B-171344, DEC 30, 1970, 50 COMP GEN 470

B-171344, DEC 30, 1970, 50 COMP GEN 470

CLAIMS - ASSIGNMENT - FEDERAL GRANTS-IN-AID - LEGALITY OF ASSIGNMENT AMOUNTS DUE OR TO BECOME DUE UNDER GRANTS OF FEDERAL FUNDS TO A MEDICAL COLLEGE FOR THE CONSTRUCTION AND RESTORATION OF FACILITIES AUTHORIZED BY THE PUBLIC HEALTH SERVICE ACT, AS AMENDED, MAY BE ASSIGNED TO A BANK PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, TO ENABLE THE GRANTEE TO OBTAIN INTERIM FINANCING FOR THE PURPOSE OF MAKING PROGRESS PAYMENTS TO THE CONTRACTOR, AS THE ACCEPTANCE OF THE GRANT SUBJECT TO THE CONDITIONS IMPOSED BY THE GOVERNMENT CREATED A VALID CONTRACT WITHIN THE MEANING OF THE 1940 ACT, AND AS THE ASSIGNMENT IS NOT FORBIDDEN UNDER THE GRANT. HOWEVER, IN ACCORDANCE WITH THE REQUIREMENTS OF THE ACT, THE ASSIGNMENT SHOULD COVER THE AMOUNT PAYABLE UNDER THE GRANTS WITHOUT REGARD TO THE STATUS OF THE ACCOUNT BETWEEN THE COLLEGE AND THE BANK; AND, FURTHERMORE, THE GRANTEE IS NOT FORECLOSED FROM FINANCING THE NON-FEDERAL SHARE OF COSTS WITH BORROWED FUNDS.

TO THE NEW YORK MEDICAL COLLEGE, DECEMBER 30, 1970:

REFERENCE IS MADE TO YOUR LETTER DATED NOVEMBER 18, 1970, FORWARDED BY YOUR ATTORNEYS, CARTER, LEDYARD & MILBURN, NEW YORK, NEW YORK, REQUESTING ADVICE AS TO WHETHER AMOUNTS DUE OR TO BECOME DUE UNDER GRANTS OF FEDERAL FUNDS FOR THE CONSTRUCTION OR RESTORATION OF TEACHING FACILITIES FOR MEDICAL, DENTAL, AND OTHER HEALTH PERSONNEL, AUTHORIZED UNDER THE PROVISIONS OF PART B, TITLE VII, OF THE PUBLIC HEALTH SERVICE ACT, AS AMENDED (42 U.S.C. 293 ET SEQ.), MAY BE ASSIGNED TO A BANK TRUST COMPANY, OR OTHER FINANCING INSTITUTION, PURSUANT TO THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED (31 U.S.C. 203; 41 U.S.C. 15).

YOU STATE THAT THE NEW YORK MEDICAL COLLEGE IS THE RECIPIENT OF TWO GRANTS, ACCEPTED BY THE COLLEGE ON AUGUST 27, 1970, AND THAT THE GRANTS WERE AWARDED IN CONNECTION WITH THE PROPOSED CONSTRUCTION OF A MEDICAL TEACHING FACILITY AND THE PROPOSED RENOVATION OF AN EXISTING BUILDING LEASED BY THE COLLEGE AS AN ADMINISTRATION BUILDING. THE COLLEGE WILL BE REQUIRED TO MAKE PROGRESS PAYMENTS TO ITS GENERAL CONTRACTOR ON A MONTHLY BASIS BUT THE GRANT FUNDS WILL BE DISBURSED PERIODICALLY BASED UPON PERCENTAGE COMPLETION OF THE FACILITIES, AND IT IS ESTIMATED THAT THERE WILL BE SEVERAL MONTHS BETWEEN DISBURSEMENTS. IN ORDER TO PROVIDE THE COLLEGE WITH THE FUNDS NECESSARY TO MAKE THE REQUIRED MONTHLY PAYMENTS TO ITS GENERAL CONTRACTOR, THE COLLEGE IS NEGOTIATING WITH A MAJOR NEW YORK CITY BANK FOR INTERIM LOANS. THE COLLEGE PROPOSES TO ASSIGN TO THE BANK THE RIGHT TO RECEIVE, AS AND WHEN DISBURSED, THE PROCEEDS OF THE GRANTS, OR SO MUCH THEREOF AS SHALL EQUAL THE THEN OUTSTANDING AMOUNT OF LOANS. THE BANK IS SEEKING THE RIGHTS AND BENEFITS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, AND OUR OPINION IS REQUESTED AS TO WHETHER THE GRANTS ARE "CLAIMS" OR "CONTRACTS" WITHIN THE MEANING OF THE ACT.

THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, PERMITS THE ASSIGNMENT OF MONEYS DUE OR TO BECOME DUE UNDER A GOVERNMENT CONTRACT PROVIDING FOR PAYMENTS AGGREGATING $1,000 OR MORE TO A BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION. THE ACT REQUIRES THAT A NOTICE OF THE ASSIGNMENT BE FURNISHED TO THE GOVERNMENT, AND IT INCLUDES PROVISIONS THAT NO CLAIM SHALL BE ASSIGNED IF IT ARISES UNDER A CONTRACT WHICH FORBIDS SUCH ASSIGNMENT; AND THAT, UNLESS OTHERWISE EXPRESSLY PERMITTED BY SUCH CONTRACT, ANY SUCH ASSIGNMENT SHALL COVER ALL AMOUNTS PAYABLE UNDER THE CONTRACT AND NOT ALREADY PAID. WE ARE NOT ADVISED OF THE EXACT TERMS OF THE PARTICULAR GRANTS, AND WE HAVE NO REASON TO BELIEVE THAT THEY FORBID AN ASSIGNMENT OF THE PROCEEDS OF THE GRANTS, OR THAT THEY PERMIT PARTIAL ASSIGNMENTS OF SUCH PROCEEDS. IT WOULD APPEAR THAT ANY ASSIGNMENT BY THE COLLEGE TO A BANK SHOULD COVER THE FULL AMOUNT PAYABLE UNDER EACH GRANT WITHOUT REGARD TO THE STATUS OF THE ACCOUNT BETWEEN THE COLLEGE AND THE BANK AT ANY PARTICULAR TIME.

IN REGARD TO THE QUESTION WHETHER THE GRANTS TO THE COLLEGE ARE "CLAIMS" OR "CONTRACTS," THE REGULATIONS OF THE PUBLIC HEALTH SERVICE, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, CONCERNING GRANTS OF THE TYPE HERE INVOLVED, ARE SET FORTH IN SUBPART B OF PART 57, TITLE 42, CODE OF FEDERAL REGULATIONS, SECTIONS 57.101 THROUGH 57.108. THE REGULATIONS PROVIDE THAT THE GRANTS ARE TO COVER PERCENTAGES OF CONSTRUCTION COSTS AND THAT THE GRANTS ARE TO BE MADE SUBJECT TO VARIOUS TERMS AND CONDITIONS. THOSE TERMS AND CONDITIONS INCLUDE A REQUIREMENT THAT THE FINAL WORKING DRAWINGS AND SPECIFICATIONS FOR A PROJECT BE APPROVED BY THE SECRETARY OF HEALTH, EDUCATION, AND WELFARE; A REQUIREMENT THAT THE APPLICANT WILL PERFORM ACTUAL CONSTRUCTION WORK BY THE LUMP SUM (FIXED PRICE) CONTRACT METHOD AND EMPLOY ADEQUATE METHODS OF OBTAINING COMPETITIVE BIDDING; A REQUIREMENT THAT ANY LABORER OR MECHANIC EMPLOYED BY THE CONSTRUCTION CONTRACTOR OR SUBCONTRACTOR BE PAID WAGES AT RATES NOT LESS THAN THOSE PREVAILING ON SIMILAR CONSTRUCTION IN THE LOCALITY AS DETERMINED BY THE SECREATRY OF LABOR IN ACCORDANCE WITH THE DAVIS-BACON ACT (40 U.S.C. 276A. ET SEQ.); AND A REQUIREMENT THAT THE APPLICANT WILL FINANCE ALL COSTS IN EXCESS OF THE ESTIMATES APPROVED IN THE APPLICATION AND PROVIDE SUFFICIENT FUNDS TO MEET THE NON-FEDERAL SHARE OF THE COST OF CONSTRUCTING A FACILITY OR OF THE COST OF REPAIRING AN EXISTING FACILITY.

IT HAS BEEN OUR POSITION THAT THE ACCEPTANCE OF A GRANT OF FEDERAL FUNDS WHICH IS NOT UNCONDITIONAL BUT IS SUBJECT TO CONDITIONS WHICH MUST BE MET BY THE GRANTEE CREATES A VALID CONTRACT BETWEEN THE UNITED STATES AND THE GRANTEE. SEE 41 COMP. GEN. 134 (1961); 42 ID. 289 (1962). A SIMILAR VIEW WAS ADOPTED BY THE UNITED STATES DISTRICT COURTS IN UNITED STATES V COUNTY SCHOOL BOARD, PRINCE GEORGE COUNTY, VIRGINIA, 221 F. SUPP. 93 (1963), AND UNITED STATES V SUMTER COUNTY SCHOOL DISTRICT NO. 2, 232 F. SUPP. 945 (1964), WHEREIN IT WAS HELD THAT FEDERAL GRANTS AUTHORIZED BY CONGRESS CREATE BINDING CONTRACTS WITH SCHOOL DISTRICTS TO WHICH GRANTS ARE MADE AND WHICH GIVE ASSURANCES IN APPLYING FOR THE GRANTS.

UNLESS AN ASSIGNMENT OF THE PROCEEDS OF THE GRANTS TO THE NEW YORK MEDICAL COLLEGE IS FORBIDDEN UNDER THE TERMS OF THE GRANTS AS ACCEPTED BY THE COLLEGE, IT WOULD APPEAR THAT AMOUNTS DUE OR TO BECOME DUE UNDER THE GRANTS ARE ASSIGNABLE UNDER THE PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED. THE APPLICABLE REGULATIONS OF THE DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE DO NOT PLACE ANY RESTRICTION UPON ASSIGNMENT OF GRANT PROCEEDS, AND THERE IS NOTHING IN THE REGULATIONS OTHERWISE TO SHOW AN INTENTION ON THE PART OF THE DEPARTMENT TO FORECLOSE A GRANTEE FROM FINANCING THE NON-FEDERAL SHARE OF THE COST OF THE PROJECTS INVOLVED WITH THE USE OF BORROWED FUNDS.

WE HOPE THAT THE FOREGOING WILL SERVE THE PURPOSES OF YOUR INQUIRY IN THE MATTER.