GAB Decision 024
June 29, 1976 Southern University Baton Rouge, Louisiana; Grant No.
OEG-6-71-0468; Docket No. 29 DeGeorge, Francis; Malone, Thomas Mason,
Malcolm
This case involves a grant for the conduct of an Emergency School
Assistance program dated March 1, 1971 and expiring February 28, 1972.
Two items of cost have been challenged. First, grantee had claimed
indirect costs at the rate of 14.5 percent of total direct costs or
$25,640.34 instead of 40 percent of direct salaries and wages or
$14,350.84. The indirect cost agreement negotiated November 10, 1971
clearly sets forth a final rate for the period July 1, 1968 through June
30, 1971 at 40 percent of direct salaries and wages and a pre-determined
rate for the period July 1, 1971 through June 30, 1972 at the same 40
percent rate. This covers the period of the grant. We rule against
grantee on this issue.
Second, the grantee entered into a contract with Essential Resources,
Incorporated, to perform a series of tasks related to the performance of
vaguely described services related to the grant program. The contract
did not have prior written approval and was not within the scope of the
budget approved in writing by HEW. Grantee appears to have relied in
good faith on oral representations made by persons it believed to be
authorized spokesmen of HEW but these persons did not in fact have such
authority. This conclusion is not challenged by the Regional
Commissioner. Specific elements of the fact background are taken here
from an affidavit incorporated in grantee's appeal and not challenged by
the Regional Commissioner.
Grantee submitted four successive proposals. The second was
apparently the only one actually approved by someone authorized by HEW
to do so. After that proposal was submitted an unidentified person
instructed the University according to the affidavit submitted to meet
two "representatives from HEW in Washington, D. C." in New Orleans.
One
of these was a Mr. Paul Walsh who was reasonably taken under the
circumstances of the meeting and later meetings to be an HEW employee
but is nowhere shown to have had any authority to deal with this matter.
The University representative met Walsh in New Orleans. Walsh was
unaware that a second proposal had been submitted. He instructed the
University representative to submit two readjusted budgets. The first
readjusted budget was to pad the line items by $45,000. The second was
to be submitted only after the first was approved and was to transfer
the padded amount to the External Evaluation and Special Consultants
categories to cover a contract with ERI, selected by Walsh over the
University's objection.The first budget was orally "approved" by a
phone
call from an unidentified caller at Pararieview, Texas. The second
budget was then submitted and the University reluctantly entered into
the contract with ERI, having been threatened that all its grants would
be frozen if it failed to do so. Walsh later appeared with HEW
personnel at a Regional conference on HEW grants held at Southern
University.
Several circumstances should have combined to trigger skepticism on
the part of the University as to the authority claimed. The alleged HEW
spokesman, in a crucial meeting, was uninformed as to the status of the
case on which he purported to give instructions. The contract the
alleged spokesman asked to have incorporated in the project was one the
University knew was worthless. The University's reliance under the
circumstances was therefore questionable. Moreover, the alleged
spokesman specifically directed the University to misrepresent its
proposal and budget by deliberately padding its budget and then
submitting an amended budget after approval was obtained.This direction
to misrepresent should have alerted the University to the questionably
official character of the direction received.
The contract with Essential Resources, Inc., would appear to be a
service contract under Article 19 of the applicable grant conditions and
required advance written approval which grantee did not have.
The situation facing grantee is a harsh one since it appears to have
acted in good faith and to have been misled by misrepresentations of
persons it thought were authorized to speak for the Department.
Sympathy for grantee's plight is, however, not sufficient to warrant our
setting aside of the disallowance determination of the appropriate
Regional Office.
Reliance on oral approvals and understandings creates several risks
for grantee and grantor. Grantee may misrepresent what was said orally;
grantee may have misunderstood what was said orally; grantee may have
been misled by unauthorized representations which can more readily and
with less risk be made orally than in writing. The OE grant
requirements were for written approval by the grant officer. This
requirement is a protection not only to OE but also to grantees who are
thereby warned that they require a writing to protect themselves.
Grantee's failure to obtain written approval in this case has created a
loss for which grantee and not HEW was responsible and, with recognition
of the harshness of the result, we rule against the grantee.
CONCLUSION
Accordingly, the appeal is rejected on the issue of the Essential
Resources contract for failure of the grantee to have complied with
provisions of Article 19 of the applicable grant conditions requiring
advance written approval, and, on the issue of indirect cost, because of
the controlling effect of the indirect cost agreement negotiated
November 10, 1971.
OCTOBER 04, 1983