tion, no problem is presented. The same answer may be given with respect to those industrial installations which have been sold to contractors in possession subject to the terms of the so-called "national security clause" under which, although title has been transferred to the purchaser, the latter agrees to keep the installation available for national defense purposes, without substantial alterations, for a twenty-year period; and agrees further that the Secretary of the Navy may, during such term, take possession of the facilities for stated periods whenever the interests of national defense so require. However, many situations have arisen in which the sale or other disposition of industrial installations is not feasible or in which retention as a part of the national industrial reserve is in the best interests of the Government. In these cases, such installations may be leased to contractors in possession or to third parties under the authority granted by the Act of August 5, 1947 (34 U. S. Code 522a). Under such leases, the lessee is given the right to use the facilities for general industrial purposes (including Government work) is charged a negotiated rental for such right to use, and is required to maintain the facilities in accordance with sound industrial practice. The lessee is also required to bear any loss of or damage to the facilities to the extent that such loss or damage arises from risks with respect to which, and to the extent that, insurance is required by the Government. The Insurance Branch of the Office of Naval Material normally requires the lessee, at its own expense, to take out insurance in specified amounts with respect to fire and extended coverage and steam-boiler explosion damage and, when applicable, requires normal commercial coverage on piers, wharves, bulkheads, dry docks, and cranes. In effect, therefore, the Government assumes the risk of loss of or damage to the facilities only in cases where such loss or damage results from causes beyond the control of the lessee and which are occasioned by a risk not in fact covered by insurance, and not customarily covered in the locality in which the facilities are situated. Unlike the Governmentownership form of contract, leases made under the provisions of said Act of August 5, 1947, do not contain provisions indemnifying the

contractor against claims for damages to the person or property of third persons. In lieu thereof, such leases expressly provide that the lessee shall indemnify the Government against any liability incurred as a result of the lessee's occupancy or use of the facilities, whether or not caused by the negligence of the lessee, its agents, officers, servants, or employees.

CONCLUSION

The various legal questions with respect to industrial plant expansion which have been presented in the preceding pages of this chapter represent only the more important aspects of the problem. Space has not permitted a discussion of the contractual provisions dealing with reductions in or additions to the facilities to be constructed, subcontracts and purchase orders, inspection, suspension or termination, rental, standby, patent infringement, recordation and filing, records, transfer of the contract and assignment of claims, labor, wage, and non-discrimination provisions, and agreements made with the contractor with respect to the land on which the facilities are located. All of such provisions will require careful study if a lawyer wishes to understand the legal machinery and requirements of Governmentownership contracts.

In order to illustrate the manner in which a Navy procurement lawyer may best serve his client, it may be helpful to consider a few specific points which can be expected to arise in a typical negotiation involving a cost-type contract to be entered into with an industrial corporation. Let us assume that you, as the Navy procurement lawyer, are called in on such negotiations. You have already ascertained that procurement need not be by formal advertising but may be by negotiation under Section 2(c) of the Armed Services Procurement Act, and have also satisfied yourself that funds are available under an appropriation which authorized such procurement. The Navy negotiator states that the contract will provide for the erection of a building by the contractor for the account of the Government on land owned by the contractor, such building to be fully equipped by the Government with machine tools and other equipment necessary to make it a complete plant. You then ask the Navy

negotiator why the building is not being erected on Government land and, upon receiving a satisfactory answer, you point out that, if the Government's interest in the building is to be adequately protected, the Government should have an option to purchase the land on which the building is to be erected. If counsel for the contractor suggests that the contractor should have an option to purchase the building, you must be prepared to cite chapter and verse of the statute which gives authority to the Navy to grant such an option or, if such statute does not exist, you must advise the Navy negotiator that the option cannot legally be granted. If the Navy negotiator proposes to include, in the list of items to be supplied by the contractor, such things as portable hand tools and typewriters, it would be appropriate to point out that, although the inclusion or exclusion of such items is a wholly non-legal matter, the deal would be a better one, from the business angle alone, if the equipment to be supplied were limited to items which were not so expendable or so easily lost or stolen. If it is essential that the contractor be supplied with such items (and this determination is, of course, the responsibility of the Contracting Officer), it would also be appropriate to point out that this distinct benefit to the contractor should be offset by a quid pro quo in favor of the Government at another stage of the negotiations. Examples could be multiplied, but sufficient indication has been given of the scope of the lawyer's duties in a negotiated transaction involving a Government-ownership contract to illustrate the point that the Navy procurement lawyer should be as prepared to justify the business aspects of deals negotiated by Navy personnel as he must be to support the legal aspects of such deals. It follows, and this rule should never be forgotten, that sound law and sound business always go hand in hand.

Since the preceding paragraph of this part deals with a post-war hypothetical negotiated contract for the construction of an industrial installation, it is advisable to consider existing statutory authority covering Government construction or acquisition of industrial installations after V-J Day. Although, at the time this is written, the national emergency has not yet been terminated, it can hardly be contended

that the Secretary of the Navy could now make a finding that "the prosecution of war" required him to authorize the construction of an industrial installation even if appropriations were available for such purpose. Accordingly, such facilities authority as may be contained in the First War Powers Act (the Navy has always insisted that the First War Powers Act was procedural only) and in the Act of December 17, 1942 (56 Stat. 1053, 5 U. S. Code app. 1201), would appear not to be presently available.

The Act of July 2, 1940 (54 Stat. 712, 50 USC app. 1171-1172), which was made applicable to the Department of the Navy by Executive Order 9262, dated November 5, 1942, authorized the Secretary of the Navy to acquire, construct, operate, and maintain “plants, buildings, facilities, utilities, and appurtenances thereto" whenever he deemed such action essential for national defense purposes. Consequently, and until Title I of the First War Powers Act is terminated, said Act of July 2, 1940, may be said to be the only substantive authority for facilities acquisition which the Navy now has aside from specific authorizations contained in annual Navy appropriation acts and aside from the Public Works Authorization Acts and Public Law 588, 79th Congress (50 U. S. Code 475). The Public Works Authorization Acts are enacted annually and contain authority to construct facilities by specific projects, cognizance of such projects being given to the Bureau of Yards and Docks. Public Law 588 created the Office of Naval Research and, in connection therewith, gave such office authority to acquire machine tools and other equipment essential to the conduct of research and development work. However, the Office of Naval Research has taken the position that such authority is not sufficiently broad to permit it to construct or acquire permanent buildings or to make substantial improvements to real property.

In addition to the foregoing, reference may be made to facilities authorizations, which vary from year to year, given to the Bureau of Ordnance by annual appropriation acts, and to Public Law 547, 80th Congress (62 Stat. 258, 50 USC app. 1193), which gave the Bureau of Aeronautics a specified sum for new construc

tion and procurement of aircraft and equipment "including expansion of public plants or private plants (not to exceed $500,000) and Government-owned equipment and installation thereof in public or private plants. . . ."

In conclusion, therefore, it would appear that the Act of July 2, 1940, as made applicable to the Navy, is the only general facilities authority which the Navy has at the present time and that, aside from the provisions of specific stat

utes applicable to designated bureaus and offices of the Department, facilities authority must be found in the language of annual appropriations. It should also be noted that the general facilities authority contained in the Act of July 2, 1940, even though available for use at the present time, can not be utilized unless Congress has appropriated funds for national defense purposes or for public works generally.

INTRODUCTION

Of the many subjects dealt with in the Navy Contract Law Course, only one is dignified by having its roots in the Constitution itself. Article IV, Section 3 of the Constitution provides:

"The Congress shall have power to dispose of and make all needful rules and regulations respecting the Territory or other property [emphasis supplied] belonging to the United States; and nothing in this Constitution shall be so construed as to prejudice any claims of the United States or of any particular State."

This provision of the Constitution is the foundation upon which the authority to dispose of Government property rests. It is only appropriate, therefore, that this chapter commence with a consideration of the meaning and significance of Article IV, Section 3.

The cases construing the above quoted language hold that Congress has absolute power concerning the disposal of real and personal property owned by the Government. In one of the early cases, United States v. Nicoll, 1 Paine 646 (C.C.N.Y. 1826), an Army captain sold certain lead belonging to the Government. The Treasury Department brought an action against the purchaser for the price of the lead, and the court held that the Army captain was merely an agent for safekeeping and had no authority to sell the lead. The court stated that lead "being property of the United States, nothing short of the authority of an Act of Congress would justify its sale originally." More recently, in the case of Ashwander v. Tennessee Valley Authority, 297 U.S. 288 (1935), the Supreme Court held that electric energy generated by a Government-owned power plant is "property belonging to the United States" within Article IV, Section 3 of

Prepared by Ernest L. Rushmer, Assistant to the General Counsel, Department of the Navy.

the Constitution. Similarly, in the case of Alabama v. King & Boozer, 314 U. S. 1 (1941), the Supreme Court considered personal property of the United States to be within Article IV, Section 3 of the Constitution.

It would, therefore, appear to be clear that the disposal of both real and personal property is subject to the authority of Congress. However, specific statutory authority is not under all circumstances required for all disposals of Government property. Thus, when the Secretary of the Navy was unable to obtain bids on a vessel offered for sale pursuant to statutory authority, the Attorney General, in 28 Op. Atty. Gen. 470 (1910), held that it was within the inherent authority of the Secretary, as executive custodian of Government property, to salvage the engines and other equipment and to destroy the hull. Hence, the Attorney General did not feel that specific action by Congress was essential to authorize the Secretary to abandon property of the Government, clearly a definite form of disposition. It is arguable that such inherent authority stems from the statutory organization of the executive departments of the Government and thus satisfies Article IV, Section 3. For instance, the Comptroller General, in 28 Comp. Gen. 38 (1948), held that the inherent authority of an executive department includes the authority to sell excess power generated at a power plant of a Government department notwithstanding the absence of a specific statute authorizing such sale. (Compare with the Ashwander case, supra.) Although the Court of Claims, in Flores v. United States, 18 Ct. Cl. 352 (1883), held that no department of the Government, in the absence of statutory authority therefor, may lease private lands under the terms of which improvements made by the Government shall revert to the owner, the Attorney General, in 23 Op.

Atty. Gen. 163 (1900), approved the sale of personal property of the Government in the absence of statutory authority therefor where the Government would have otherwise suffered a total loss of the value of the property. In 32 Op. Atty. Gen. 114 (1920), the Attorney General held that a Government contractor obtained valid title to buildings erected upon his land pursuant to a contract with the War Department calling for the erection of a chemical plant and providing, as part of the consideration moving to the contractor, that the buildings would become property of the contractor at the "termination of the present war." The latter case may be distinguished from the usual Government property situation since the plant was not in esse at the time the contract contemplating its ultimate disposal was entered into.

In general, disposal of Government-owned property within the Navy is currently related (a) to the winding up of war contracts, disposal of vessels, and the disposal of the personal and real property no longer required in the naval establishment; (b) to the disposal of Government-owned property in connection with current procurement; and (c) to the leasing under Public Law 364, 80th Congress (61 Stat. 774, 34 U. S. Code 522a), of property not for the time being required for use by the Navy. With respect to (a), until the enactment of Public Law 862, 80th Congress, all such disposals, with certain exceptions noted below, were governed by the Surplus Property Act of 1944 (58 Stat. 765, 50 U. S. Code App. 1611-1646) and its companion legislation, the Contract Settlement Act of 1944 (58 Stat. 649, 41 U. S. Code 101-125). Since June 30, 1948, as provided in Public Law 862, the Surplus Property Act has not been applicable to property "which has not been declared surplus" on or before such date, and the legal basis for disposal of Navy property not so declared must be found under "other existing law." Primary consideration will be given, therefore, to legislation other than the Surplus Property Act. It is to be noted, however, that Public Law 862 did not repeal the Surplus Property Act.

The disposal of "facilities," which term connotes all forms of productive property from

machine tools to complete industrial plants, raises some of the more important and interesting questions to be considered in this chapter. Such facilities were furnished to contractors under several wartime statutes including Public Law 671, 76th Congress (54 Stat. 676, 50 U. S. Code App. 1151-1162), which authorized the Navy to furnish facilities to contractors whether located on privately-owned land or on land under the ownership or control of the Government; and Public Law 703, 76th Congress (54 Stat. 712, 50 U. S. Code App. 1171), which was made applicable to the Navy by Executive Order No. 9262 (dated November 5, 1942, 7 F.R. 10179) and which authorized the sale or other disposition of facilities furnished thereunder if such sale or other disposition was in the interest of the national defense. The enactment of Public Law 862, supra, the difficulty of determining at this late date that a sale of a "war-built" plant is in the interest of national defense, and the limited application of Public Law 703 to Navy facilities, raises a number of disposal problems which will be discussed under headings entitled "Sales to the Public" and "The Relation of Property Disposal to Procurement."

Statutes relating to the disposal of property excess to the needs of one Government agency generally require that, prior to disposition outside of the Government, other agencies of the Government shall have an opportunity to acquire such property by transfer from the owning agency. Thus, the Act of July 11, 1919 (41 Stat. 67, 40 U. S. Code 311) requires the several executive departments and agencies to purchase, insofar as possible, material, supplies, and equipment from other Government departments possessing such property "no longer required because of the cessation of war activities." Section 12 of the Surplus Property Act also reflects the general policy that Government agencies should utilize property of other Government agencies before such property is made available for disposition outside the Government.

The Act of July 11, 1919, and the Surplus Property Act, in line with long-established Congressional policy, provide, with certain exceptions, that the proceeds of sales of Government property, including those between departments