A-20158, NOVEMBER 9, 1927, 7 COMP. GEN. 322

A-20158: Nov 9, 1927

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THE ASSIGNMENT OR SUBLETTING OF A CONTRACT FOR CARRYING THE MAILS WITHOUT THE CONSENT OF THE POSTMASTER GENERAL IS PROHIBITED. UPON CANCELLATION OF SAID CONTRACT BECAUSE OF SUBLETTING OR ASSIGNMENT THE CONTRACTOR IS CHARGEABLE WITH ANY DAMAGE RESULTING TO THE UNITED STATES THEREBY. WHILE COMBINATIONS TO RESTRAIN BIDDING ON MAIL CONTRACTS ARE PROHIBITED BY SECTION 3950. AMOUNTS EARNED PRIOR TO CANCELLATION ARE NOT FORFEITED UNDER SECTION 3950. ARE TO BE RETAINED TO REIMBURSE THE GOVERNMENT FOR ANY DAMAGES SUSTAINED BECAUSE OF THE SUBLETTING AND CONSEQUENT CANCELLATION OF THE CONTRACT. YOU STATE THAT THERE IS AN UNPAID BALANCE OF $12. 005.81 FOR CARRYING THE MAIL OVER THE ROUTE UNDER THE CONTRACT THAT WAS CANCELED.

A-20158, NOVEMBER 9, 1927, 7 COMP. GEN. 322

AIR-MAIL CONTRACTS - SUBLETTING - COMBINATIONS TO RESTRAIN BIDDING UNDER SECTIONS 3737 AND 3963, REVISED STATUTES, AS MODIFIED BY THE ACT OF MAY 17, 1878, 20 STAT. 62, THE ASSIGNMENT OR SUBLETTING OF A CONTRACT FOR CARRYING THE MAILS WITHOUT THE CONSENT OF THE POSTMASTER GENERAL IS PROHIBITED, AND UPON CANCELLATION OF SAID CONTRACT BECAUSE OF SUBLETTING OR ASSIGNMENT THE CONTRACTOR IS CHARGEABLE WITH ANY DAMAGE RESULTING TO THE UNITED STATES THEREBY. WHILE COMBINATIONS TO RESTRAIN BIDDING ON MAIL CONTRACTS ARE PROHIBITED BY SECTION 3950, REVISED STATUTES, THE PENALTY THEREFOR EXTENDS ONLY TO THE CANCELLATION OF THE CONTRACT AND THE DISQUALIFICATION OF THE OFFENDING CONTRACTOR FROM OBTAINING FUTURE CONTRACTS FOR CARRYING THE MAILS. AMOUNTS EARNED PRIOR TO CANCELLATION ARE NOT FORFEITED UNDER SECTION 3950, REVISED STATUTES, NOR OTHERWISE, BUT ARE TO BE RETAINED TO REIMBURSE THE GOVERNMENT FOR ANY DAMAGES SUSTAINED BECAUSE OF THE SUBLETTING AND CONSEQUENT CANCELLATION OF THE CONTRACT.

COMPTROLLER GENERAL MCCARL TO THE POSTMASTER GENERAL, NOVEMBER 9, 1927:

THERE HAS BEEN RECEIVED YOUR REQUEST DATED OCTOBER 7, 1927, AND ACCOMPANYING PAPERS INCLUDING (1) A REPORT, DATED SEPTEMBER 26, 1927, OF POST-OFFICE INSPECTORS INTO CHARGES OF CONSPIRACY BY THE COLORADO AIRWAYS (INC.), AND N. A. WIMER AND ASSOCIATES IN PROCURING A CONTRACT WITH THE GOVERNMENT FOR CARRYING THE AIR MAIL BETWEEN PUEBLO, COLO., AND CHEYENNE, WYO.; (2) A STATEMENT OF FOUR OF THE DIRECTORS OF THE SAID COLORADO AIRWAYS (INC.), AND (3) A MEMORANDUM, DATED SEPTEMBER 30, 1927, GIVING SOME OF YOUR REASONS FOR CANCELING, EFFECTIVE SEPTEMBER 3, 1927, SAID CONTRACT. YOU STATE THAT THERE IS AN UNPAID BALANCE OF $12,005.81 FOR CARRYING THE MAIL OVER THE ROUTE UNDER THE CONTRACT THAT WAS CANCELED, AND THAT THE LOSS SUSTAINED BY THE GOVERNMENT UP TO SEPTEMBER 3, 1927, BECAUSE OF THE CONSPIRACY, WAS $10,213.43. DECISION IS REQUESTED AS TO THE AMOUNT, IF ANY, THAT SHOULD BE PAID TO THE CONTRACTOR UNDER THE CANCELED CONTRACT.

THE INCLOSURES ARE IN SUBSTANTIAL AGREEMENT AS TO THE FOLLOWING FACTS: UNDER DATE OF DECEMBER 31, 1925, THE POST OFFICE DEPARTMENT ADVERTISED FOR BIDS FOR CARRYING THE MAIL BY AIR BETWEEN PUEBLO, COLO., AND CHEYENNE, WYO., VIA DENVER AND COLORADO SPRINGS. A PROPOSAL WAS RECEIVED FROM THE COLORADO AIRWAYS (INC.), FOR CARRYING THE MAIL FOR 80 PERCENT AND ANOTHER FROM N. A. WIMER FOR 73 PERCENT OF THE REVENUE DERIVED. BOTH BIDS WERE ACCOMPANIED BY THE REQUIRED BID BOND OF $2,000. THE LOCAL POSTMASTER IN TRANSMITTING THE BIDS EXPRESSED SOME DOUBT WHETHER THE LATTER BIDDER COULD FURNISH THE REQUIRED PERFORMANCE BOND SHOULD HE BE AWARDED THE CONTRACT, AND ON MARCH 10, 1926, BEFORE EITHER BID HAD BEEN ACCEPTED OR REJECTED WIMER TELEGRAPHED THE POST OFFICE DEPARTMENT REQUESTING TO BE PERMITTED TO WITHDRAW HIS BID, GIVING AS THE REASON THEREFORE THAT ,WE WILL PROBABLY NOT BE ABLE TO FURNISH PERFORMANCE BOND.' HE WAS PERMITTED TO WITHDRAW HIS BID, AND THE CONTRACT WAS AWARDED TO THE OTHER AND HIGHER BIDDER. THE DIFFERENCE BETWEEN THE TWO BIDS ON THE MAIL CARRIED UNDER THE CONTRACT PRIOR TO ITS CANCELLATION IS STATED TO BE $10,213.43. IT SUBSEQUENTLY DEVELOPED THAT PRIOR TO THE WITHDRAWAL OF THE WIMER BID, THERE HAD BEEN ONE OR MORE CONFERENCES BETWEEN REPRESENTATIVES OF THE COLORADO AIRWAYS (INC.), AND WIMER OR HIS ASSOCIATES WITH THE RESULT THAT ON MARCH 10, 1926, THE DATE OF THE HEREINBEFORE MENTIONED TELEGRAM WITHDRAWING THE WIMER BID, A CONTRACT WAS ENTERED INTO BETWEEN THE COLORADO AIRWAYS (INC.), AND WIMER AND HIS ASSOCIATES WHEREBY IT WAS AGREED TO POOL THEIR INTERESTS AND THAT IN EVENT THE CONTRACT WAS AWARDED TO EITHER, THE ROUTE AND EARNINGS WERE TO BE DIVIDED BETWEEN THEM. SOME DISPUTE HAVING ARISEN OVER THE DIVISION OF THE EARNINGS, AN INTERPRETATIVE AGREEMENT, DATED JUNE 4, 1927, WAS ENTERED INTO BETWEEN THE SAME PARTIES. WHILE THE GOVERNMENT WAS COGNIZANT OF THE FACT THAT MAIL OVER THE DENVER-PUEBLO END OF THE ROUTE WAS BEING CARRIED BY WIMER AND HIS ASSOCIATES, AND THAT THE MAIL OVER THE DENVER-CHEYENNE END OF THE ROUTE WAS BEING CARRIED BY THE COLORADO AIRWAYS (INC.), IT DID NOT KNOW OF THE AGREEMENTS OF MARCH 10, 1926, AND JUNE 4, 1927, UNTIL SHORTLY AFTER AUGUST 1, 1927, WHEN A REPRESENTATIVE OF A GROUP OF BUSINESS MEN OF COLORADO SPRINGS ADVISED THE POSTMASTER GENERAL OF THEIR CONTEMPLATION OF REFINANCING WIMER AND HIS ASSOCIATES AND REQUESTED TO BE ADVISED WHETHER THAT PART OF THE CONTRACT COULD BE ASSIGNED TO THEM. IN THE MEANTIME, THE COLORADO AIRWAYS (INC.), HAD BEEN REFINANCED BY A GROUP OF BUSINESS MEN BUT NOT BEFORE THEY HAD BEEN ADVISED BY THEIR ATTORNEYS THAT THE AGREEMENT OF MARCH 10, 26,"WAS PERHAPS INDICATIVE OF A COLLUSIVE VERBAL PREARRANGEMENT BETWEEN THE PARTIES.' UPON INVESTIGATION OF THE ENTIRE MATTER, THE POSTMASTER GENERAL CANCELED THE CONTRACT WITH THE COLORADO AIRWAYS (INC.), EFFECTIVE SEPTEMBER 3, 1927. IT IS UNDERSTOOD THAT THE SERVICE IS NOW BEING PERFORMED BY ANOTHER CONTRACTOR, BUT THE NAME THEREOF AND DATE OF CONTRACT AND RATE PAID ARE NOT STATED.

THE PERTINENT PROVISIONS OF LAW WITH RESPECT TO THE ASSIGNMENT AND SUBLETTING OF CONTRACTS FOR CARRYING THE MAILS ARE SECTIONS 3737 AND 3963, REVISED STATUTES, WHICH PROHIBIT EITHER ASSIGNMENT OR SUBLETTING OF SUCH CONTRACTS, BUT THESE PROHIBITIONS WERE SOMEWHAT MODIFIED BY THE TERMS OF THE ACT OF MAY 17, 1878, 20 STAT. 62, AS FOLLOWS:

HEREAFTER NO SUBLETTING OR TRANSFER OR ANY MAIL CONTRACTS SHALL BE PERMITTED WITHOUT THE CONSENT IN WRITING OF THE POSTMASTER GENERAL; AND WHENEVER IT SHALL COME TO THE KNOWLEDGE OF THE POSTMASTER GENERAL THAT ANY CONTRACTOR HAS SUBLET OR TRANSFERRED HIS CONTRACT, EXCEPT WITH THE CONSENT OF THE POSTMASTER GENERAL AS AFORESAID, THE SAME SHALL BE CONSIDERED AS VIOLATED AND THE SERVICE MAY BE AGAIN ADVERTISED AS HEREIN PROVIDED FOR; AND THE CONTRACTOR AND HIS SECURITIES SHALL BE LIABLE ON THEIR BOND TO THE UNITED STATES FOR ANY DAMAGE RESULTING TO THE UNITED STATES IN THE PREMISES.

IT IS NOT SUGGESTED THAT THE POSTMASTER GENERAL HAD KNOWLEDGE OF THE TERMS OF THE AGREEMENTS OF MARCH 10, 1926, AND JUNE 4, 1927, MUCH LESS APPROVED IN WRITING THE ASSIGNMENT OR SUBLETTING OF A PART OF THE CONTRACT AND EARNINGS THEREFROM TO WIMER AND HIS ASSOCIATES. THE ACT OF 1878 MADE SUCH ASSIGNMENT OR SUBLETTING OF A VIOLATION OF THE CONTRACT. SECTION 3737, REVISED STATUTES, DECLARED THAT SAME SHOULD "CAUSE THE ANNULMENT OF THE CONTRACT" WHILE SECTION 3963, REVISED STATUTES, DECLARED THE ASSIGNMENT OR TRANSFERS "NULL AND VOID.'

SEE ALSO SECTION 3950, REVISED STATUTES, WHICH PROVIDES:

NO CONTRACT FOR CARRYING THE MAIL SHALL BE MADE WITH ANY PERSON WHO HAS ENTERED, OR PROPOSED TO ENTER, INTO ANY COMBINATION TO PREVENT THE MAKING OF ANY BID FOR CARRYING THE MAIL, OR WHO HAS MADE ANY AGREEMENT, OR GIVEN OR PERFORMED, OR PROMISED TO GIVE OR PERFORM, ANY CONSIDERATION WHATEVER TO INDUCE ANY OTHER PERSON NOT TO BID FOR ANY SUCH CONTRACT; AND IF ANY PERSON SO OFFENDING IS A CONTRACTOR FOR CARRYING THE MAIL, HIS CONTRACT MAY BE ANNULLED; AND FOR THE FIRST OFFENSE THE PERSON SO OFFENDING SHALL BE DISQUALIFIED TO CONTRACT FOR CARRYING THE MAIL FOR FIVE YEARS, AND FOR THE SECOND OFFENSE SHALL BE FOREVER DISQUALIFIED.

THE POSTMASTER GENERAL HAVING CANCELED THE CONTRACT IN THIS INSTANCE PURSUANT TO THE ABOVE STATUTES, THERE IS PRESENTED FOR CONSIDERATION THE DISPOSITION OF THE UNPAID BALANCE OF $12,005.81 STATED TO HAVE BEEN EARNED PRIOR TO SUCH CANCELLATION.

WHILE THERE WOULD APPEAR TO BE NO DOUBT THAT THERE WAS IN THIS CASE A COMBINATION OR AGREEMENT IN VIOLATION OF THE SPIRIT, AT LEAST, OF SECTION 3950, REVISED STATUTES, SUPRA, THE ONLY PENALTY PRESCRIBED FOR A VIOLATION OF SAID SECTION IS THE ANNULMENT OF THE CONTRACT AND THE DISQUALIFICATION OF THE OFFENDER FROM CONTRACTING FOR CARRYING THE MAILS. SAID STATUTE DOES NOT AUTHORIZE CHARGING THE OFFENDING CONTRACTOR WITH THE DIFFERENCE BETWEEN THE AMOUNT OF THE SUPPRESSED BID, PARTICULARLY WHEN THE POSTMASTER GENERAL CONSENTED TO ITS WITHDRAWAL, AND THE AMOUNT OF THE CONTRACT, AND THERE APPEARS NO OTHER STATUTE THAT WOULD AUTHORIZE SUCH A CHARGE AGAINST THE CONTRACTOR.

THE COLORADO AIRWAYS (INC.), IS CHARGEABLE UNDER THE TERMS OF THE ACT OF 1878, SUPRA, WITH "ANY DAMAGE RESULTING TO THE UNITED STATES" FROM THE CANCELLATION OF THE CONTRACT AND ITS RELETTING BECAUSE OF THE ASSIGNMENT OR SUBLETTING OF A PART THEREOF, WITHOUT THE WRITTEN CONSENT OF THE POSTMASTER GENERAL, TO WIMER AND HIS ASSOCIATES. SUCH DAMAGE WOULD INCLUDE ALL COSTS OR EXPENSES INCIDENT TO THE CANCELLATION AND RELETTING OF THE CONTRACT AND THE DIFFERENCE BETWEEN THE AMOUNT THE GOVERNMENT WOULD HAVE BEEN REQUIRED TO PAY FOR CARRYING THE MAIL UNDER THE CANCELED CONTRACT AND WHAT IT IS REQUIRED TO PAY UNDER THE CONTRACT AS RELET.