B-116486, OCT 28, 1953

B-116486: Oct 28, 1953

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UNITED STATES SENATE: REFERENCE IS MADE TO YOUR COMMUNICATION OF JULY 18. THAT THE RULINGS APPLIED BY THE FIELD AUDITORS OF THE GENERAL ACCOUNTING OFFICE WITH RESPECT TO THE EXTENSIONS OF COMPLETION TIME ON CONTRACTS ARE ARBITRARY AND UNWARRANTED. THE CONTRACTING OFFICERS OF THE COAST GUARD ARE UNABLE TO EXERCISE OBJECTIVE AND FAIR JUDGMENT IN PASSING ON THE FACTS PRESENTED BY CONTRACTORS IN SUPPORT OF APPLICATIONS FOR EXTENSIONS OF TIME WITHOUT THE ASSESSMENT OF LIQUIDATED DAMAGES. 2. HAVE SUFFERED UNFAIR TREATMENT IN THEIR DEALINGS WITH THE COAST GUARD REGARDING EXTENSIONS OF TIME ON CONTRACTS. THE RESPONSIBILITY OF THE GENERAL ACCOUNTING OFFICE FOR AUDITING THE EXPENDITURES OF GOVERNMENT AGENCIES INCLUDES THE EXAMINATION OF CONTRACTS TO DETERMINE THAT SUCH CONTRACTS ARE IN ACCORDANCE WITH APPLICABLE LAWS AND THAT IN CARRYING OUT THE WORK COVERED BY THE CONTRACTS THERE IS COMPLIANCE WITH THE PROVISIONS CONTAINED THEREIN.

B-116486, OCT 28, 1953

PRECIS-UNAVAILABLE

WARREN G. MAGNUSON, UNITED STATES SENATE:

REFERENCE IS MADE TO YOUR COMMUNICATION OF JULY 18, 1953, ACKNOWLEDGED ON AUGUST 6, 1953, TRANSMITTING A LETTER DATED JUNE 24, 1953, FROM ATHERTON CONSTRUCTION COMPANY TO THE HONORABLE HENRY M. JACKSON, WITH ENCLOSURE, AND REQUESTING A REPORT ON THE MATTERS CONTAINED THEREIN.

THE LETTER OF ATHERTON CONCERNS THE RELATIONS OF CONTRACTORS WITH THE UNITED STATES COAST GUARD IN THE 13TH DISTRICT AT SEATTLE, WASHINGTON, SPECIFICALLY IN CONNECTION WITH EXTENSIONS OF TIME FOR THE COMPLETION OF WORK BEYOND THE DATES STIPULATED IN THE RELATED CONTRACTS. THE ITEMIZED STATEMENTS IN THE LETTER APPEAR TO BE CONCERNED WITH TWO BASIC CIRCUMSTANCES:

1. THAT THE RULINGS APPLIED BY THE FIELD AUDITORS OF THE GENERAL ACCOUNTING OFFICE WITH RESPECT TO THE EXTENSIONS OF COMPLETION TIME ON CONTRACTS ARE ARBITRARY AND UNWARRANTED; THAT AS A CONSEQUENCE OF EXCEPTIONS TAKEN BY THE AUDITORS IN APPLYING THESE RULINGS TO EXTENSIONS NOT DEEMED BY THEM TO BE JUSTIFIED OR ADEQUATELY SUPPORTED, THE CONTRACTING OFFICERS OF THE COAST GUARD ARE UNABLE TO EXERCISE OBJECTIVE AND FAIR JUDGMENT IN PASSING ON THE FACTS PRESENTED BY CONTRACTORS IN SUPPORT OF APPLICATIONS FOR EXTENSIONS OF TIME WITHOUT THE ASSESSMENT OF LIQUIDATED DAMAGES.

2. THAT BY REASON OF THE AFOREMENTIONED CONDITION CONTRACTORS, AND SPECIFICALLY ATHERTON, HAVE SUFFERED UNFAIR TREATMENT IN THEIR DEALINGS WITH THE COAST GUARD REGARDING EXTENSIONS OF TIME ON CONTRACTS.

SUBSTANTIALLY ALL CONSTRUCTION CONTRACTS BETWEEN GOVERNMENT AGENCIES AND OUTSIDE CONTRACTORS CONTAIN THE FOLLOWING STANDARD PROVISION RELATIVE TO EXTENSIONS OF COMPLETION TIME AND LIQUIDATED DAMAGES.

"PROVIDED, THAT THE RIGHT OF THE CONTRACTOR TO PROCEED SHALL NOT BE TERMINATED OR THE CONTRACTOR CHARGED WITH LIQUIDATED DAMAGES BECAUSE OF ANY DELAYS IN THE COMPLETION OF THE WORK DUE TO UNFORESEABLE CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE CONTRACTOR, INCLUDING, BUT NOT RESTRICTED TO, ACTS OF GOD, OR OF THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, ACTS OF ANOTHER CONTRACTOR IN THE PERFORMANCE OF A CONTRACT WITH THE GOVERNMENT, FIRES, FLOODS, EPIDEMICS, QUARANTINE RESTRICTIONS, STRIKES, FREIGHT EMBARGOES, AND UNUSUALLY SEVERE WEATHER OR DELAYS OF SUBCONTRACTORS DUE TO SUCH CAUSES, IF THE CONTRACTOR SHALL WITHIN 10 DAYS FROM THE BEGINNING OF ANY SUCH DELAY (UNLESS THE CONTRACTING OFFICER, WITH THE APPROVAL OF THE HEAD OF THE DEPARTMENT OR HIS DULY AUTHORIZED REPRESENTATIVE, SHALL GRANT A FURTHER PERIOD OF TIME PRIOR TO THE DATE OF FINAL SETTLEMENT OF THE CONTRACT) NOTIFY THE CONTRACTING OFFICER IN WRITING OF THE CAUSES OF DELAY, WHO SHALL ASCERTAIN THE FACTS AND THE EXTENT OF THE DELAY AND EXTEND THE TIME FOR COMPLETING THE WORK WHEN IN HIS JUDGMENT THE FINDINGS OF FACT JUSTIFY SUCH AN EXTENSION, AND HIS FINDINGS OF FACT THEREON SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES HERETO, SUBJECT ONLY TO APPEAL, WITHIN 30 DAYS, BY THE CONTRACTOR TO THE HEAD OF THE DEPARTMENT CONCERNED OR HIS DULY AUTHORIZED REPRESENTATIVE, WHOSE DECISION ON SUCH APPEAL AS TO THE FACTS OF DELAY AND THE EXTENSION OF TIME FOR COMPLETING THE WORK SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES HERETO."

THE RESPONSIBILITY OF THE GENERAL ACCOUNTING OFFICE FOR AUDITING THE EXPENDITURES OF GOVERNMENT AGENCIES INCLUDES THE EXAMINATION OF CONTRACTS TO DETERMINE THAT SUCH CONTRACTS ARE IN ACCORDANCE WITH APPLICABLE LAWS AND THAT IN CARRYING OUT THE WORK COVERED BY THE CONTRACTS THERE IS COMPLIANCE WITH THE PROVISIONS CONTAINED THEREIN. THE PROVISION FOR COMPLETION TIME AND LIQUIDATED DAMAGES REQUIRES A DETERMINATION BY OUR AUDITORS THAT EXTENSIONS GRANTED FOR COMPLETION TIME WITHOUT ASSESSMENT OF LIQUIDATED DAMAGES ARE BASED ON RELIABLE EVIDENCE THAT (A) THE CONTRACTOR NOTIFIED THE CONTRACTING OFFICER WITHIN THE TIME SPECIFIED OF THE CAUSES OF DELAY, AND REQUESTED EXTENSION OF TIME ON THE PARTICULAR CONTRACT, (B) THE CONTRACTING OFFICER ASCERTAINED THE FACTS STATED BY THE CONTRACTOR AND THE EXTENT OF DELAY CAUSED THEREBY, AND (C) THE CAUSES OF DELAY MAY REASONABLY BE REGARDED AS BEYOND THE CONTROL OF THE CONTRACTOR AS STIPULATED BY THE CONTRACT.

FROM TIME TO TIME SPECIFIC CASES HAVE COME BEFORE THIS OFFICE INVOLVING QUESTIONS OF LAW (PARTICULARLY AS TO THE CAUSES OF DELAY WHICH MAY BE CONSIDERED BEYOND THE CONTROL OF THE CONTRACTOR) FOR DETERMINATION AS TO WHETHER ON THE BASIS OF FACTS CONTAINED IN THE RECORD, EXTENSIONS OF TIME WITHOUT LIQUIDATED DAMAGES ARE PROPER. THE DECISIONS IN THESE CASES HAVE ESTABLISHED CRITERIA BY WHICH OUR AUDITORS ARE GUIDED IN DETERMINING THE PROPRIETY OF EXTENSIONS GRANTED BY CONTRACTING OFFICERS.

THE ACCOUNTS OF THE COAST GUARD WERE EXAMINED ON A SITE AUDIT BASIS FOR THE FIRST TIME IN 1951. PRIOR TO THAT TIME THE ACCOUNTS OF ACCOUNTABLE OFFICERS OF THE COAST GUARD HAD BEEN AUDITED CENTRALLY AT WASHINGTON. THUS, BEGINNING IN 1951, WE WERE AFFORDED AN OPPORTUNITY TO EXAMINE MORE FULLY THE UNDERLYING EVIDENCE ON WHICH EXTENSIONS OF TIME ON CONTRACTS WERE GRANTED. OUR EXAMINATION INDICATED THAT THE SEATTLE OFFICE OF THE COAST GUARD HAD FOLLOWED A RATHER LIBERAL POLICY IN EXTENDING COMPLETION TIME ON CONTRACTS. IT WAS FOUND THAT CONTRACTORS HAD NOT BEEN REQUIRED TO SUPPORT REQUESTS FOR EXTENSIONS WITH DETAILS OF THE CIRCUMSTANCES NECESSITATING SUCH EXTENSIONS, AND THAT UNSUPPORTED REQUESTS FOR EXTENSIONS WERE OFTEN APPROVED AS A MATTER OF ROUTINE. SIMILAR CONDITIONS WERE NOTED IN OTHER COAST GUARD DISTRICTS. BECAUSE OF THESE CONDITIONS IT WAS FOUND NECESSARY TO QUESTION CERTAIN EXTENSIONS GRANTED BY CONTRACTING OFFICERS, INCLUDING SEVERAL IN THE SEATTLE DISTRICT OFFICE. THEREAFTER, CONTRACTORS WERE REQUIRED TO EXPLAIN FULLY THE CIRCUMSTANCES ON WHICH REQUESTS FOR EXTENSIONS WERE BASED, AND SUBSEQUENT INVESTIGATIONS BY LOCAL COAST GUARD OFFICES RESULTED IN THE DENIAL OF SOME REQUESTS.

THIS CHANGE OF ADMINISTRATIVE POLICY ON THE PART OF THE LOCAL COAST GUARD OFFICE WAS RESENTED BY CONTRACTORS IN THE SEATTLE DISTRICT, WHO DISCUSSED THE SITUATION IN LOCAL MEETINGS OF THE ASSOCIATED GENERAL CONTRACTORS AND MADE DIRECT PROTESTS TO COAST GUARD OFFICIALS. THESE OFFICIALS HAVE STATED TO OUR AUDITORS THE POSSIBILITY THAT IN THESE DISCUSSIONS THE CONTRACTORS COULD HAVE GOTTEN THE IMPRESSION THAT THE MORE STRINGENT REQUIREMENTS OF THE COAST GUARD REGARDING EXTENSIONS WOULD NOT HAVE BEEN ENFORCED HAD IT NOT BEEN FOR QUESTIONS RAISED BY OUR AUDITORS. THESE OFFICIALS HAVE EMPHASIZED, HOWEVER, THAT IN THE INTEREST OF SOUND CONTRACT ADMINISTRATION AND ADHERENCE TO CONTRACTUAL PROVISIONS THE PRESENT POLICY SHOULD HAVE BEEN FOLLOWED LONG BEFORE OUR AUDITORS RAISED QUESTIONS ABOUT IT AND ALSO THAT CURRENT ACTIONS WITH RESPECT TO TIME EXTENSIONS HAVE BEEN BASED ON THEIR OWN INTERPRETATIONS OF INDIVIDUAL CONTRACTS AND ON COAST GUARD ADMINISTRATIVE REGULATIONS.

SINCE THE SITE AUDIT OF COAST GUARD ACCOUNTS WAS INITIATED OUR AUDITORS HAVE QUESTIONED NINE INSTANCES OF CONTRACT EXTENSIONS IN THE SEATTLE DISTRICT INVOLVING LIQUIDATED DAMAGES OF $5,081.17 - FOUR IN 1951 FOR $1,096.17, AND FIVE IN 1952 FOR $3,985. IN THREE INSTANCES THE CONTRACTORS HAVE PAID DAMAGES AS CLAIMED IN THE AMOUNT OF $2,000.17; ON FOUR OTHERS AGGREGATING $2,115, SATISFACTORY EVIDENCE SUPPORTING THE EXTENSIONS WAS SUBSEQUENTLY OBTAINED, AND UPON REVIEW BY OUR AUDITORS WAS ACCEPTED AND THE MATTERS WERE CLOSED; IN ONE CASE EFFORTS TO COLLECT LIQUIDATED DAMAGES HAVE NOT BEEN SUCCESSFUL, AND ONE OTHER CASE IS STILL OUTSTANDING.

THE CONTRACT (T13-CG-1216) TO WHICH ATHERTON REFERS IN THE LETTER OF JUNE 24, 1953, WAS FOR THE CONSTRUCTION OF A WHARF APPROACH REPLACEMENT AND YARD PAVING AT THE COAST GUARD BASE, SEATTLE. THE RECORD INDICATES THAT BOTH AS TO THE AWARD AND THE PERFORMANCE OF THE CONTRACT THERE HAS BEEN CONSIDERABLE CONTROVERSY BETWEEN ATHERTON AND THE LOCAL COAST GUARD OFFICE, AND THAT VARIOUS MATTERS WERE REFERRED TO THE COAST GUARD HEADQUARTERS FOR DECISION.

DURING THE PERFORMANCE OF WORK UNDER THE CONTRACT ATHERTON CLAIMED ADDITIONAL PAYMENTS DUE TO ALLEGED ERRORS AND DISCREPANCIES IN THE SPECIFICATIONS. THE CONTRACTOR ALSO SUBMITTED CLAIMS FOR PERFORMING WORK WHICH, ACCORDING TO THE LOCAL COAST GUARD OFFICE, WAS REQUIRED UNDER THE ORIGINAL CONTRACT TERMS, AND FURTHER MAINTAINED THAT FAIR CONSIDERATION HAD NOT BEEN GIVEN TO REQUESTS FOR ADDITIONAL MONIES DUE TO CHANGES IN THE WORK REQUIREMENT. CORRESPONDENCE IN THE COAST GUARD FILES RELATING TO VARIOUS DELAYS ON THE PART OF CONTRACTOR INCLUDES STATEMENTS THAT THE CONTRACT COULD HAVE BEEN ACCOMPLISHED IN A LESSER PERIOD OF TIME BY PROPER WORK SCHEDULING AND WORK PROSECUTION.

WORK UNDER THE CONTRACT WAS PHYSICALLY COMPLETED AND ACCEPTED BY THE COAST GUARD ON JUNE 6, 1952, BUT FINAL SETTLEMENT WAS NOT MADE BECAUSE THE CONTRACTOR HAD SUBMITTED CLAIMS FOR ADDITIONAL COMPENSATION AND HAD FURNISHED LETTERS FROM SUPPLIERS AND SUBCONTRACTORS SUPPORTING HIS CONTENTION THAT HE WAS ENTITLED TO INCREASED TIME FOR COMPLETION OF THE CONTRACT WHICH HAD BEEN REQUESTED AND DENIED. ONE OF THE CIRCUMSTANCES UPON WHICH THE CONTRACTOR BASED A REQUEST FOR TIME EXTENSION WAS THE INABILITY OF THE SUBCONTRACTOR TO OBTAIN PILING ON SCHEDULE DUE TO CLOSURE OF THE WOODS BY STATE ORDER. COAST GUARD OFFICIALS POINTED OUT THAT IS NORMAL TO EXPECT SUCH CLOSURE EVERY SUMMER AND THAT SUCH CLOSURE EXISTED PRIOR TO AND DURING CONTRACT NEGOTIATIONS, HOWEVER, THE COAST GUARD RECOGNIZED THAT THE TOTAL CLOSURE PERIOD IN 1951 WAS LONGER THAN IN RECENT YEARS. THIS AND OTHER CONTROVERSIAL REQUESTS FOR TIME EXTENSIONS RESULTED IN THE ASSESSMENT OF LIQUIDATED DAMAGES IN THE AMOUNT OF $24,532.59.

SETTLEMENT OF THIS CONTRACT WAS IN DISPUTE AT THE DATE OF OUR INVESTIGATION IN LATE SEPTEMBER. THE AMOUNT IN DISPUTE TOTALS $31,943.03, WHICH INCLUDES THE ABOVE STATED AMOUNT FOR LIQUIDATED DAMAGES. THE BALANCE CONSISTS OF INTEREST ($3,184.33) CLAIMED BY THE CONTRACTOR, AND CHARGES OF $4,226.11 FOR ADDITIONAL WORK. IT IS OUR UNDERSTANDING THAT THE COAST GUARD HEADQUARTERS HAS REVIEWED THE ENTIRE RECORD ON THIS CONTRACT AND HAS SUSTAINED THE ASSESSMENT OF LIQUIDATED DAMAGES AND DISALLOWANCE OF THE CLAIM FOR INTEREST; THE ITEM OF $4,226.11 WAS REFERRED BACK TO THE LOCAL COAST GUARD OFFICE FOR CLARIFICATION.

THE AUDITORS OF THE GENERAL ACCOUNTING OFFICE DID NOT EXAMINE THIS CONTRACT IN CONNECTION WITH THE AUDIT OF THE 1952 ACCOUNTS OF THE COAST GUARD BECAUSE OF THE CONTROVERSIAL STATUS OF VARIOUS MATTERS, AND BECAUSE NEITHER THE LOCAL OFFICE NOR HEADQUARTERS OF THE COAST GUARD HAD MADE DEFINITE DETERMINATIONS REGARDING THESE MATTERS.

ATHERTON STATES THAT THE REPRESENTATIVE OF THE GENERAL ACCOUNTING OFFICE IN THE SEATTLE DISTRICT HAS MADE A RULING THAT -

"THE CONTRACTOR WHEN HE ENTERS INTO A CONTRACT WITH THE U. S. COAST COAST GUARD, MUST HAVE ON HAND, OR FIRM COMMITMENTS IMMEDIATELY AVAILABLE TO HIM WITHIN HIS POSSESSION AND CONTROL, SUFFICIENT MATERIALS AND LABOR TO PERFORM A CONTRACT ON THE GIVEN DRAWINGS AND SPECIFICATIONS, FOR WHICH HE HAS SUBMITTED HIS BID TO THE COAST GUARD."

I AM ADVISED BY OUR SEATTLE REPRESENTATIVE THAT NONE OF OUR AUDITORS ASSIGNED TO THE COAST GUARD AUDIT EVER MADE SUCH A RULING. THE LANGUAGE QUOTED BY ATHERTON CLOSELY PARALLELS THAT CONTAINED IN DECISIONS BY THIS OFFICE ON OTHER CASES REFERRED HERE BY OUR AUDITORS. IT IS POSSIBLE THAT ATHERTON MAY HAVE LEARNED OF THESE DECISIONS IN THE COURSE OF HIS RELATIONS WITH COAST GUARD OFFICIALS AND PARAPHRASED THEM TO ILLUSTRATE HIS CONTENTION. IN ANY EVENT, IT WOULD NOT BE PROPER TO GENERALIZE TO THE EXTENT REFLECTED IN THE ABOVE QUOTATION SINCE THE DECISIONS OF THIS OFFICE ON THAT SUBJECT ARE BASED ON THE FACTUAL CIRCUMSTANCES IN EACH CASE.

I HAVE BEEN UNABLE TO FIND ANY FACTUAL BASIS WHATEVER FOR THE SUGGESTION OF OPPRESSION BY THE GENERAL ACCOUNTING OFFICE OR PERSONAL ADVANTAGE TO ITS REPRESENTATIVES AS ALLEGED BY ATHERTON. SUCH ACTION WOULD BE IN FLAGRANT VIOLATION OF THE POLICIES WHICH I HAVE CONSISTENTLY AND FORCEFULLY APPLIED EVER SINCE I TOOK OFFICE AS COMPTROLLER GENERAL. FAR AS I KNOW, THIS OFFICE HAS ALWAYS OBSERVED SCRUPULOUSLY THE SEPARATE SPHERES OF RESPONSIBILITY ATTACHING TO THE AGENCIES AND TO THE GENERAL ACCOUNTING OFFICE, AND HAVE RECOGNIZED AT ALL TIMES THE PREROGATIVE AND DUTY OF THE AGENCY MANAGEMENT TO ADMINISTER THE ACTIVITIES FOR WHICH IT IS CHARGED. IT IS, HOWEVER, THE RESPONSIBILITY OF THE GENERAL ACCOUNTING OFFICE TO EXAMINE INDEPENDENTLY AND OBJECTIVELY THE CONDUCT OF SUCH ACTIVITIES. IN DISCHARGING THESE FUNCTIONS OUR REPRESENTATIVES HAVE WORKED IN CLOSE AND HARMONIOUS RELATIONSHIP WITH AGENCY OFFICIALS SO THAT THE MAXIMUM BENEFIT OF OUR COOPERATIVE EFFORT MIGHT BE REFLECTED IN MORE EFFICIENT AND ECONOMICAL AGENCY OPERATIONS. OUR RELATIONSHIP WITH OTHER AGENCIES, AND THE COAST GUARD IN PARTICULAR, HAS BEEN ONE OF MUTUAL RESPECT AND UNDERSTANDING.

IT IS MY UNDERSTANDING THAT YOU HAVE BEEN OR WILL BE FURNISHED WITH A DETAILED REPORT BY THE COAST GUARD ON THE MATTERS COMPLAINED OF BY ATHERTON, AND THAT IN CONNECTION THEREWITH THE COAST GUARD WILL DISCUSS ITS RELATIONS WITH THE GENERAL ACCOUNTING OFFICE BOTH GENERALLY AND AS TO THE STATEMENTS BY ATHERTON.