B-114334, JUNE 23, 1953, 32 COMP. GEN. 565

B-114334: Jun 23, 1953

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

APPROPRIATION - OBLIGATIONS - FISCAL YEAR - REPLACEMENT CONTRACT REPLACEMENT CONTRACTS MAY BE CHARGED TO SAME APPROPRIATION OBLIGATED WITH DEFAULTED CONTRACT ONLY IF THE ORIGINAL CONTRACT IS TERMINATED AND REPLACEMENT CONTRACT IS AWARDED WITHIN A REASONABLE TIME. SO THAT APPROPRIATION OBLIGATED BY A DEFAULTED CONTRACT MAY NOT BE REGARDED AS AVAILABLE FOR COST OF REPLACEMENT CONTRACT WHICH IS PROPOSED TO BE AWARDED APPROXIMATELY FOUR AND ONE-HALF YEARS AFTER THE ORIGINAL CONTRACT WAS EXECUTED. 1953: REFERENCE IS MADE TO YOUR LETTER OF MARCH 17. IS STATED THAT SUCH APPROPRIATION PREVIOUSLY WAS OBLIGATED FOR THE COST OF THE CONTRACT EQUIPMENT UNDER A CONTRACT WITH L. CERTAIN CHANGES IN THE SPECIFICATIONS WERE ORDERED BY CHANGE ORDER NO. 1.

B-114334, JUNE 23, 1953, 32 COMP. GEN. 565

APPROPRIATION - OBLIGATIONS - FISCAL YEAR - REPLACEMENT CONTRACT REPLACEMENT CONTRACTS MAY BE CHARGED TO SAME APPROPRIATION OBLIGATED WITH DEFAULTED CONTRACT ONLY IF THE ORIGINAL CONTRACT IS TERMINATED AND REPLACEMENT CONTRACT IS AWARDED WITHIN A REASONABLE TIME, SO THAT APPROPRIATION OBLIGATED BY A DEFAULTED CONTRACT MAY NOT BE REGARDED AS AVAILABLE FOR COST OF REPLACEMENT CONTRACT WHICH IS PROPOSED TO BE AWARDED APPROXIMATELY FOUR AND ONE-HALF YEARS AFTER THE ORIGINAL CONTRACT WAS EXECUTED.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE TREASURY, JUNE 23, 1953:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 17, 1953, REQUESTING TO BE ADVISED WHETHER, UNDER THE CIRCUMSTANCES DESCRIBED THEREIN, A CONTRACT MAY BE ENTERED INTO WITH THE HALLICRAFTERS COMPANY AND THE COST THEREOF CHARGED TO THE APPROPRIATION " GENERAL EXPENSES, COAST GUARD, 1949.' IS STATED THAT SUCH APPROPRIATION PREVIOUSLY WAS OBLIGATED FOR THE COST OF THE CONTRACT EQUIPMENT UNDER A CONTRACT WITH L. R. DOOLEY, INCORPORATED, WHICH CONTRACT NOW HAS BEEN TERMINATED BECAUSE OF THE CONTRACTOR'S FAILURE TO DELIVER THE CONTRACT ITEMS.

THE ORIGINAL CONTRACT, DATED DECEMBER 29, 1948, CALLED FOR DELIVERY OF 800 AC-DC COMMUNICATIONS RECEIVERS DURING THE PERIOD BEGINNING MARCH 29, 1949, AND ENDING MAY 31, 1949, AT A TOTAL COST OF $85,376. CERTAIN CHANGES IN THE SPECIFICATIONS WERE ORDERED BY CHANGE ORDER NO. 1, DATED AUGUST 26, 1949, RESULTING IN AN INCREASE IN THE CONTRACT PRICE TO $92,200. YOUR LETTER DOES NOT INDICATE WHAT ACTION WAS TAKEN BETWEEN THE DATE OF THE CHANGE ORDER AND AUGUST 16, 1951, IT BEING STATED THAT, ON THE LATTER DATE, THE CONTRACTOR WAS PLACED ON NOTICE TO DELIVER A SATISFACTORY PRELIMINARY MODEL OF THE EQUIPMENT WITHIN 45 DAYS. HOWEVER, THIS OFFICE HAS BEEN ADVISED INFORMALLY THAT EFFORTS WERE BEING MADE CONTINUALLY DURING SUCH PERIOD TO OBTAIN DELIVERY OF THE EQUIPMENT FROM THE CONTRACTOR. A PRELIMINARY MODEL WAS DELIVERED "FOR TEST AND APPROVAL" ON OCTOBER 19, 1951, BUT WAS RETURNED TO THE CONTRACTOR, WHO WAS ADVISED BY THE COAST GUARD UNDER DATE OF JANUARY 24, 1952, AS TO THE REASONS WHY THE MODEL FAILED TO MEET THE SPECIFICATION REQUIREMENTS. AFTER FURTHER EXTENSIONS OF TIME, THE CONTRACTOR FAILED TO DELIVER ANOTHER PRELIMINARY MODEL AND ON JUNE 27, 1952, THE CONTRACTOR'S RIGHT TO PROCEED WAS TERMINATED IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 5 OF THE CONTRACT ENTITLED " DELAYS--- DAMAGES.'

IN YOUR LETTER IT IS STATED FURTHER THAT, ON AUGUST 29, 1952, THE COAST GUARD ISSUED AN INVITATION TO BID FOR THE SAME QUANTITY AND TYPE OF RECEIVERS AS THOSE COVERED BY THE SAID CONTRACT AND THAT THE HALLICRAFTERS COMPANY SUBMITTED THE LOWEST ACCEPTABLE BID IN THE AMOUNT OF $262,968, WHICH IS $170,768 IN EXCESS OF THE ORIGINAL CONTRACT PRICE AS INCREASED BY THE REFERRED-TO CHANGE ORDER. IT IS STATED, ALSO, THAT $2,744,049.78 REMAINED IN THE 1949 APPROPRIATION AND SUBSEQUENTLY WAS TRANSFERRED TO THE ACCOUNT " PAYMENT, CERTIFIED CLAIMS" UNDER DATES OF JULY 1, 1950, AND JULY 1, 1951.

THE GENERAL RULE RELATIVE TO OBLIGATING FISCAL YEAR APPROPRIATIONS BY CONTRACTS IS THAT (1) THE CONTRACT MUST BE MADE WITHIN THE FISCAL YEAR COVERED BY THE APPROPRIATION SOUGHT TO BE CHARGED AND (2) THE SUBJECT MATTER MUST CONCERN A NEED ARISING WITHIN THAT FISCAL YEAR. 16 COMP. GEN. 37; 20 ID. 436; 27 ID. 764. FROM THE FACTS OUTLINED ABOVE, IT APPEARS THAT A PERIOD OF APPROXIMATELY 3 1/2 YEARS INTERVENED BETWEEN THE DATE OF EXECUTION OF THE ORIGINAL CONTRACT AND THE DATE OF ITS TERMINATION; AND ANOTHER PERIOD OF APPROXIMATELY 2 MONTHS INTERVENED BETWEEN THE LATTER DATE AND THE DATE OF THE INVITATION FOR BIDS PREPARATORY TO THE EXECUTION OF A NEW CONTRACT. THERE IS NO EXPLANATION IN YOUR LETTER AS TO WHY, IF THE COAST GUARD HAD NEED FOR THE EQUIPMENT DURING THE FISCAL YEAR 1949, STEPS WERE NOT TAKEN MORE PROMPTLY TO TERMINATE THE CONTRACTOR'S RIGHT TO PROCEED AND TO PURCHASE THE EQUIPMENT AGAINST ITS ACCOUNT. SINCE DELIVERY WAS TO HAVE BEEN COMPLETED BY MAY 31, 1949, AND SINCE NOT EVEN A SATISFACTORY PRELIMINARY MODEL HAD BEEN DELIVERED BY AUGUST 16, 1951, IT MUST HAVE BEEN EVIDENT TO THE PROCUREMENT OFFICERS OF THE COAST GUARD, WITHIN A REASONABLE TIME AFTER MAY 31, 1949, THAT THE CONTRACTOR'S ABILITY TO FURNISH SATISFACTORY EQUIPMENT WITHIN ANY TIME APPROACHING THE CONTRACT COMPLETION DATE WAS EXTREMELY QUESTIONABLE. THEREFORE, IF THERE ACTUALLY HAD BEEN A NEED FOR THE EQUIPMENT DURING THE FISCAL YEAR 1949, IT IS NOT UNDERSTOOD WHY MORE TIMELY ACTION WAS NOT TAKEN TO EFFECT THE PROCUREMENT AGAINST THE CONTRACTOR'S ACCOUNT FROM SOME OTHER SOURCE. IN SUCH CONNECTION, IT IS NOTED FROM THE STATEMENT AND CERTIFICATE OF AWARD FORM, ATTACHED TO THE ORIGINAL CONTRACT, THAT BIDS WERE RECEIVED FROM FOUR OTHER CONTRACTORS AT THE TIME THE ORIGINAL CONTRACT WAS AWARDED AND HENCE IT MUST BE PRESUMED THAT OTHER SOURCES OF SUPPLY WERE AVAILABLE.

UNDER THOSE CIRCUMSTANCES, THERE IS SERIOUS QUESTION WHETHER THE ORIGINAL CONTRACT WAS ENTERED INTO TO FILL A BONA FIDE NEED FOR THE FISCAL YEAR 1949; BUT, ASIDE FROM THAT, IT WOULD BE CONTRARY TO ALL REASON AND LOGIC TO CONSIDER A CONTRACT EXECUTED NOW AS IN SATISFACTION OF A NEED ARISING DURING THE FISCAL YEAR 1949. ACCORDINGLY, THE AMOUNT OF THE CONTRACT PROPOSED TO BE AWARDED TO THE HALLICRAFTERS COMPANY PROPERLY MAY NOT BE CHARGED TO THE 1949 APPROPRIATION.

IN DECISION DATED SEPTEMBER 26, 1951, B-105555, REFERRED TO IN YOUR LETTER, THE MATTER UNDER CONSIDERATION RELATED TO A CONSTRUCTION CONTRACT WHICH HAD BEEN PARTIALLY COMPLETED BUT WAS TERMINATED FOR FAILURE ON THE PART OF THE CONTRACTOR TO MAINTAIN PROGRESS ON THE CONTRACT WORK, THERE BEING NO QUESTION THAT THE NEED EXISTED AT THE TIME OF EXECUTION OF THE ORIGINAL CONTRACT AND THAT IT CONTINUED TO EXIST UP TO THE TIME OF EXECUTION OF THE REPLACEMENT CONTRACT. MOREOVER, IN THAT MATTER THERE WAS NO UNREASONABLE DELAY IN TERMINATING THE ORIGINAL CONTRACT.