210 ORGANIZING SCIENTIFIC RESEARCH FOR WAR 



as being analogous to the prohibited "cost plus a percentage of cost" type 

 of contract. OSRD attorneys and the General Counsel for the Office for 

 Emergency Management agreed that the OSRD contract was perfecdy legal; 

 and their position was later supported by an unpublished decision of the 

 Comptroller General. 



Since OSRD industrial contractors had acceptable cost accounting systems, 

 it was undesirable to attempt to set up a schedule for the determination 

 of their overhead costs under OSRD contracts. OSRD contract cost account- 

 ants normally followed the contractor's cost accounting system when it was 

 in accordance with accepted accounting practices; and they normally allowed 

 necessary and reasonable expense items charged thereunder as outlined in 

 the pamphlet Explanation of Principles for Determination of Costs under 

 Government Contracts, which was issued in April 1942 by the War and 

 Navy Departments. This booklet (generally known as the "Green Book") 

 was a summary of Treasury Decision 5000 which defined and listed ad- 

 missible and inadmissible costs under Government contracts. However, 

 since that decision was concerned with costs under profit contracts, the 

 "Green Book" was not followed blindly in determining legitimate expendi- 

 tures under contracts executed on a cost basis. 



While it was impossible to establish any general rule for the appordon- 

 ment of overhead costs to OSRD contracts, it was found that the appor- 

 tionment could often be made equitably on the basis of the relation which 

 the direct labor (hours or dollars) properly chargeable to the pertinent 

 OSRD contract bore to the total direct labor involved in all the contractors' 

 operations during the same period. 



The expansion of OSRD work with the consequent increase in the scale 

 of operations under OSRD contracts meant greatly expanded payrolls and 

 increased overhead payments based on those rolls. The situation clearly 

 called for a study of the accounts of the larger contractors. A small but 

 effective stafi was built up under W. F. Edwards, whose sole funcdon was 

 to check overhead expenses of OSRD contractors. No attempt was made to 

 inspect the record of indirect costs of smaller contractors. The staf? was too 

 small to permit a check under every contract; the amount received under 

 the overhead provision of smaller contracts was small; and the audits made 

 of other contractors showed that the 50 per cent allowance had closely 

 approximated actual costs during the period when the contract operations 

 were small. 



The problem of ascertaining the amount of indirect costs was one pecul- 

 iarly of the nonprofit institutions. Academic institutions had not been under 

 the necessity of handling their accounts in as much detail as the industrial 

 concerns, and there was considerable variation among them. Likewise there 

 was a substantial range of opinion among university fiscal oflScers as to what 

 constituted a proper charge against an allowance for indirect expenses. 



