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PREFACE

The following chapters of the Navy Contract Law Course were prepared by those lawyers, attached to the Office of the General Counsel for the Department of the Navy, who were considered to be best qualified to write in the respective fields covered by each chapter. Any views or opinions expressed must be considered to be the views or opinions of the individual authors, and are not necessarily to be regarded as official pronouncements of the Department or of the Office of the General Counsel.

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CHAPTER 1

NAVY PROCUREMENT AUTHORITY AND PRACTICES DURING WORLD WAR II AND THE TRANSITION TO PRESENT PEACETIME AUTHORITY AND PRACTICES*

INTRODUCTION

The role of the lawyer in an operating agency of Government has one striking difference from that of the lawyer in private practice. The latter is guided by the principle: What are the things my client can and cannot safely do without running afoul of some statutory or regulatory restriction? The Government lawyer, on the other hand, finds that his first question inevitably becomes: What is the authority under which my client can proceed? And only after he has found the affirmative authority does he look for the conditions, restrictions and limitations. The reason is elementary. The Government is one of delegated rather than of natural powers, and the Executive agencies in turn have only that authority which Congress or the President has chosen to grant out of their respective constitutional powers.

Narrowing the focus of this general observation to that of the Navy lawyer called upon to advise and guide the Department through the legal intricacies of doing business with American industry on a billion dollar scale annually, the lawyer soon finds that he must early familiarize himself with a field of law entirely new and different from that learned in the classroom or met with in civilian practice. He must know the statutes under which the Navy derives its authority to acquire the ships, planes, materials and supplies necessary to equip the most potent naval force in history; he must know the limitations on the expenditure of appropriations; and he must

* Prepared by Hudson B. Cox, General Counsel, Department of the Navy.

be thoroughly conversant with the decisions of the Comptroller General, which for a Navy lawyer are of more immediate importance than State or Federal reports.

It is the purpose of these several chapters to outline some of the more important phases in the field of Navy procurement and contract law. There will be considered such topics as: procurement by formal advertising, procurement by negotiation, types of contracts, fiscal problems in procurement, contract termination, renegotiation, Government-furnished property, property disposition, standard contract clauses, and contracting in the field of research. This introductory chapter will attempt to lay the groundwork for these topics by reviewing briefly the development of the Navy's current procurement organization and practices both before and during World War II, thereby furnishing an historical frame through which to view current Navy contract law practice.

By way of apology, at the outset, it should be explained that while the Navy has been less guilty than most Government agencies in coining novel terms to plague and confound the American businessman, there are two expressions which will recur frequently throughout these chapters that are foreign in some degree to the general usages of the commercial world. The term "procurement," far from having any sinister connotation, is used as a generic expression to denote the purchase or acquisition by the Government of property or services from others; and the term "facilities" is used to describe property acquired or used by others. in aid of production for the Government. A "facility" may be anything from a screwdriver

to an industrial plant, and it may be Government-owned or privately-owned.

HISTORICAL BACKGROUND

Prior to World War II, Navy procurement was governed by an astonishing mass of undigested and uncoordinated legislation-statutes that had accumulated on the books over a period of more than one hundred years. Many were completely archaic, many were conflicting, and not a few had been born to serve special and now forgotten interests. In the aggregate, they presented an obstacle to efficient and speedy purchasing that must have been the lament of many a supply officer. Shoes, brooms and brushes had to be purchased from the penitentiary at Leavenworth before they could be bought elsewhere (43 Stat. 7, 18 USC 775); brooms and mops had to be purchased from non-profit agencies for the blind unless procured for use outside the United States or required by any law in effect on June 25, 1938, to be procured from any Federal Department or agency (to avoid conflict with Leavenworth's prerogatives, it is assumed) (52 Stat. 1196, 41 USC 48). Hemp or preparations of hemp for naval purposes had to be purchased from domestic sources (12 Stat. 554, 34 USC 576), as did steel for ship construction (24 Stat. 215, 34 USC 481). No contract for supplies might be made abroad unless it had first been advertised for thirty days in two daily newspapers in New York City (34 Stat. 100, 34 USC 573). Purchase by formal advertisement and sealed bids was the almost inflexible rule (12 Stat. 220, 41 USC 5; and 26 Stat. 197, 34 USC 561). However, the general statute was not enough. There were special statutes requiring public competition for the purchase of gun steel or armor for the Navy (27 Stat. 732, 34 USC 566). Shells and projectiles could only be contracted for when proposals had been sent to all manufacturers of shells and projectiles. On the other hand, sundry exceptions were carved out of this general rule by the dictates of particular exigencies over the years. Preserved meats, pickles, butter, cheese and desiccated vegetables could be bought without formal advertising and sealed bids (29 Stat. 370, 34 USC 569; 12 Stat. 265, 34 USC 577). Tobacco had

its special rules (29 Stat. 370, 34 USC 570). Flour, bread, fuel and bunting could be bought by negotiation (12 Stat. 818, 13 Stat. 467, 9 Stat. 513, 34 USC 578, 579, 580), as could "plate iron and other material" for the construction of steam boilers for the Navy (20 Stat. 253, 34 USC 565). In 1926, the door was opened slightly to permit contracts for the production of experimental aircraft to be made on a basis of design competition rather than exclusively price competition (44 Stat. 784, 10 USC 310). Furthermore, under this pre-war system of purchase by formal advertisement, bid bonds as well as performance and payment bonds were mandatory (R.S. 3718, 3719, 3720; 34 Stat. 841, 34 USC 561-564); and to advertise in the District of Columbia, it was necessary to advertise in "one daily and one weekly newspaper of each of the two principal political parties" and in "one daily and one weekly neutral newspaper" (21 Stat. 317, 44 USC 323), a medium that must have been hard to find in election years!

It is little wonder that the first order of business of Congress after December 7, 1941, was to free wartime procurement from these shackles. The First War Powers Act (55 Stat. 839, 50 USC App. 611), signed by the President on December 18, 1941, within ten days of its introduction in Congress, in one bold gesture put emergency wartime buying on substantially as free a footing as that enjoyed by private enterprise. Section 201 of Title II of that Act permitted the President to authorize any Department or agency of the Government engaged in the war effort "to enter into contracts and into amendments and modifications of contracts heretofore or hereafter made and to make advance, progress and other payments thereon, without regard to the provisions of law relating to the making, performance, amendment or modification of contracts, whenever he deems such action would facilitate the prosecution of the war." (Italics supplied.)

The President was quick to extend to the Armed Services this emancipation from statutory confusion and restriction. On December 27, 1941, Executive Order 9001 authorized the War and Navy Departments and the U. S. Maritime Commission to exercise the full powers and freedom contemplated by Congress in

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