subcontracts with other Govern-
mental agencies are exempted by subsection (i)
(1) (A). (See 0 1603.343.)
I!
. . . .
ff61603.343 Contracts and subcontracts with
other governmental agencies -- (a) Statutory ex-
emotion. Subsection (i) (1) (A) of the 1943 act
Honorab le Glbb Gilcrest, page 5 G-6230
provides that it shall not apply to:
"(A) any contract by a Department with
any other department, bureau, agency, or
governmental corporation of the United States
or with any Territory, possession, or State,
or any agency thereof or with any foreign
government or any agency thereof;
"(b) bteroreta t ion and
d,aaulication of ex-
emotion. The War Contracts Board has adopted the
following interpretation:
"(1) Under this provision of the act no
contract between one of the Departments and any
other federal, local or foreign government agency
is subject to rengotiation. A municipal torpor.-
ation, whether acting in a proprietary or gov-
ernmental capacity, is considered to be an agency
of a State for the purpose of this exemption.
The exemption provided by the Act is a mandatory
exemption and as shown here, in the quoted portion of the
Board's regulations, it is so recognized by the Board. It
may be pointed out also that the reference contained in
paragraph (e) of Article L, RENEGOTIATION, of the "general
provis+ons' section of the contract is a reference to this
self same Act containing said mandatory exemption.
Under the plain provision of the Act hereinabove
quoted as under the interpretation and application placed
upon such provision of the law by the War Contract Price Ad-
justment Board,,this contract with the Agricultural and Me-
chanical College of Texas, an agency of the State of Texas,
is clearly not subject to renegotiation.
Question No. 2:
"Is the College entitled to charge the rates
for laundry service and electricity established by
the resolutions authorizing the issuance of revenue
bonds for the construction of the laundry and the
expansion of the power plant?"
We answer this question, 'Yes," but not necessarily
as cost items.
Our answer would be different were we able to find
Honorable Gibb Gilcrest, page 6 0-6230
within the contract an agreement that the contractor would
furnish these services at cost. We do not think the contract
evidences any such agreement.
In Article 3, INSTRUCTION, Subsection (c), the con-
tractor agrees to provide light, heat, water power, janitor
services and other services and,the Government agrees to pay
the contractor the sum of $2,5GG,OG per month, a flat fee for
such services. This article contains no agreement that the
services therein provided for will be furnished at cost or
upon any other basis than the flat fee therein stated.
By the terms of Article 5, Q.UARTERS,Subsection
(a), the contractor will provide light, heat, water and other
services. Subsection (b) of this article promises that then
Government will pay to the contractor a flat fee of $7,5GO.G0
per month for services rendered under this article which"shal1
include use of sheets, pillow cases and towels and laundry
services therefor."
We find in this article no covenant nor agreement
that the services provided will be rendered at cost or upon
any other basis than the flat fee therein set out and agreed
to. Nor do we find in any other part of the contract any
agreement providing that the flat fee contained in the various
articles of the contract shall be reduced to actual cost.
Article 6 of the contract provides for revision of ratas atxl
relates to Articles 3 and 5 in the same manner as to Article
4, with which your next question is concerned. Our view as
to the intent and effect of Article 6 will be discussed in
connection with the answer to the next followlng question.
The question as to whether the rates charged by the
College as costs and disallowed as such by the Finance Offlcers
of the Naval Department are actually items of cost or of pro-
fit, ix a problem about which even accountants might disagree.
It would seem that under the College's covenant with its bona
holders the rates bet out in the bona resolution would ordi-
narily be Items of cost since as here used, "cost' means the
cost of producing the electricity and the laundry service plus
the cost of servicing the bonds. However, the bond resolution
and the covenants contained therein, require the charging of
such rates only to the extent necessary to acquire and pre-
serve intact the capital or reserve account. So long as such
reserve fund is fully maintained, the rates to be charged, we
think, may properly be determined by the will and judgment of
the College.
If the cost as determined and allowed by the Naval
Accountants is correct, that fact does not adversely affect
Honorable Cilbb Oilcrest, page 7 o -6230
the right Of the contra&or to demand payment of the rates
oharged as an ltem of profit to which it 1s entitled under
the terms of the contract so long as the resultant total de-
mend for serrrlaes rendered under these artloles of’ the con-
tract does not exceed the fee which the government promised,
in the contraat, or by voluntary modlf’loatlon thereof, to
pay for such services.
Question No. 3:
‘IS the College entitled to the 92.5 cents
per man per day for subsUtanae GUIprovided 'for
in Article 4 of the Contract or are these payments
subject to adjustment on the basis o? aotual cost?’
The answer to this questlon is, 7es.” In our opln-
ion the contractor is entitled to demand and collect the amount
set out and agreed to and promised to be pald by the terms of
the contract.
Hera set out in full is Artlole 4 of this contraat:
“ARTICLE4. SXlWISTlWC&
“(a) The- Contrattor. ~1;; Feparp
and serve three
meals per aay co menavy waineee) ana en-
listed personnel at the Training Sahool, but
not to exoeed 1700 persons at any one time
(or such largetrnumber as the Contractor may
oonsent to serve). The hours during which
meals are eerved shall be as ~peolfled by
the CommandingOffloer of the Training School,
and the quality, quantity and type of food
and the purohase, preparation and serving of’
all food shall oomply wlth Mavy standards.
“(b) The Ctovernment will pay the Contraotor oom-
ermation for subslstenoe at the rate of
P0.925 per man per day, beginnIng wlth De-
oember 1, 1942 for the number of men rsport-
ed by the CommandingO?floer to the oontrao-
tor to ba an ratLons.n
Obviously no agreement or oovenant for the payment
t’or theae servloes on the basin of coat is contained in this
artlols. Nowhere In the oontraot have we been able to find
any agreement or provision llmltlng the oompensatlon or re-
imbursement of the oontraotor to oost only or in any way or’
manner prohlbltlng suoh contraotor from earning, demanding
and oolleotlng a profit for f’urnishlng the servloes, materials
Honorable Glbb CGilcrest, page 8 O-6230
and facilities aantracted for, except in Article 1 (f), which
deals with commissioning expenses. Theeagreement in this
article ~1s that the Government will pay the contractor an'a-
mount equal,to the reas,onablecost and expenses incurred by
the contractor directly in connection with the,acquFsitFon,
construction, installation and completion of the Items listed
inSchedule 2 and this agreement is llmlted to ArtLcle 1 --
that is, the commissioning expense.
Article 6 of the contract is anagreement that the
rates of payment provided In Articles 3, 4 and 5, may be re-
vised from ,ti.me'totime, and contains the procedure according
to which such,revision is to be,made. The revision contem-
plated and expressed in this article is a revision of rates
to be arrived at by agreement between the parties to the
contract, or in,case of failure to agree, by appeal to the
Secretary of the Navy. The purpose of such revision, we think,
is clearly lndlcated,in the,-,artlcleto be that of protecting
either or both contracting parties as to future commitments
or future operations under this contract. These rate revi.sions
when made ar,e intended to take effect prospectively from their
effective dates. It is not intended that the revised rates
be used in calculating the'amounts already earned and due at
the time when such revised rates become effective, and It Is
not the lntent,lonof the partiesas expressed In this pro-
vision of the contract that the.effectFve date of the revised
rates be Itself made retroactive. This view is strengthened
if strength be needed by the language of an Act of Congress
of February 25, 1944, C. 63, Title VIII, Section 801, 58 Stat.
92 codified as Title 50, App. Sec. 1192, U.S.C.A. Subsection
(bj,of said Act is quoted as follows:
"When ,the Secretary of a Department deems
that the price 'of any article,or service of any
kind, whFch is required by his Department or direct-
ly or IndIrectly required, furnished, or offered in
connection with, or as a part of, the performance
or procurement of ang contract with his Department
or of any subcontract thereunder, Is unreasonable
or unfair, the Secretary may require the person
furnishing or offering to furnish such article or
service to negotiate to fix a fair and reasonable
price therefor. If such person refuses to agree
to a price for such article or service which the
Secretary considers fair and reasonable, the Se,c-
retarg by order may fix the price payable to such
person for furnLsh1ng,s.ucharticle or service
after the effective date of.the order, whether
under existing agreements or otherwise. The order
may prescribe the:perl.od~dur1ngwhich the price SO
Honorable Gibb Gilcrest, page 9 0-6230
fixed shall be effective and such other terms and
conditions as the Secretary deems appropriate."
(Emphasis ours)
The Act of which the above is a portion was passed
and became effective long after the contract here under dis-
cussion was executed and only some thirty-five days before
the termination of the contract period with which this opinion
Is concerned. It therefore has no direct relation to or ef-
cect upon this contract. It is, however, considered of some
persuasive value as tending to show the Congressional view
point or intention toward the revision or fixing of rates and
prices.
An attempted application of Article 6 In such man-
ner as to deny the view as to its intention here expressed
and to give a retroactive effect to the revision of rates or
to apply such rates retroactively would be to ignore or to
seek to circumvent the will of Congress as clearly expressed
in Subsection (I) of Title 50, App. Section 1191, U.S.C.A.
Such retroactive application would in effect be renegotiation;
and as pointed out in our discussion of question No. 1 hereof
Congress has in the Act and subsection last cited mandatorily
exempted the class of contractors to which Agricultural and
Mechanical College of Texas belongs from renegotiation.
Question No. 4:
'IIsit possible for the College to execute
Supplement No. 5 to the contract (a copy of which
is included in Exhibit A) without waiving its
right to file a claim for the amounts disallowed,
by signing the supplement under protest or with
reservations?"
Our answer to this questlon is, @'No."
Essentially and fundamentally, a contract Is an
agreement. An agreement does not come into being until both
or all the parties to the proposed agreement each, and all
together, consent to each and all the Items or terms contained
in such proposal, or until all have agreed and consented to
strike or eliminate from such proposal those Items or terms
to which they cannot all give their assent. This is perhaps
over simplification, but we do not believe it Is possible for
the College to preserve its legal rights, or the privilege of
having any controversy regarding those rights properly passed
upon, by signing a contract to all the terms of which it can-
not agree and at the same time protesting it.
Honorable Gibb Gllcrest, page 10 0-6230
It seems fair to assume from your letter and the
file accompanying it that as to some of the provisions of the
proposed new contract (Supplement No. 5) the College (con-
tractor) and the department could without controversy agree.
If this is possible, the supplement can be re-written in-
corporating the agreed items and terms only, then both parties
can execute it wlthout either party waiving anything. Opera-
tions under such agreement could~then be carrled on pending
agreement and settlement of the questions as to which further
discussion is required.
As a general commentary In connection with all your
questions and in the consideration of the contract as a whole,
it should be remembered that when it becomes necessary to
legally construe a contract, a cardinal principal to be em-
ployed in such construction is that when doubt has arisen,
such doubt is to be resolved most strictly against whichever
of the parties has drawn the contract, and liberally in favor
of the other party or parties to such contract.
We trust that the answers to your 'questionsherein
contained and these discussions may be helpful to you.
Yours very truly
ATTORNEY GENERAL OF TEXAS
By s/Robert F. Cherry
Robert F. Cherry
Assistant
RFC:ab:wc
APPROVED OCT 4, 1944
s/Carlos C. Ashley
FIRST ASSISTANT
ATTORNEY GENERAL
Approved Opinion Committee By s/GWB Chairman