purposes assimilated to contracts, it is not customary to issue a long and complicated document. The order is usually a one-page document in which the work is described in a summary fashion.

Inter-departmental orders.-These are placed under the authority of the Economy Act of June 30, 1932, as amended (47 Stat. 417; 31 U. S. Code 686). In general, departmental orders are similar in operation and effect to project orders, except that they are issued to agencies outside the Navy. They may be issued for research and development work. When they are issued by the Navy, the requisitioned agency may place subcontracts thereunder. Conversely, if they are received by the Navy from the Air Force, the Treasury, the Civil Aeronautics Authority or the Maritime Commission, the Navy may issue subcontracts thereunder.

At the present time the Office of Naval Research is conducting a substantial amount of research in nuclear physics and related subjects under contracts with various universities with funds made available to it by the Atomic Energy Commission. These funds have been transferred under authority of the Economy Act and of the various provisions of the Atomic Energy Act (60 Stat. 755; 42 U. S. Code 18011819) which authorize the Commission to make arrangements for the conduct of research and development in nuclear processes and atomic energy and to utilize the functions of other Government agencies to perform such functions on its behalf as may appear desirable.

This is an outstanding example of cooperation between two important government agencies, where the research contracting facilities of the Navy Department have been used to good advantage.

Pending Legislation.—It is planned to introduce in the new Congress a joint Army-NavyAir Force Research and Development Bill which will confer certain necessary powers in connection with the placing and administration of research contracts. A similar bill was introduced in the last Congress and passed the Senate, but for lack of time was not considered in the House.

Of course, it is impossible to say just what the final form of any such legislation will be,

but it is hoped that it will accomplish at least the following:

1. A simplification of the whole appropriation structure for research and development. It would be highly desirable if research appropriations could be made on a continuing basis, so that funds appropriated at any time would remain available until they had been expended. This would permit the placing of research contracts without regard to fiscal year limitations and other technicalities imposed by present law. Instead of having to review a series of appropriations, each one with a different beginning date, a different date for obligation, and a different date for expiration, Congress could look to a single fund, which it could review annually and supplement when necessary. This would simplify the handling of research contracts enormously. It would free the lawyer from having to consider countless fiscal technicalities and permit him to concentrate on more important matters.

2. Authority to indemnify research and development contractors. This is discussed above. It is highly desirable that clear legislative authority be provided for this, and that it be made clear that research appropriations are available to pay such claims.

3. Authority to acquire or construct facilities (up to a stated dollar amount) which are necessary for the proper conduct of a research project, together with authority to dispose of such facilities upon completion of the contract. This is discussed above. Specific legislative authority on the subject is highly desirable.

4. Simplified voucher procedures. This is discussed above. It has been arranged administratively by agreement between the Comptroller General and the Services. It is highly desirable, however, that clear legislative authority for it be obtained.

SUMMARY

Research and development are not new to the Navy, but have assumed their present importance only during and since World War II. Prior to the war, authority to conduct naval research and development was implied from the general procurement authority of the Navy and the bureaus and from the purposes of the various appropriation acts. During the war, re

liance was placed on the First War Powers Act and Executive Order 9001. Since the war, both the Act creating the Office of Naval Research and the Armed Services Procurement Act authorize the placing of research and development contracts.

ORGANIZATION

The organization of the Navy for research and development comprises:

1. The Research and Development Board, a top policy and advisory body in the Office of the Secretary of Defense;

2. The Naval Research Advisory Committee, a policy board, advisory to the Secretary of the Navy;

3. The Navy Research and Development Review Board, a planning and co-ordinating agency;

4. ONR and the Bureaus, the operating agencies.

NEGOTIATION

By their very nature, research and development contracts are rarely, if ever, susceptible of procurement by formal advertising. Authority to negotiate such contracts is found in the Act creating the Office of Naval Research and in the Armed Services Procurement Act. The latter requires formal determination and findings with respect to authority to negotiate any such contract, unless the contract is with an educational institution. If the contract is for less than $25,000, such determination and findings may be made by the chief of the contracting bureau or office; otherwise it must be made by the Secretary.

CONTRACT TYPES

The three principal types of contract used for research and development are:

1. Cost-plus-fixed-fee, used for most contracts with commercial concerns;

2. Cost or cost-sharing, used for most contracts with educational institutions;

3. Fixed-price, used for some contracts involving relatively small amounts of money.

Occasional use is made of incentive type, fixed-price-with-redetermination, and fixed

price-with-voluntary-renegotiation contracts, especially the latter.

METHODS OF CONTRACTING

The two principal methods in use are: 1. Separate contract, one for each job undertaken;

2. Task-type contract, consisting of a master or basic contract containing the general provisions, and one or more task orders assigning jobs to be undertaken.

FINANCING

The two main problems are:

1. Financing long-term contracts out of annual appropriations;

2. Determining the proper fixed fee.

In general, research and development contracts are placed on a non-fiscal year basis, and are not regarded as mere service contracts which are compensable on a time basis and which must be limited to the fiscal year. There are four principal bases for obligating funds: 1. Fiscal year basis; 2. Entire job basis; 3. Installment basis; 4. Term basis.

The fixed fee presents no problem in the case of most university contracts, but in commercial contracts it is a very difficult problem.

CONTRACT CLAUSES

The most important special clauses used in research and development contracts are: 1. Description of work;

2. Compensation;

3. Payment (including advance payment, where required);

4. Notification and approval of subcontracts; 5. Property and facilities;

6. Insurance;

7. Patents, royalties, and copyright.

MISCELLANEOUS

Special problems arise in connection with amendments and change orders, and with respect to the use of allotments, project orders, and inter-departmental orders.

LEGISLATION

There is pending joint legislation on research and development which would:

1. Simplify the appropriation structure;

2. Provide authority to indemnify;

3. Provide limited authority to construct or acquire facilities;

4. Authorize simplified voucher procedures.

INTRODUCTION

Whenever the Department of the Navy or one of its contracting bureaus or offices enters into any contract, whether as the result of negotiation or as the result of formal advertising, it does so on behalf of the United States of America. And although the Department, just like any other purchasing agency of the Government, prescribes the terms and conditions of its contracts, it is at the same time required by law or by Executive Order to include certain clauses therein. These "mandatory" clauses are relatively few in number, but they are particularly important in that failure to include each one of them that is required for a particular contract may invalidate that contract. Consequently, these clauses based on statutes or Executive Orders are discussed in this chapter in sufficient detail to indicate the circumstances under which each is required to be used.

In addition to contract clauses required by some statute or Executive Order (whether in all contracts or only in contracts of a particular kind or for particular supplies or services), there are a few other clauses based upon statutes which are customarily used in contracts for the purpose of implementing the statute in question. All of these clauses based on statute or Executive Order, whether or not expressly required to be included in a contract, are discussed in the next part of this chapter under the heading "Clauses Based Upon Statutes or Executive Orders."

The next group of clauses to be considered in this chapter is the group entitled "Other Clauses of General Application." These clauses, though neither required by nor based upon any Federal law, are in some instances required by

Prepared by Samuel Pinn, Jr., Assistant Counsel, Bureau of

Ships.

Navy or Armed Services directive to be included in all contracts (such as a "Disputes" clause) or in certain kinds of contracts (such as a "Patents Rights" clause in research or development contracts), and in other instances are merely recommended or approved. They differ as a class from the third and final group of considered clauses, entitled "Clauses of Special Application," in terms of the more widespread use of "Other Clauses of General Application."

All of the "non-statutory" contract clauses, however, are more important than the "statutory" ones insofar as the substantive rights and obligations of the parties are concerned. The desirability of uniformity as to the form and substance of these clauses, as well as the form of the statutory ones adverted to above, is manifest. But equally manifest is the need for flexibility in the use of such uniform clauses by a procuring activity. Uniform clauses have been prescribed for use by all procuring activities of the Navy Department in standard situations (and are being prepared for standard use throughout the Armed Services, and in many instances throughout Government), unless deviation therefrom is made necessary by circumstances peculiar to the purchasing activity or to the supplies and services being procured. Responsibility in the Navy for determining whether deviations in form are so necessitated is placed in the Office of the General Counsel, as also is the responsibility for drafting the appropriate variation; but where a change in substance is involved as well, approval must also be obtained from the Office of Naval Material.

Because of limited space, consideration will be given in this chapter to the substantive features of the standard statutory and non-statutory clauses, and to the circumstances surrounding their use, rather than to the actual and

approved form or wording of each. It must be borne in mind that the proper use of any discretionary clause in a given procurement situation is not a mechanical, stereotyped process, but requires a careful analysis of the particular procurement and of the contract clauses necessary and desirable to embody that procurement in a firm and adequate contractual instrument.

CLAUSES BASED UPON STATUTES OR EXECUTIVE ORDERS

OFFICIALS NOT TO BENEFIT

The oldest mandatory clause required by statute and now in use is the one designed to prevent jobbing between members of the legislative and executive branches of the Government for the pecuniary advantage of the former. By the Act of April 21, 1808, (41 U. S. Code 22, and 18 U. S. Code 431-433) all contracts and agreements between members of Congress and the Federal Government, and also those between the Federal Government and others for the benefit of members of Congress, were prohibited. Said Act imposed a fine not only upon any offending member of Congress but also upon any official who entered into such a contract on behalf of the United States; moreover, all such contracts and agreements were declared void. The Act further required, quite apart from its criminal aspects, that every Government contract and agreement contain an express condition that no member of Congress should be admitted to any share thereof or to any benefit to arise thereupon. However, by its own terms the Act did not "extend to any contract or agreement made . . . by any incorporated company, where such contract or agreement shall be made for the general benefit of such incorporation or company. . . ."

The Act of 1808 has been slightly broadened, so that the civil or contracting portion of it (R.S. 3741, 41 U. S. Code 22) now provides in part as follows:

"In every contract or agreement to be made or entered into, or accepted by or on behalf of the United States, there shall

118 Op. Atty. Gen. 112, 113 (1885).

24 Op. Atty. Gen. 47 (1842).

39 Op. Atty. Gen. 165 (1938).

Providence Tool Co. v. Norris, 2 Wall. 45 (18664).

be inserted an express condition that no Member of or Delegate to Congress shall be admitted to any share or part of such contract or agreement, or to any benefit to arise thereupon."

And the criminal portion of the Act (R.S. 3739, 3740, 3742; 18 U. S. Code 431-433) has been extended to include Resident Commissioners.

Unlike the related criminal prohibition, the above-quoted contract requirement does not expressly except contracts with corporations for their general benefit, but the Attorney General has ruled that the exception also applies in that connection.' Thus, there exists the anomaly of the Government being prohibited from contracting with a partnership of which a Congressman is a member," while at the same time being permitted to contract with a corporation whose president is a member of Congress and who owns 30 percent of its corporate stock.3

Inasmuch as the civil statute is apparently coextensive with the permissions and the prohibitions of the penal statutes, the clause presently used in all Navy Department contracts (and for that matter, throughout the Government) forbids Resident Commissioners as well as members of and delegates to Congress from sharing in the contract, but expressly excepts contracts with corporations for their general benefit.

COVENANT AGAINST CONTINGENT FEES

The fundamental public policy against agreements for the payment of fees for the use of influence (real or imaginary) in obtaining Government business was first expressed by the Supreme Court in 1865. For the past thirty years it has been customary in Government contracts to formalize that policy by use of a clause or covenant in which the contractor warrants that it has not obtained the contract by any agreement to pay contingent fees.

With respect to contracts entered into pursuant to the First War Powers Act of 1941, paragraph 5 of Executive Order 9001 under that Act expressly required that each such contract contain a warranty by the contractor that it has not employed any person to solicit or secure the contract upon any agreement for a commission, percentage, brokerage or contingent fee, together with a provision that breach