APPENDIXES

APPENDIX II

REGULATIONS GOVERNING THE EXERCISE OF CERTAIN AUTHORITY GRANTED BY TITLE II OF THE FIRST WAR POWERS ACT, AS AMENDED, AND EXECUTIVE ORDER No. 10210, ISSUED THEREUNDER

PART I. GENERAL CONSIDERATIONS

1. By title II of the First War Powers Act, 1941 (50 U. S. C. App., sec. 611), as amended by Public Law 921, Eighty-first Congress (herein referred to as the "act") and Executive Order No. 10210, dated February 2, 1951, set forth respectively in enclosures (1) and (2) hereto, the Secretaries of Defense, Army, Navy, and Air Force have authority, under such regulations as may be prescribed or approved by the Secretary of Defense, to enter into contracts and into amendments or 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.

2. These regulations set forth the standards governing the exercise of certain of the authority made available by said act and Executive order. These regulations do not purport to cover all the authority conferred by the act and Executive order, but are confined to (a) amendments of contracts without consideration, (b) correction of mistakes in contracts, and (c) formalization of informal commitments. The exercise of other authority conferred by the act and Executive order will await the issuance of supplemental regulations.

3. The authority granted by the act and Executive order as described herein is an extraordinary one and its exercise must be carefully administered. Carelessness and laxity on the part of contractors should not be encouraged by the practice of granting relief to such contractors even though denial of relief in a particular case may result in some lack of cooperation on the part of a contractor.

PART II. STANDARDS GOVERNING EXERCISE OF AUTHORITY

1. Any action taken under this part II must be based on a finding that the national defense will be facilitated thereby.

2. The determination of whether in a particular case a contract amendment to be entered into without consideration, or the correction of a mistake or ambiguity in a contract, or the formalization of an informal commitment will facilitate the national defense is a matter of sound judgment to be made on the basis of all of the facts of such case. Although it is obviously impossible to predict or enumerate all the types of cases with respect to which relief may appropriately be granted, examples of certain cases or types of cases where relief may be proper are set forth below. Such enumeration is not intended to exclude other cases where the circumstances are such as to warrant the granting of relief, and even in the enumerated cases other factors may result in a denial of relief.

(a) Amendments without consideration

(1) Where an actual or threatened loss on a defense contract, however caused, will impair the productive ability of a contractor whose continued opera-

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tion as a source of supply is found to be essential to the national defense, the contract will generally be equitably adjusted to the extent necessary to avoid such impairment of the contractor's productive ability.

(2) Where a contractor suffers a loss (not merely diminution of anticipated profits) on a defense contract as a result of Government action, the character of the Government action will generally determine whether any adjustment in the contract will be made and its extent.

(a) Where the Government action is directed primarily at the contractor and is taken by the Government in its capacity as the other contracting party, the contract may be equitably adjusted if fairness so requires. Thus, where such Government action, although not creating any liability on its part, increases the cost of performance, considerations of fairness may make appropriate some equitable adjustment in the contract.

(b) When the action is not taken by the Government in its capacity as the other contracting party, but in its sovereign capacity, relief will generally not be granted. However, exceptional cases, depending on the nature of the action, the circumstances, and the effect on the contractor, may require an equitable adjustment in the contract when necessary to insure maximum cooperation and production in the national defense effort.

(b) Correction of mistakes

(1) Effecting amendments of contracts with the least possible delay to correct mutual mistakes and ambiguities will facilitate the national defense by expediting the procurement program and by giving contractors proper assurance that such mistakes and ambiguities, unavoidable in expanded defense program, will be corrected expeditiously and fairly. As used herein the term "mutual mistakes" shall include:

(a) A mistake which consists of the failure to express in a written contract the agreement as both parties understood it;

(b) A mistake on the part of the contractor which is so obvious that it was or should have been apparent to the contracting officer; and

(c) A mutual mistake as to a material fact.

(c) Formalization of commitments

(1) Where any person has arranged to furnish or has furnished, on or after June 25, 1950, to a contracting agency of the Department of Defense or to a defense contractor any materials, services, or facilities relating to the national defense, without a formal contract, relying in good faith upon the apparent authority of an officer or agent of such contracting agency, written or oral instructions, or any other request to proceed from a contracting agency, such contracting agency may enter into an appropriate contract providing fair compensation therefor. Formalization of such commitments under such circumstances will facilitate the national defense by assuring contractors, who have taken action to expedite performance or delivery without a formal contract, that they will be treated fairly and paid expeditiously.

PART III. CONTRACTUAL PROVISIONS AND RECORD REQUIREMENTS

1. All contracts and amendments to contracts made under the authority of the foregoing regulations shall

(a) Make reference to the act and the executive order;

(b) Contain a statement of the facts and circumstances which justify action;

(c) Include a finding that the national defense is facilitated thereby; and

(d) Include the following clause:

"Examination of records

"(a) The contractor (which term as used in this clause means the party contracting to furnish the supplies or perform the work required by this contract) agrees that the Comptroller General of the United States or any of his duly authorized representatives shall have access to and the right to examine any pertinent books, documents, papers, and records of the Contractor involving transactions related to such contract.

"(b) The Contractor agrees to insert the provisions of this clause, including this paragraph (b), in all subcontracts hereafter made."

2. Complete data shall be maintained by each Department as to all contracts and amendments to contracts made pursuant to the act, Executive order, and these regulations.

PART IV. EXERCISE OF AUTHORITY

1. The authority to approve requests for amendments of contracts without consideration, as referred to in part II of these regulations, will not be delegated below the level of a contract adjustment board to be established in each department. Each such board may be delegated the power of final determination. 2. The authority to approve requests for correction of mistakes and ambiguities in contracts and for formalization of informal commitments, as referred to in part II of these regulations, will not be delegated below the level of the head of a procuring activity, as defined in paragraph 1-201.4 of the Armed Services Procurement Regulations, without specific approval of the Under or Assistant Secretary for Procurement.

3. The exercise of authority under these regulations will be in accordance with detailed instructions or directives, which shall be uniform to the extent practicable, issued by each department concerned.

PART V. REPORTS

The Secretary of each Department shall submit quarterly a report of activities under these regulations in the form to be prescribed by the Chairman of the Munitions Board.

Approved.

FEBRUARY 21, 1951.

JOHN T. KOEHLER,

Assistant Secretary of the Navy.
ARCHIBALD S. ALEXANDER,

Under Secretary of the Army.
EUGENE M. ZUCKERT,

Assistant Secretary of the Air Force.

ROBERT A. LOVETT,

Deputy Secretary of Defense.

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