B-168298, JAN. 23, 1970

B-168298, JAN. 23, 1970

CONTRACTS--CANCELLATION--COSTS DECISION ON BEHALF OF ST. LOUIS TRUCK POINTING CO; INC; DISALLOWING CLAIM FOR EXPENSES INCIDENT TO CANCELLATION OF CONTRACT BY VETERANS ADMINISTRATION AS RESULT OF PROTEST (B-168298, DECEMBER 22, 1969). WHEN A CONTRACT HAS BEEN AWARDED CONTRARY TO STATUTORY REQUIREMENTS, NO RIGHT TO PAYMENT OF COSTS PRIOR TO CANCELLATION IS CREATED NOTWITHSTANDING GOOD FAITH OF THE PARTIES. WHILE FACT THAT CONTRACTOR IS REQUIRED TO ABSORB EXPENSE OF PERFORMANCE BOND PREMIUM OR EXPENSE OF ANY OTHER ITEMS IN PREPARATION FOR PERFORMANCE MAY APPEAR UNDULY HARSH, NEVERTHELESS GOVERNMENT AGENTS MAY NOT EXCEED AUTHORITY. HENCE DISALLOWANCE OF CLAIM IS REQUIRED.

TO SCHNAPP, GRAHAM & REID:

WE REFER TO YOUR LETTER DATED DECEMBER 27, 1969, ON BEHALF OF ST. LOUIS TRUCK POINTING CO; INC. (ST. LOUIS), CONCERNING EXPENSES WHICH YOU STATE WERE INCURRED BY ST. LOUIS PRIOR TO THE CANCELLATION BY THE VETERANS ADMINISTRATION OF A CONTRACT WHICH WAS AWARDED TO ST. LOUIS FOR PROJECT NO. 70-1, VETERANS ADMINISTRATION HOSPITAL, TUSKEGEE, ALABAMA.

THE CANCELLATION WAS EFFECTED PURSUANT TO OUR DECISION B-168298, DECEMBER 22, 1969, ON THE BASIS THAT THE AWARD HAD NOT BEEN MADE TO THE LOWEST RESPONSIVE BIDDER AS REQUIRED BY 41 U.S.C. 253 (B) AND THE IMPLEMENTING PROVISIONS OF FEDERAL PROCUREMENT REGULATIONS 1-2.101 (D) AND THE INVITATION FOR BIDS. OUR DECISION WAS RENDERED IN CONNECTION WITH A PROTEST FILED BY THE LOWEST BIDDER, IN LIGHT OF WHICH THE VETERANS ADMINISTRATION WITHHELD NOTICE TO PROCEED.

YOU STATE THAT THROUGH NO FAULT OF ITS OWN ST. LOUIS HAS BEEN PUT TO GREAT FINANCIAL EXPENSE AS A RESULT OF THE CANCELLATION, ONE ITEM OF EXPENSE BEING A PREMIUM OF $369 FOR A PERFORMANCE BOND WHICH THE VETERANS ADMINISTRATION DIRECTED ST. LOUIS TO OBTAIN. YOU THEREFORE ASK "IF IN GOOD CONSCIENCE, EQUITY AND JUSTICE THE GOVERNMENT EXPECTS TO REIMBURSE ST. LOUIS TRUCK POINTING FOR THE EXPENSES INCURRED BY ST. LOUIS TRUCK POINTING AS A DIRECT RESULT OF THE ACTION OF THE VETERANS ADMINISTRATION IN SENDING US A NOTICE OF AWARD AND SUBSEQUENT CORRESPONDENCE."

WHEN A CONTRACT IS INVALID BECAUSE IT HAS BEEN AWARDED CONTRARY TO STATUTORY REQUIREMENTS, NO RIGHT TO PAYMENT OF COSTS INCURRED PRIOR TO CANCELLATION OF THE CONTRACT IS CREATED, NOTWITHSTANDING THE GOOD FAITH OF THE PARTIES, OR EVEN WHEN THE ERRONEOUS AWARD HAS BEEN OCCASIONED BY A MISTAKE ON THE PART OF THE GOVERNMENT. B-165186, NOVEMBER 7, 1968; B- 148569, APRIL 10, 1962; B-149795, NOVEMBER 6, 1962, AND COURT CASES AND DECISIONS OF OUR OFFICE THEREIN CITED. HOWEVER, WHERE PRIOR TO CANCELLATION BENEFITS HAVE PASSED TO THE GOVERNMENT, OUR OFFICE AND THE COURTS HAVE RECOGNIZED A RIGHT TO RECOVERY ON A QUANTUM VALEBANT OR QUANTUM MERUIT BASIS PREDICATED ON THE THEORY THAT IT WOULD BE INEQUITABLE FOR THE GOVERNMENT TO RETAIN SUCH BENEFITS WITHOUT RECOMPENSE TO THE OTHER PARTY. 46 COMP. GEN. 447 (1966) AND COURT CASES AND AUTHORITIES THEREIN CITED. PERFORMANCE AND PAYMENT BOND PREMIUMS DO NOT CONSTITUTE SUCH A BENEFIT AND ARE THEREFORE NOT RECOVERABLE. 46 COMP. GEN. 348 (1966).

WE ARE NOT UNMINDFUL THAT TO REQUIRE ST. LOUIS TO ABSORB THE EXPENSE OF THE PERFORMANCE BOND PREMIUM, OR THE EXPENSE OF ANY OTHER ITEMS WHICH MAY HAVE BEEN INVOLVED IN WHATEVER PREPARATIONS ST. LOUIS MADE FOR PERFORMANCE OF THE CONTRACT, MAY APPEAR TO BE UNDULY HARSH. NEVERTHELESS, GOVERNMENT AGENTS MAY NOT EXCEED THE LAWFUL RESTRICTIONS ON THEIR AUTHORITY. FURTHER, SINCE OUR OFFICE IS AUTHORIZED TO SETTLE CLAIMS ONLY ON THE BASIS OF APPLICABLE LEGAL PRINCIPLES, WE MAY NOT UNDERTAKE TO SETTLE CLAIMS ON THE BASIS OF ANY MORAL OR EQUITABLE OBLIGATION OF THE GOVERNMENT.

IN LINE WITH THE FOREGOING, IT WOULD APPEAR THAT ANY CLAIM BY ST. LOUIS IN CONNECTION WITH THE CONTRACT CANCELLATION WOULD BE FOR DISALLOWANCE.