B-121189, APR. 20, 1956

B-121189: Apr 20, 1956

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INC.: REFERENCE IS MADE TO LETTERS DATED JANUARY 5 AND FEBRUARY 15. THE AMOUNT ORIGINALLY WAS DEDUCTED IN MAKING PAYMENT TO YOU UNDER THE CONTRACT. LATER WAS PAID TO YOU AS A RESULT OF A DECISION OF THE ADMINISTRATOR OF GENERAL SERVICES WHICH SUSTAINED YOUR APPEAL FROM THE CONTRACTING OFFICER'S DECISION HOLDING YOU LIABLE THEREFOR. THE AMOUNT WAS COLLECTED FROM YOU BY SETOFF AS A RESULT OF GENERAL ACCOUNTING OFFICE EXCEPTION NO. 500006. YOU STATE THAT SINCE THE DECISION OF THE ADMINISTRATOR OF GENERAL SERVICES WAS FAVORABLE TO YOU AND WAS FINAL AND CONCLUSIVE UNDER THE TERMS OF THE CONTRACT. THE RECORD INDICATES THAT THE ADMINISTRATOR OF GENERAL SERVICES SUSTAINED YOUR APPEAL BECAUSE HE CONCLUDED THAT THE GOVERNMENT MUST BE HELD TO HAVE WAIVED YOUR BREACH OF CONTRACT.

B-121189, APR. 20, 1956

TO CHALENDER CONSTRUCTION COMPANY, INC.:

REFERENCE IS MADE TO LETTERS DATED JANUARY 5 AND FEBRUARY 15, 1956, FROM MR. CLIFFORD B. KIMBERLY, REQUESTING, ON YOUR BEHALF, TO BE MOREFULLY ADVISED OF THE BASIS FOR THE COLLECTION FROM YOU BY SETOFF OF THE AMOUNT OF $985.80 DUE TO YOUR FAILURE TO COMPLY WITH PARAGRAPH 37 OF THE GENERAL CONDITIONS OF PUBLIC BUILDINGS SERVICE CONTRACT DATED JUNE 24, 1953, FOR THE CONSTRUCTION OF A WIRE FENCE AT THE UNITED STATES POST OFFICE, CLEVELAND, MISSISSIPPI. SUCH PARAGRAPH ROVIDED: "THE CONTRACTOR SHALL EXECUTE ON THE SITE, AND WITH HIS OWN ORGANIZATION, WORK EQUIVALENT TO AT LEAST 25 PERCENT OF THE TOTAL AMOUNT OF THE CONTRACT PRICE.'

THE AMOUNT OF $985.80 REPRESENTS THE DIFFERENCE BETWEEN THE CONTRACT PRICE OF $1,350 AND THE PRICE OF $364.20 WHICH YOU PAID TO THE SUBCONTRACTOR WHO PERFORMED ALL OF THE WORK. THE AMOUNT ORIGINALLY WAS DEDUCTED IN MAKING PAYMENT TO YOU UNDER THE CONTRACT, BUT LATER WAS PAID TO YOU AS A RESULT OF A DECISION OF THE ADMINISTRATOR OF GENERAL SERVICES WHICH SUSTAINED YOUR APPEAL FROM THE CONTRACTING OFFICER'S DECISION HOLDING YOU LIABLE THEREFOR. SUBSEQUENTLY, THE AMOUNT WAS COLLECTED FROM YOU BY SETOFF AS A RESULT OF GENERAL ACCOUNTING OFFICE EXCEPTION NO. 500006, DATED JANUARY 4, 1955.

YOU STATE THAT SINCE THE DECISION OF THE ADMINISTRATOR OF GENERAL SERVICES WAS FAVORABLE TO YOU AND WAS FINAL AND CONCLUSIVE UNDER THE TERMS OF THE CONTRACT, YOU PERCEIVE NO LEGAL BASIS FOR HOLDING YOU LIABLE FOR THE SUM IN QUESTION.

THE RECORD INDICATES THAT THE ADMINISTRATOR OF GENERAL SERVICES SUSTAINED YOUR APPEAL BECAUSE HE CONCLUDED THAT THE GOVERNMENT MUST BE HELD TO HAVE WAIVED YOUR BREACH OF CONTRACT, NAMELY, YOUR FAILURE TO COMPLY WITH PARAGRAPH 37 OF THE GENERAL CONDITIONS, BY PERMITTING THE WORK TO PROCEED TO COMPLETION WITHOUT WARNING YOU OF THE NECESSITY OF COMPLYING WITH THE PROVISIONS OF SAID PARAGRAPH AND WITHOUT EXERCISING ITS RIGHT TO RESCIND THE CONTRACT ON ACCOUNT OF THE BREACH. HIS ACTION IN SUSTAINING YOUR APPEAL WAS ALSO BASED UPON HIS CONCLUSION THAT THE GOVERNMENT HAD SUSTAINED NO DAMAGES AS A RESULT OF YOUR BREACH OF CONTRACT.

PARAGRAPH 34 OF THE GENERAL CONDITIONS, THE DISPUTES CLAUSE OF THE CONTRACT, PURSUANT TO WHICH YOUR APPEAL WAS TAKEN, RELATES SOLELY TO DISPUTED QUESTIONS OF FACT ARISING THEREUNDER. WHETHER THERE HAS BEEN A WAIVER IN A PARTICULAR CASE IS GENERALLY A QUESTION OF FACT. BUT WHERE, AS HERE, THE FACTS AND CIRCUMSTANCES RELIED ON TO PROVE WAIVER ARE ADMITTED, OR CLEARLY ESTABLISHED, THE QUESTION IS HELD TO BE ONE OF LAW, AS TO WHICH THE ADMINISTRATIVE FINDING UNDER THE DISPUTES CLAUSE OF THE CONTRACT WOULD NOT BE CONCLUSIVE. SEE 56 AM.JUR. , WAIVER, SEC. 23; MCWILLIAMS DREDGING COMPANY V. UNITED STATES, 118 C.CLS.

IN OUR OPINION, THE FACTS IN THE CASE ARE TOTALLY INSUFFICIENT TO ESTABLISH A WAIVER BY THE GOVERNMENT OF ANY MATERIAL RIGHT WHICH ACCRUED TO IT AS A RESULT OF THE BREACH OF CONTRACT. SINCE PARAGRAPH 37 OF THE GENERAL CONDITIONS WAS PROMINENTLY SET FORTH IN YOUR CONTRACT, IT WAS NOT INCUMBENT UPON THE GOVERNMENT TO WARN YOU IN ADVANCE OF THE NECESSITY OF COMPLYING WITH THE CONDITIONS CONTAINED THEREIN ANY MORE THAN IN THE CASE OF ANY OTHER PROVISION OF THE CONTRACT, AND THE RECORD INDICATES THAT THE CONTRACTING OFFICER HAD NO NOTICE OF YOUR FAILURE TO COMPLY THEREWITH UNTIL AFTER THE WORK WAS PERFORMED. THERE IS NO APPARENT BASIS FOR PRESUMING THAT THE GOVERNMENT KNEW OF THE BREACH OF THE CONTRACT MERELY FROM THE FACT THAT ITS REPRESENTATIVE SUPERVISED THE WORK, FOR THE REASON THAT THE SUBCONTRACTOR RELATIONSHIP WOULD NOT INEVITABLY HAVE COME TO HIS ATTENTION DURING THE COURSE OF SUCH SUPERVISION. MOREOVER, PARAGRAPH 27 OF THE GENERAL CONDITIONS SPECIFICALLY STATES THAT THE REPRESENTATIVE AT THE SITE HAS NO AUTHORITY TO ALTER THE TERMS AND CONDITIONS OF CONTRACT WITHOUT WRITTEN AUTHORITY FROM THE CONTRACTING OFFICER; FROM WHICH IT MAY BE QUESTIONED WHETHER EVEN AN UNEQUIVOCAL COURSE OF CONDUCT BY THE GOVERNMENT'S REPRESENTATIVE COULD LEAD TO THE PRESUMPTION OF A MODIFICATION OF THE CONTRACT WHICH WAS BEYOND HIS AUTHORITY BY THE TERMS OF THE CONTRACT ITSELF. BY LETTER OF AUGUST 29, 1953, YOU INFORMED THE PUBLIC BUILDINGS SERVICE, REGION 4, THAT THE WORK COVERED BY THE CONTRACT HAD BEEN COMPLETED ON AUGUST 25, 1953, ENCLOSING COPIES OF THE SUBCONTRACTOR'S PAYROLL AND A STATEMENT BY THE POSTMASTER AT CLEVELAND THAT THE WORK--- WHICH HAD BEEN PERFORMED IN A PERIOD OF TWO DAYS--- WAS SATISFACTORY. THE CONTRACTING OFFICER REPLIED BY LETTER OF SEPTEMBER 1, 1953, DIRECTING YOUR ATTENTION TO PARAGRAPH 37 OF THE GENERAL CONDITIONS, AND REQUESTED TO BE ADVISED AS TO WHAT PART OF THE WORK HAD BEEN PERFORMED BY YOUR ORGANIZATION. BY LETTER OF SEPTEMBER 7, 1953, YOU INFORMED THE PUBLIC BUILDINGS SERVICE THAT ALL OF THE WORK HAD BEEN PERFORMED BY THE SUBCONTRACTOR. THE PUBLIC BUILDINGS SERVICE ADVISED YOU BY LETTER OF SEPTEMBER 21, 1953, THAT THE SETTLEMENT OF THE CONTRACT WAS BEING DEFERRED PENDING A DECISION ON THE BREACH OF CONTRACT ARISING FROM YOUR FAILURE TO COMPLY WITH THE PROVISIONS OF PARAGRAPH 37. IN A LETTER DATED OCTOBER 8, 1953, THE PUBLIC BUILDINGS SERVICE, REGION 4, INFORMED YOU THAT ITS COMPLIANCE DIVISION HAD BEEN REQUESTED TO MAKE AN INVESTIGATION OF THE FACTS IN THE CASE AND THAT, UNTIL SUCH TIME AS THE INVESTIGATION WAS COMPLETED, THE AGENCY WOULD BE UNABLE TO TAKE STEPS TOWARD SETTLEMENT OF THE CONTRACT. ON OCTOBER 14, 1953, THE CONTRACTING OFFICER, REPLYING TO THE CONTENTION MADE IN YOUR LETTER OF OCTOBER 12, 1953, THAT THE CONTRACT PROVIDED NO PENALTY FOR FAILURE TO COMPLY WITH PARAGRAPH 37, ADVISED YOU IN MATERIAL PART AS FOLLOWS:

"PARAGRAPHS 26 (B) AND 37 OF THE CONTRACT ARE INTENDED TO INSURE THE PERSONAL RESPONSIBILITY AND THE PERSONAL SUPERVISION OF THE CONTRACTOR FOR AND OVER EVERY PORTION OF THE WORK FROM ITS INCEPTION TO ITS COMPLETION. ALTHOUGH THERE IS NOTHING IN THE CONTRACT PRESCRIBING ANY SPECIFIC PENALTY FOR FAILURE OF THE CONTRACTOR TO ABIDE BY SAID PROVISIONS, IT HAS BEEN HELD BY THE COURTS THAT AN INTENTIONAL DEPARTURE OR WILLFUL DEFAULT IN THE PERFORMANCE OF A SUBSTANTIAL STIPULATION OF A CONSTRUCTION OR BUILDING CONTRACT CONSTITUTE SUCH BAD FAITH AS WILL BAR RECOVERY UNDER THE CONTRACT REGARDLESS OF THE PRESENCE OR ABSENCE OF AN INTENT TO GAIN OR OBTAIN SOME ADVANTAGE THEREBY. THIS RULE HAS BEEN APPLIED EVEN IN CASES WHERE DEFAULT IN PERFORMANCE INVOLVES A STIPULATION OF THE CONTRACT WHICH DOES NOT GO TO THE ESSENCE OF THE CONTRACT.

"IN VIEW OF THE FOREGOING, WE ARE UNABLE TO MAKE ANY PARTIAL PAYMENT UNTIL SUCH TIME AS THE INVESTIGATION HAS BEEN COMPLETED. EVERY EFFORT IS BEING MADE TO COMPLETE THE INVESTIGATION AT THE EARLIEST POSSIBLE DATE.'

IN A LETTER DATED NOVEMBER 4, 1953, THE CONTRACTING OFFICER ADVISED YOU THAT THE COMPLIANCE DIVISION HAD DETERMINED, AFTER AN INVESTIGATION OF THE FACTS IN THE CASE, THAT THE GOVERNMENT HAD SUSTAINED ACTUAL DAMAGES IN THE AMOUNT OF $985.80 FLOWING FROM YOUR BREACH OF CONTRACT IN FAILING TO COMPLY WITH PARAGRAPH 37 OF THE GENERAL CONDITIONS, SUCH AMOUNT REPRESENTING THE DIFFERENCE BETWEEN THE PRICE FOR WHICH YOUR SUBCONTRACTOR PERFORMED THIS WORK, $364.20, AND THE PRIME CONTRACT PRICE OF $1,350, AND THE CONTRACTING OFFICER STATED THAT FINAL SETTLEMENT OF THE CONTRACT WOULD BE MADE ACCORDINGLY. ALSO, UNDER DATE OF NOVEMBER 27, 1953, THE CONTRACTING OFFICER WROTE YOU AS FOLLOWS:

"REFERENCE IS MADE TO YOUR LETTER DATED NOVEMBER 25, 1953, CONCERNING THE DAMAGES ASSESSED ON YOUR CONTRACT FOR NEW WIRE FENCE AT THE ABOVE- CAPTIONED LOCATION, FOR YOUR FAILURE TO COMPLY WITH PARAGRAPH 37 OF THE GENERAL CONDITIONS OF THE CONTRACT.

"THE REPORT OF OUR SPECIAL AGENT-IN-CHARGE, COMPLIANCE DIVISION,

SHOWED THAT YOU SUB-LET YOUR CONTRACT TO MEMPHIS FENCE COMPANY ON JULY 11, 1953, FOR AN AMOUNT $346,20, AND THAT ALL THE WORK WAS PERFORMED BY THAT COMPANY. THE REPORT ALSO SHOWED THAT MEMPHIS FENCE COMPANY MADE AN EXTRA TRAVEL TIME CHARGE OF $18.00 AGAINST YOU FOR AN EXTRA TRIP TO CLEVELAND, MISSISSIPPI, MADE BY AN EMPLOYEE OF THAT COMPANY.

"OUR REGIONAL COUNSEL RECOMMENDED THAT THE CONTRACT BE SETTLED ON A "QUANTUM MERUIT" BASIS.

"THE COMPUTATION OF DAMAGES WAS THEREFORE MADE AS FOLLOWS: TABLE "PRIME CONTRACT PRICE

$1350.00

LESS SUBCONTRACT PRICE $346.20

ADDITIONAL TRAVEL TIME

CHARGE 18.00

TOTAL SUBCONTRACT PRICE 364.20

DAMAGES SUSTAINED BY THE --------

GOVERNMENT $ 985.80"

THE FOREGOING DETERMINATIONS WERE THE ONES CONSIDERED ON APPEAL.

WHILE IT APPEARS THAT THE CONTRACTING OFFICER ERRONEOUSLY REFERRED TO THE DIFFERENCE BETWEEN THE AMOUNT PAID TO YOUR SUBCONTRACTOR AND THE PRIME CONTRACT PRICE AS DAMAGES, IT IS QUITE CLEAR FROM HIS ABOVE QUOTED LETTERS OF OCTOBER 14 AND NOVEMBER 27, 1953, THAT HIS ACTION IN RESTRICTING THE AMOUNT PAYABLE TO YOU TO THE AMOUNT PAID TO YOUR SUBCONTRACTOR FOR PERFORMING THE WORK WAS TAKEN PURSUANT TO OFFICE DECISION DATED AUGUST 13, 1947, 27 COMP. GEN. 81. IN THAT CASE, WHICH INVOLVED THE INSTALLATION OF A NEW SIDEWALK ADJACENT TO THE UNITED STATES POST OFFICE AT VERNON, TEXAS, THE CONTRACTOR ALSO HAD VIOLATED PARAGRAPH 37 OF THE GENERAL CONDITIONS OF THE CONTRACT BY SUBLETTING THE ENTIRE WORK, AND THE ADMINISTRATOR OF THE FORMER FEDERAL WORKS AGENCY REQUESTED ADVICE AS TO WHAT ACTION, IF ANY, SHOULD BE TAKEN TO "PENALIZE" THE CONTRACTOR FOR COMPLETELY DISREGARDING SUCH PROVISION. THE SUBSTANCE OF THE HOLDING IN THE CASE IS SET FORTH IN DETAIL IN THE BRIEF WHICH THE COMMISSIONER OF PUBLIC BUILDINGS SERVICE SUBMITTED TO THE BOARD OF REVIEW, GENERAL SERVICES ADMINISTRATION, IN REPLY TO THE BRIEF WHICH YOU HAD SUBMITTED IN SUPPORT OF YOUR APPEAL. THE RECORD SHOWS THAT YOU WERE FURNISHED A COPY OF THE REPLY BRIEF BY THE BOARD OF REVIEW. THE REASONS GIVEN IN THE FIRST OF THE ABOVE-QUOTED PARAGRAPHS FROM THE CONTRACTING OFFICER'S LETTER OF OCTOBER 14, 1953, ARE THOSE WHICH WERE SET FORTH IN THE DECISION AS PRECLUDING PAYMENT TO THE CONTRACTOR UNDER THE CONTRACT, OR ON OTHER THAN A QUANTUM MERUIT BASIS. AS TO THE LATTER BASIS OF PAYMENT, IT WAS STATED IN THE DECISION THAT IT DID NOT APPEAR THAT THE FAIR AND REASONABLE VALUE OF THE WORK PERFORMED PROPERLY MIGHT BE SAID TO EXCEED THE CHARGE MADE THEREFOR BY THE SUBCONTRACTOR. THE AUTHORITIES CITED IN THE DECISION WERE: SNEDLEY V. WALDEN (MASS.), 141 N.E. 281; WILLISTON ON CONTRACTS, REV. ED., VOL. 3, SECTION 805, NOTE 10, AND SECTION 842, NOTE 4; SIPLEY V. STICKNEY (MASS.), 76 N.E. 226, 5 L.R.A. (N.W.) 469. ALSO, SEE FICARA BELLEAU, ET AL. (MASS.), 117 N.E.2D 287, 290; 12 AM.JUR., CONTRACTS, SEC. 339; 65 A.L.R. 1299.

IN THE PRESENT INSTANCE, IT DOES NOT APPEAR THAT THE FAIR AND REASONABLE VALUE OF THE WORK PERFORMED PROPERLY MAY BE SAID TO EXCEED THE CHARGE MADE THEREFOR BY THE SUBCONTRACTOR. ACCORDINGLY, WE PERCEIVE NO LEGAL BASIS FOR THE PAYMENT TO YOU OF ANY ADDITIONAL AMOUNT FOR THE WORK AUTHORIZED TO BE PERFORMED UNDER THE CONTRACT, AND YOUR CLAIM THEREFORE MIGHT BE DENIED.