B-156084, APR. 13, 1965, 44 COMP. GEN. 623

B-156084, APR. 13, 1965, 44 COMP. GEN. 623

CONTRACTS - DEFAULT - PERFORMANCE DEFICIENCIES - DISPOSITION OF RECOVERED AMOUNTS. CONTRACTS - DAMAGES - LIQUIDATION - DISPOSITION THE FUNDS FOR RECOVERY FROM A DEFAULTING CONTRACTOR OR HIS SURETY FOR THE COST, ESTIMATED IN 1964, OF CORRECTING DEFECTS AND OMISSIONS IN A RESEARCH LABORATORY CONSTRUCTED FROM THE 1960 ANNUAL APPROPRIATION FOR "SALARIES AND EXPENSES, AGRICULTURE RESEARCH," AND OF PUTTING INSTALLED EQUIPMENT INTO OPERATING CONDITION MAY BE CREDITED TO THE APPROPRIATION OR ITS SUCCESSOR ACCOUNT AND APPLIED TO THE REPLACEMENT CONTRACT, AN ANNUAL APPROPRIATION REMAINING AVAILABLE AFTER THE CLOSE OF A FISCAL YEAR TO COVER THE COST OF COMPLETING A CONTRACT PROPERLY LET WITHIN THE FISCAL YEAR PROVIDED A NEED FOR THE WORK EXISTED WHEN THE ORIGINAL CONTRACT WAS LET, THE GENERAL RULE THAT RECOVERY OF LOSSES OR DAMAGES RESULTING FROM THE FAILURE OF CONTRACTORS TO PERFORM MUST BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, PURSUANT TO 31 U.S.C. 484, HAVING NO APPLICATION, WHETHER INVOLVING AN ANNUAL OR NO-YEAR APPROPRIATION, AND, THEREFORE, THE CONTRACT PAYMENTS HAVING EXCEEDED THE VALUE OF SATISFACTORY PERFORMANCE, AMOUNTS RECOVERED MAY BE CREDITED TO THE APPROPRIATION OR ITS SUCCESSOR ACCOUNT. THE LIQUIDATED DAMAGES ASSESSED FOR DELAYS OCCURRING PRIOR TO THE CONDITIONAL ACCEPTANCE IN 1961 OF A BUILDING CONSTRUCTED FROM FUNDS MADE AVAILABLE IN THE 1960 ANNUAL APPROPRIATION FOR "SALARIES AND EXPENSES, AGRICULTURE RESEARCH," UPON SATISFACTION OF THE DEMAND FOR PAYMENT MADE IN 1964, WHEN THE CONTRACT WAS TERMINATED, ARE FOR DEPOSIT OR RETENTION IN THE APPROPRIATION ORIGINALLY CHARGED, OR ITS SUCCESSOR ACCOUNT.

TO THE ACTING ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, APRIL 13, 1965:

REFERENCE IS MADE TO YOUR LETTER DATED FEBRUARY 5, 1965, REQUESTING OUR OPINION AS TO WHETHER UNDER THE CIRCUMSTANCES DESCRIBED BELOW FUNDS TO BE RECOVERED FROM A DEFAULTING CONTRACTOR OR HIS SURETY MAY BE APPLIED TO A NEW CONTRACT FOR COMPLETION OF UNFINISHED CONTRACT WORK, OR WHETHER THE FUNDS RECOVERED MUST BE RETURNED TO THE TREASURY.

IT APPEARS THAT AT THE REQUEST OF THE DEPARTMENT OF AGRICULTURE, PURSUANT TO THE APPROPRIATION FOR "SALARIES AND EXPENSES, AGRICULTURAL RESEARCH" CONTAINED IN THE DEPARTMENT OF AGRICULTURE AND FARM CREDIT ADMINISTRATION APPROPRIATION ACT, 1960, 73 STAT. 167, THE GENERAL SERVICES ADMINISTRATION UNDERTOOK TO CONSTRUCT THE ENTOMOLOGY RESEARCH LABORATORY AT THE STATE COLLEGE, MISSISSIPPI. CONTRACT NO. GS-00-B 2848 WAS AWARDED TO G. E. GASS AND COMPANY, INC., ON JUNE 30, 1960, IN THE AMOUNT OF $1,075,484. THE NOTICE TO PROCEED WAS RECEIVED BY THE CONTRACTOR ON JULY 21, 1960, THUS ESTABLISHING A COMPLETION DATE OF AUGUST 15, 1961. BY CHANGE ORDERS, THE CONTRACT AMOUNT WAS INCREASED TO $1,098,046.85 AND BECAUSE OF EXCUSABLE DELAYS THE TIME WAS EXTENDED TO SEPTEMBER 8, 1961. THE WORK WAS SUBSTANTIALLY COMPLETED BY SEPTEMBER 12, 1961, AND THE BUILDING WAS ACCEPTED, SUBJECT TO CORRECTION OF AN ITEMIZED LIST OF DEFECTS AND OMISSIONS, ON SEPTEMBER 20, 1961. IMMEDIATELY AFTER OCCUPANCY, THE OCCUPANTS BEGAN TO EXPERIENCE REPEATED AND CONTINUING DIFFICULTIES WITH THE HEATING AND AIR-CONDITIONING EQUIPMENT. SOME OF THE DIFFICULTIES WERE CAUSED BY THE EQUIPMENT ITSELF AND THE REMAINDER BY IMPROPER METHODS OF INSTALLATION. DURING THE PERIOD FROM OCTOBER 16, 1961, THROUGH JULY 24, 1962, THE SUPERVISING ARCHITECT SENT THE CONTRACTOR FIFTEEN LETTERS CONCERNING THESE EQUIPMENT PROBLEMS AND OTHER DEFECTS AND OMISSIONS. JULY 24, 1962, MANY OF THE ITEMS ON THE LIST OF MECHANICAL DEFECTS AND OMISSIONS HAD BEEN CORRECTED. A GOVERNMENT RE-INSPECTION WAS, THEREFORE, MADE ON AUGUST 6, 7, AND 8, 1962, FOLLOWING WHICH THE CONTRACTOR WAS FURNISHED WITH A REVISED LIST OF DEFECTS AND OMISSIONS FOR CORRECTION INCLUDING BOTH ITEMS REMAINING FROM THE ORIGINAL LIST AND ADDITIONAL ITEMS WHICH HAD COME TO LIGHT IN THE ENSUING PERIOD OF OCCUPANCY OR DURING THE INSPECTION. THE CONTRACTOR COMMENCED OTHER CORRECTIVE WORK ON AUGUST 20, 1962. IN RESPONSE TO AN INQUIRY AS TO WHEN ALL CORRECTIONS WOULD BE COMPLETED, THE CONTRACTOR REPLIED WARRANTING COMPLETION BY NOVEMBER 1, 1962, BUT ADVISING THAT HIS FIRM WAS LIQUIDATING. ON NOVEMBER 29, 1962, AN EXTENSION OF 30 DAYS WAS GRANTED FOR COMPLETION OF THE REMAINING WORK, AFTER WHICH THE CONTRACTOR WAS WARNED THAT ACTION WOULD BE TAKEN TO HAVE ANY REMAINING ITEMS COMPLETED BY ANOTHER CONTRACTOR AND THE EXCESS COSTS CHARGED TO HIS ACCOUNT. THE SURETY WAS SIMILARLY INFORMED. DESPITE SUBSEQUENT EFFORTS TO SECURE COMPLETION BY BASS, SOME WORK REMAINED. AFTER ANOTHER INSPECTION IN MID-MAY 1963, IT WAS ESTIMATED THAT THE COST OF REPAIRING AND CORRECTING DEFICIENCIES IN THE AIR-CONDITIONING SYSTEM WOULD BE APPROXIMATELY $12,000. BOTH CONTRACTOR AND THE SURETY WERE ADVISED THAT UNLESS WORK ON THIS EQUIPMENT WAS COMMENCED AS OF MAY 23, ARRANGEMENTS WOULD BE MADE FOR ANOTHER CONTRACTOR TO COMPLETE THE WORK AND THE EXCESS COSTS WOULD BE CHARGED TO BASS OR THE SURETY. ON MAY 30, 1963, THE SURETY REPLIED DENYING ANY OBLIGATION OR RESPONSIBILITY AND DECLINING TO ACCEPT ANY CHARGES IF THE WORK WERE PERFORMED BY ANOTHER CONTRACT. THEREAFTER, A CONTRACT FOR $11,500 WAS ENTERED INTO FOR PUTTING THE AIR- CONDITIONING SYSTEM INTO OPERATING CONDITION.

STILL ANOTHER INSPECTION WAS MADE ON OCTOBER 15 AND 16, 1963, AT WHICH TIME IT WAS ESTIMATED THAT IT WOULD COST APPROXIMATELY $12,585 TO CORRECT THE REMAINING DEFECTS AND OMISSIONS OTHER THAN THE AIR CONDITIONING ITEMS WHICH WERE COVERED UNDER THE REPLACEMENT CONTRACT.

ON FEBRUARY 6, 1964, WHEN THE CONTRACT WITH BASS WAS TERMINATED, DEMAND WAS MADE FOR PAYMENT BY THE CONTRACTOR TO THE GOVERNMENT IN THE AMOUNT OF $15,114.67, COMPUTED AS FOLLOWS:

TABLE

A. ESTIMATED COST OF ITEMS OF WORK REQUIRED BY

THE TERMS OF THE CONTRACT, REMAINING

UNCOMPLETED $12,585.00

B. LIQUIDATED DAMAGES 280.00

C. REPLACEMENT CONTRACT, AIR-CONDITIONING

SYSTEM 11,500.00

$24,365.00

D. LESS UNPAID BALANCE UNDER THE CONTRACT 9,250.33

TOTAL DUE THE GOVERNMENT $15,114.67

THE CONTRACTOR FILED AN APPEAL UNDER THE DISPUTES CLAUSE OF ITS CONTRACT ON MARCH 30, 1964, BUT FAILED TO RESPOND TO SIX REQUESTS OF THE GSA BOARD OF CONTRACT APPEALS FOR A STATEMENT OF POSITION RELIED UPON, AND LIKEWISE FAILED TO RESPOND TO AN INQUIRY AS TO WHETHER BASS WAS STILL INTERESTED IN PURSUING THE APPEAL. THE BOARD FINALLY DISMISSED THE APPEAL ON OCTOBER 22, 1964.

ASSUMING THAT STEPS TO COLLECT THE $15,114.67 FROM THE CONTRACTOR OR ITS SURETY ARE SUCCESSFUL, YOU FEEL THAT IT WOULD BE HIGHLY DESIRABLE TO APPLY THE FUNDS TO A REPLACEMENT CONTRACT FOR COMPLETION OF THE REMAINING UNFINISHED ITEMS OF WORK. DOUBT AS TO WHETHER THIS IS PERMISSIBLE HAS ARISEN BECAUSE OF THE INTERPRETATION IN 37 COMP. GEN. 246 OF TITLE I,"SALARIES AND EXPENSES, AGRICULTURAL RESEARCH SERVICE" OF A PREVIOUS APPROPRIATION FOR THE DEPARTMENT OF AGRICULTURE. THERE, IT WAS DETERMINED THAT THE APPROPRIATION IN THIS SECTION FOR CONSTRUCTION WAS AN ANNUAL APPROPRIATION.

YOU POINT OUT THAT IN 34 COMP. GEN. 577 FUNDS RECOVERED FROM THE SURETY OF A CONTRACTOR WHERE CONSTRUCTION FAILED TO MEET THE SPECIFICATIONS AFTER THE CONTRACTOR HAD RECEIVED FINAL PAYMENT WERE PERMITTED TO BE DEPOSITED TO THE APPROPRIATION ACCOUNT WHICH HAD BEEN CHARGED WITH THE CONTRACT AND EXPENDED FOR COMPLETION OF THE WORK UNDER ANOTHER CONTRACT. YOU SAY, HOWEVER, THAT THAT OPINION WAS RENDERED WITH RESPECT TO A NO-YEAR APPROPRIATION; THAT YOU ARE UNCERTAIN WHETHER OR NOT THE SAME CONCLUSION WOULD BE REACHED WHEN FUNDS UNDER AN ANNUAL APPROPRIATION ARE INVOLVED; BUT YOU BELIEVE THAT THE RATIONALE AS TO THE NATURE OF THE RECOVERED FUNDS IS EQUALLY APPLICABLE IN BOTH SITUATIONS.

ASIDE FROM THE QUESTION OF THE DISPOSITION OF AMOUNTS RECOVERED FROM THE CONTRACTOR OR SURETY FOR EXCESS COSTS, IT HAS BEEN HELD THAT AN ANNUAL APPROPRIATION IS AVAILABLE AFTER THE CLOSE OF A FISCAL YEAR TO COVER THE COSTS OF COMPLETION OF A CONTRACT PROPERLY LET WITHIN THE FISCAL YEAR PROVIDED A NEED FOR THE WORK EXISTED WHEN THE ORIGINAL CONTRACT WAS LET AND CONTINUED TO EXIST WHEN THE REPLACEMENT CONTRACT WAS LET. 34 COMP. GEN. 239; CF. 32ID 565; 38 ID. 190. THIS HOLDING WOULD APPLY TO THE APPROPRIATION HERE INVOLVED.

THE GENERAL RULE IS THAT AMOUNTS RECOVERED FROM DEFAULTING CONTRACTORS OR THEIR SURETIES FOR LOSSES OR DAMAGES RESULTING FROM THE FAILURE OF CONTRACTORS TO PERFORM THEIR CONTRACTS MUST BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS AS REQUIRED BY SECTION 3617, REVISED STATUTES, 31 U.S.C. 484. 8 COMP. GEN. 284; 10 ID. 510; 14 ID. 106; 40 ID. 590. THAT RULE IS FOR APPLICATION REGARDLESS OF WHETHER AN ANNUAL APPROPRIATION OR A NO-YEAR APPROPRIATION IS INVOLVED. ALTHOUGH THE SITUATION COVERED IN 34 COMP. GEN. 577 INVOLVED THE RETURN OF UNAUTHORIZED PAYMENTS WHILE THIS CASE INVOLVES CONTRACT PAYMENTS IN EXCESS OF THE VALUE OF SATISFACTORY PERFORMANCE, WE BELIEVE THE SAME PRINCIPLE APPLIES TO THE DISPOSITION OF FUNDS RECOVERED. WHERE PAYMENTS ARE IMPROPERLY MADE FROM AN APPROPRIATION IN THE FIRST INSTANCE, THE AMOUNTS RECOVERED ARE TO BE CREDITED TO THE APPROPRIATION ERRONEOUSLY CHARGED THEREWITH. 8 COMP. GEN. 103.

WE NOTE THAT OF THE $15,114.67 DEMANDED HERE OF THE CONTRACTOR OR HIS SURETY, THE AMOUNT OF $280.00 REPRESENTS LIQUIDATED DAMAGES. UNDERSTAND THAT SUCH LIQUIDATED DAMAGES WERE ASSESSED FOR DELAYS OCCURRING PRIOR TO THE CONDITIONAL ACCEPTANCE OF THE BUILDING ON SEPTEMBER 20, 1961. AMOUNTS REPRESENTING LIQUIDATED DAMAGES ARE FOR DEPOSIT OR RETENTION IN THE APPROPRIATION ORIGINALLY CHARGED. 9 COMP. GEN. 398; 23 ID. 365.

ACCORDINGLY, IT IS OUR VIEW THAT THE AMOUNT OF $280.00 REPRESENTING LIQUIDATED DAMAGES AND THE BALANCE OF $14,834.67 TO THE EXTENT THAT IT REPRESENTS PAYMENTS IN EXCESS OF THE VALUE OF WORK PERFORMED UNDER THE CONTRACT MAY BE CREDITED TO THE APPROPRIATION OR ITS SUCCESSOR ACCOUNT.