A-27914, JULY 20, 1929, 9 COMP. GEN. 18

A-27914: Jul 20, 1929

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PUBLIC-BUILDING CONTRACTS - PROGRESS PAYMENTS - PREMIUMS ON BONDS UNDER A FIXED-PRICE OR LUMP-SUM CONSTRUCTION CONTRACT THE COST OF A PERFORMANCE BOND REQUIRED BY LAW IS NOT AUTHORIZED TO BE REGARDED AS A PART OF THE COST OF WORK DONE OR MATERIAL DELIVERED IN COMPUTING THE MONTHLY ESTIMATES ON WHICH PARTIAL OR PROGRESS PAYMENTS ARE TO BE MADE. 422.50 AS THE PREMIUM ALLEGED TO HAVE BEEN PAID ON A BOND DATED APRIL 3. 422.50 IS CLAIMED UNDER ARTICLE 16 OF THE CONTRACT AS THE COST OF PREPARATORY WORK DONE BY THE CONTRACTOR. * THE CONTRACT IN THIS CASE IS NOT A COST-PLUS ONE SUCH AS WAS CONSIDERED IN MASON AND HANGAR V. WHERE IT WAS HELD THAT THE PREMIUM ON THE SURETY BOND WAS A PART OF THE COST OF THE WORK TO BE REIMBURSED TO THE CONTRACTOR.

A-27914, JULY 20, 1929, 9 COMP. GEN. 18

PUBLIC-BUILDING CONTRACTS - PROGRESS PAYMENTS - PREMIUMS ON BONDS UNDER A FIXED-PRICE OR LUMP-SUM CONSTRUCTION CONTRACT THE COST OF A PERFORMANCE BOND REQUIRED BY LAW IS NOT AUTHORIZED TO BE REGARDED AS A PART OF THE COST OF WORK DONE OR MATERIAL DELIVERED IN COMPUTING THE MONTHLY ESTIMATES ON WHICH PARTIAL OR PROGRESS PAYMENTS ARE TO BE MADE.

DECISION BY COMPTROLLER GENERAL MCCARL, JULY 20, 1929:

THE CONSOLIDATED ENGINEERING CO. (INC.), REQUESTED JULY 9, 1929, ALLOWANCE OF $237,422.50 AS THE PREMIUM ALLEGED TO HAVE BEEN PAID ON A BOND DATED APRIL 3, 1929, FOR $7,000,000, GIVEN WITH THE MARYLAND CASUALTY CO. AS SURETY, GIVEN TO SECURE PERFORMANCE UNDER CONTRACT NO. TISA-625, DATED APRIL 2, 1929, BETWEEN THE UNITED STATES, REPRESENTED BY THE SECRETARY OF THE TREASURY, AND THE CONSOLIDATED ENGINEERING CO. FOR THE CONSTRUCTION COMPLETE OF THE DEPARTMENT OF COMMERCE BUILDING, WASHINGTON, D.C., FOR THE SUM OF $13,567,000. THE SUM OF $237,422.50 IS CLAIMED UNDER ARTICLE 16 OF THE CONTRACT AS THE COST OF PREPARATORY WORK DONE BY THE CONTRACTOR.

SECTION 23 OF THE ACT OF AUGUST 13, 1894, 28 STAT. 278, AS AMENDED BY THE ACT OF FEBRUARY 24, 1905, 33 STAT. 811, 812, PROVIDES:

THAT HEREAFTER ANY PERSON OR PERSONS ENTERING INTO A FORMAL CONTRACT WITH THE UNITED STATES FOR THE CONSTRUCTION OF ANY PUBLIC BUILDING, OR THE PROSECUTION AND COMPLETION OF ANY PUBLIC WORK, OR FOR REPAIRS UPON ANY PUBLIC BUILDING OR PUBLIC WORK, SHALL BE REQUIRED, BEFORE COMMENCING SUCH WORK, TO EXECUTE THE USUAL PENAL BOND, WITH GOOD AND SUFFICIENT SURETIES, WITH THE ADDITIONAL OBLIGATION THAT SUCH CONTRACTOR OR CONTRACTORS SHALL PROMPTLY MAKE PAYMENTS TO ALL PERSONS SUPPLYING HIM OR THEM WITH LABOR AND MATERIALS IN THE PROSECUTION OF THE WORK PROVIDED FOR IN SUCH CONTRACT; *

THE CONTRACT IN THIS CASE IS NOT A COST-PLUS ONE SUCH AS WAS CONSIDERED IN MASON AND HANGAR V. UNITED STATES, 56 CT.CLS. 238, AFFIRMED 260 U.S. 323; 261 ID. 610, WHERE IT WAS HELD THAT THE PREMIUM ON THE SURETY BOND WAS A PART OF THE COST OF THE WORK TO BE REIMBURSED TO THE CONTRACTOR. THE CONTRACT HERE STIPULATED COMPENSATION OF $13,567,000 FOR THE CONSTRUCTION COMPLETE OF THE DEPARTMENT OF COMMERCE BUILDING, AND THIS SUM IS EXCLUSIVE OF THE COMPENSATION STIPULATED IN CONTRACT TISA-539, DATED OCTOBER 5, 1928, WITH THIS CONTRACTOR OF $1,159,700 FOR THE EXCAVATION AND CONSTRUCTION OF FOUNDATIONS WITH CERTAIN ADDITIONAL SUMS FOR EXCAVATION AND BACK FILL OF THIS BUILDING SITE. THE LAW REQUIRED THE GIVING OF THE BOND BEFORE "COMMENCING" THE WORK, AND SUCH BOND IS AS MUCH A QUALIFICATION OF THE CONTRACTOR TO PERFORM THE CONTRACT AS ITS ORGANIZATION AND RESOURCES THEREFOR.

THIS SEEMS TO BE ADMITTED IN THE CLAIM, BUT PAYMENT IS REQUESTED UNDER ARTICLE 16 OF THE CONTRACT, WHICH READS:

PAYMENTS TO CONTRACTORS.--- (A) UNLESS OTHERWISE PROVIDED IN THE SPECIFICATIONS, PARTIAL PAYMENTS WILL BE MADE AS THE WORK PROGRESSES AT THE END OF EACH CALENDAR MONTH, OR AS SOON THEREAFTER AS PRACTICABLE, ON ESTIMATES MADE AND APPROVED BY THE CONTRACTING OFFICER. IN PREPARING ESTIMATES THE MATERIAL DELIVERED ON THE SITE AND PREPARATORY WORK DONE MAY BE TAKEN INTO CONSIDERATION.

(B) IN MAKING SUCH PARTIAL PAYMENTS THERE SHALL BE RETAINED 10 PERCENT ON THE ESTIMATED AMOUNT UNTIL FINAL COMPLETION AND ACCEPTANCE OF ALL WORK COVERED BY THE CONTRACT: PROVIDED, HOWEVER, THAT THE CONTRACTING OFFICER, AT ANY TIME AFTER 50 PERCENT OF THE WORK HAS BEEN COMPLETED, IF HE FINDS THAT SATISFACTORY PROGRESS IS BEING MADE, MAY MAKE ANY OF THE REMAINING PARTIAL PAYMENTS IN FULL: AND PROVIDED FURTHER, THAT ON COMPLETION AND ACCEPTANCE OF EACH SEPARATE BUILDING, VESSEL, PUBLIC WORK, OR OTHER DIVISION OF THE CONTRACT, ON WHICH THE PRICE IS STATED SEPARATELY IN THE CONTRACT, PAYMENT MAY BE MADE IN FULL, INCLUDING RETAINED PERCENTAGES THEREON, LESS AUTHORIZED DEDUCTIONS.

(C) ALL MATERIAL AND WORK COVERED BY PARTIAL PAYMENTS MADE SHALL THEREUPON BECOME THE SOLE PROPERTY OF THE GOVERNMENT, BUT THIS PROVISION SHALL NOT BE CONSTRUED AS RELIEVING THE CONTRACTOR FROM THE SOLE RESPONSIBILITY FOR THE CARE AND PROTECTION OF MATERIALS AND WORK UPON WHICH PAYMENTS HAVE BEEN MADE OR THE RESTORATION OF ANY DAMAGED WORK, OR AS A WAIVER OF THE RIGHT OF THE GOVERNMENT TO REQUIRE THE FULFILLMENT OF ALL OF THE TERMS OF THE CONTRACT.

(D) UPON COMPLETION AND ACCEPTANCE OF ALL WORK REQUIRED HEREUNDER, THE AMOUNT DUE THE CONTRACTOR UNDER THIS CONTRACT WILL BE PAID UPON THE PRESENTATION OF A PROPERLY EXECUTED AND DULY CERTIFIED VOUCHER THEREFOR, AFTER THE CONTRACTOR SHALL HAVE FURNISHED THE GOVERNMENT WITH A RELEASE, IF REQUIRED, OF ALL CLAIMS AGAINST THE GOVERNMENT ARISING UNDER AND BY VIRTUE OF THIS CONTRACT, OTHER THAN SUCH CLAIMS, IF ANY, AS MAY BE SPECIFICALLY EXCEPTED BY THE CONTRACTOR FROM THE OPERATION OF THE RELEASE IN STATED AMOUNTS TO BE SET FORTH THEREIN.

IT WILL BE NOTED THAT THIS ARTICLE OF THE CONTRACT PROVIDES THAT "PARTIAL PAYMENT SHALL BE MADE AS THE WORK PROGRESSES AT THE END OF EACH CALENDAR MONTH" AND THAT IN PREPARING ESTIMATES "THE MATERIAL DELIVERED ON THE SITE AND PREPARATORY WORK DONE MAY BE TAKEN INTO CONSIDERATION.' IT IS FURTHER PROVIDED THAT ALL "MATERIAL AND WORK COVERED BY PARTIAL PAYMENTS MADE SHALL THEREUPON BECOME THE SOLE PROPERTY OF THE GOVERNMENT" AND THAT UPON COMPLETION AND ACCEPTANCE OF ALL WORK REQUIRED UNDER THE CONTRACT, THE BALANCE SHALL BE PAID TO THE CONTRACTOR. THERE IS NOTHING WHATEVER IN THE CONTRACT TO REQUIRE THE UNITED STATES TO PAY THE PREMIUM ON THE BOND AS SUCH, NOR MAY THE BOND BE CONSIDERED AS MATERIAL DELIVERED OR PREPARATORY WORK DONE WITHIN THE CONTRACT REQUIREMENTS. THE GIVING OF A BOND IS NOT A PROGRESSION OF THE WORK FOR SUCH BOND IS, UNDER THE STATUTES HEREINBEFORE CITED, A CONDITION PRECEDENT TO THE COMMENCEMENT OF ANY WORK UNDER A PUBLIC BUILDING CONTRACT.

WHILE IT MAY BE, AS CONTENDED BY THE CONTRACTOR, THAT THE PAYMENT OF PREMIUM OF $237,422.50 FOR THE BOND AFFECTS WORKING CAPITAL, YET PROSPECTIVE CONTRACTORS WERE NOTIFIED IN THE ADVERTISEMENT FOR PROPOSALS FOR THE WORK IN THIS CASE THAT BIDDERS MUST SHOW, AMONG OTHER THINGS, SUFFICIENT RESOURCES FOR SUCH PART OF THE WORK AS WAS NOT PROVIDED FOR IN ARTICLE 16 OF THE STANDARD FORM OF CONSTRUCTION CONTRACT. SEE 8 COMP. GEN. 252, 258. THERE IS NO LEGAL OBLIGATION UNDER THE CONTRACT NOR AUTHORITY OF LAW FOR PAYMENT BY THE UNITED STATES OF THE PREMIUM, OR ANY PART THEREOF, AS SUCH AND THERE IS LIKEWISE NO AUTHORITY FOR ANY CONCLUSION THAT THE GIVING OF BOND AND PAYMENT BY THE CONTRACTOR OF THE PREMIUM THEREON IS EITHER THE DELIVERY OF MATERIAL AT THE SITE OF THE WORK OR PROGRESSION OF THE WORK JUSTIFYING PARTIAL PAYMENT THEREFOR. IT IS AN EXPENDITURE BY THE CONTRACTOR BUT NOTE OF THE CLASS STIPULATED BY THE CONTRACT AS THE BASIS FOR PROGRESS PAYMENTS. THE LAW AND THE CONTRACT REQUIRE THE CONTRACTOR TO FURNISH THE BOND, AND THE PREMIUM THEREFOR MUST BE PAID OR OTHERWISE ARRANGED FOR BY THE CONTRACTOR AND MAY NOT BE CONSIDERED IN MAKING THE ESTIMATES ON WHICH PROGRESS OR PARTIAL PAYMENTS ARE TO BE MADE. IF THE PREMIUM ON THE BOND COULD NOW BE REGARDED AS A PART OF THE COST OF PREPARATORY WORK DONE IT COULD HAVE BEEN SO REGARDED AT THE END OF THE MONTH IN WHICH PAID, THEREBY REQUIRING THE GOVERNMENT TO ADVANCE TO THE CONTRACTOR 90 PERCENT OF THE COST OF THE BOND BEFORE ANY EXPENDITURE WHATEVER HAD BEEN MADE IN THE ACTUAL PERFORMANCE OF WORK UNDER THE CONTRACT. CLEARLY, THERE IS NOTHING IN THE LAW OR THE TERMS OF THE CONTRACT TO SUPPORT SUCH A VIEW.