B-127175, MAR. 27, 1956

B-127175, MAR. 27, 1956

TO THE HONORABLE POSTMASTER GENERAL:

REFERENCE IS MADE TO LETTER DATED MARCH 1, 1956, FROM THE ACTING POSTMASTER GENERAL, RELATIVE TO A CONTRACT ENTERED INTO BY YOUR DEPARTMENT WITH DYNAMIC PRODUCTS COMPANY FOR THE PURCHASE OF 2,000 PLATFORM TRUCKS. THE FORMAL LETTER OF AWARD AND PURCHASE ORDER NO. 5-A 1800 WERE MAILED TO THE CONTRACTOR ON MAY 3, 1955.

IT APPEARS THAT, SUBSEQUENT TO THE AWARD, THE CONTRACTOR SOUGHT TO WITHDRAW ITS BID DUE TO OVEREXTENDING ITSELF ON DEFENSE CONTRACTS BUT WAS ADVISED BY THE PROCUREMENT OFFICER THAT A VALID, BINDING CONTRACT HAD BEEN CONSUMMATED. AFTER RECOGNIZING THE EXISTENCE OF THE CONTRACT, THE CONTRACTOR REQUESTED THE DEPARTMENT TO APPROVE AN ASSIGNMENT OF THE CONTRACT TO JAKE'S FOUNDRY COMPANY, THE PROPOSED MANUFACTURER OF THE EQUIPMENT, WHICH REQUEST WAS DENIED BECAUSE THE PROPOSED TRANSACTION WAS CONSIDERED A CONTRACT TRANSFER IN VIOLATION OF SECTION 15, TITLE 41, U.S.C. (3737, REVISED STATUTES, AS AMENDED) WHICH PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"NO CONTRACT OR ORDER, OR ANY INTEREST THEREIN, SHALL BE TRANSFERRED BY THE PARTY TO WHOM SUCH CONTRACT OR ORDER IS GIVEN TO ANY OTHER PARTY AND ANY SUCH TRANSFER SHALL CAUSE THE ANNULMENT OF THE CONTRACT OR ORDER TRANSFERRED, SO FAR AS THE UNITED STATES ARE CONCERNED. ALL RIGHTS OF ACTION, HOWEVER, FOR ANY BREACH OF SUCH CONTRACT BY THE CONTRACTING PARTIES, ARE RESERVED TO THE UNITED STATES.'

THE RECORD SHOWS THAT THE DYNAMIC PRODUCTS COMPANY WHICH, TO DATE, HAD FAILED TO PERFORM, SUSTAINED DAMAGES TO ITS FACILITIES AS A RESULT OF THE NEW ENGLAND FLOODS OF AUGUST 1955 AND WAS GRANTED A DISASTER LOAN OF $15,000 BY THE SMALL BUSINESS ADMINISTRATION. IT IS THE VIEW OF THAT ADMINISTRATION THAT, SHOULD THE CONTRACTOR BE DECLARED IN DEFAULT AND ASSESSED DAMAGES FOR ANY EXCESS COST THAT MIGHT BE OCCASIONED THEREBY, THE DISASTER LOAN WOULD BE SERIOUSLY JEOPARDIZED.

ON THE BASIS OF THE FOREGOING, YOU REQUEST A DECISION AS TO WHETHER, BY WAIVING THE PROVISIONS OF SECTION 15, TITLE 41, U.S.C., QUOTED ABOVE, AN ASSIGNMENT OF THE CONTRACT FROM DYNAMIC PRODUCTS COMPANY TO JAKE'S FOUNDRY MAY BE RECOGNIZED AS BEING IN THE BEST INTEREST OF THE GOVERNMENT, OR WHETHER, IN VIEW OF THE DISASTER LOAN, THE CONTRACTOR SHOULD BE RELEASED FROM ANY AND ALL LIABILITY UNDER THE POST OFFICE DEPARTMENT CONTRACT. FURTHER, YOU REQUEST TO BE ADVISED AS TO WHETHER YOUR DEPARTMENT, IN CASES OF THIS NATURE, MAY, ON ITS OWN INITIATIVE, WAIVE THE PROVISIONS OF THE STATUTE AND RECOGNIZE THE ASSIGNMENT OF A CONTRACT IF REQUESTED TO DO SO BY THE ORIGINAL CONTRACTOR IN A SITUATION WHERE A BENEFIT RESULTS TO THE GOVERNMENT.

AS INDICATED IN YOUR LETTER, IT HAS BEEN HELD THAT SECTION 3737, REVISED STATUTES, AS AMENDED, IS INTENDED FOR THE PROTECTION OF THE GOVERNMENT AND WHERE THERE HAS BEEN AN ASSIGNMENT OF A CONTRACT IT MAY BE TREATED BY THE GOVERNMENT AS ANNULLED OR THE ASSIGNMENT MAY BE RECOGNIZED. DULANEY V. SCUDDER, 94 F. 6. SIMILARLY, IT HAS BEEN HELD THAT A PROVISION IN A GOVERNMENT CONTRACT PROHIBITING ITS ASSIGNMENT OR TRANSFER SHOULD BE REGARDED AS HAVING BEEN INSERTED FOR THE BENEFIT AND PROTECTION OF THE GOVERNMENT AND MAY BE WAIVED AS THE CIRCUMSTANCES OF A PARTICULAR CASE MAY WARRANT. SEE TINKER AND SCOTT V. UNITED STATES FIDELITY AND GUARANTY COMPANY, 169 F. 211, 214. OBVIOUSLY, THEN, EACH CASE MUST BE CONSIDERED ON THE BASIS OF THE FACTS APPEARING AND IN THE LIGHT OF THE MEANING OF THE STATUTE WHICH WAS, AMONG OTHER THINGS, TO SECURE TO THE GOVERNMENT THE PERSONAL ATTENTION AND SERVICES OF THE CONTRACTOR; TO RENDER HIM LIABLE TO PUNISHMENT FOR FRAUD OR NEGLECT OF DUTY; AND TO PREVENT PARTIES FROM ACQUIRING MERE SPECULATIVE INTEREST AND FROM THEREAFTER SELLING THE CONTRACTS AT A PROFIT TO BONA FIDE BIDDERS AND CONTRACTORS. SEE THOMPSON V. C.I.R., 205 F.2D 73, CITED IN THE LETTER OF MARCH 1, 1956.

NOTWITHSTANDING ANY PECUNIARY ADVANTAGE THAT MIGHT INURE TO THE GOVERNMENT, TO AUTHORIZE IN ADVANCE AN ASSIGNMENT OF A CONTRACT, AS PROPOSED IN THE PRESENT CASE, WOULD, WE BELIEVE, CONSTITUTE A DIRECT VIOLATION OF THE STATUTE, QUOTED ABOVE. AS STATED BY THE ATTORNEY GENERAL IN AN OPINION RENDERED OCTOBER 20, 1888, 19 OP.ATTY.GEN. 186, 187--- "THERE IS NO AUTHORITY GIVEN BY THE STATUTE, OR TO BE INFERRED FROM IT, THAT ANY OFFICER OF THE UNITED STATES CAN, IN ADVANCE, EITHER APPROVE OR RECOGNIZE ANY PROPOSED ASSIGNMENT THUS FORBIDDEN.'

ACCORDINGLY, YOU ARE ADVISED THAT THERE APPEARS NO LEGAL BASIS IN THIS AND SIMILAR CASES FOR THE INITIATION OF ACTION WHICH WOULD APPROVE, IN ADVANCE, THE ASSIGNMENT OF A CONTRACT. TO DO SO MIGHT WELL GIVE RISE TO THE EVILS WHICH THE CONGRESS SOUGHT TO PREVENT IN ENACTING 3737 R.S., 41 U.S.C. 15. NOR IN THE ABSENCE OF A STATUTE SO PROVIDING, WOULD THERE BE ANY LEGAL BASIS FOR RELIEVING THE DYNAMIC PRODUCTS COMPANY FROM ANY EXCESS COSTS WHICH MIGHT BE SUSTAINED BY THE GOVERNMENT IN THE EVENT OF ITS DEFAULT AND THE SUBSEQUENT PROCUREMENT OF THE EQUIPMENT FROM ANOTHER SOURCE. SEE 14 COMP. GEN. 468; ID. 897; 20 ID. 703; 22 ID. 260.