B-122309, I-18399, JAN. 11, 1956

B-122309: Jan 11, 1956

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GENERAL SERVICES ADMINISTRATION: REFERENCE IS MADE TO LETTER DATED NOVEMBER 1. IT IS STATED IN THE LETTER OF NOVEMBER 1. THAT UNLESS OTHERWISE ADVISED BY OUR OFFICE NO ACTION WILL BE TAKEN "TO RECOVER ANY PART OF SUCH INDEBTEDNESS BY ENFORCING THE LIEN OF THE MORTGAGE OF CERTAIN PROPERTY OF THE CONTRACTOR.'. IN CONNECTION WITH THE PROPOSED TERMINATION OF THE CONTRACT WAS THE SUBJECT OF OUR DECISION OF FEBRUARY 17. IT WAS OUR VIEW THAT THE PROPOSED TERMINATION SETTLEMENT AGREEMENT UNDER WHICH THE GOVERNMENT WOULD ASSUME THE CONTRACTOR'S OUTSTANDING OBLIGATIONS FOR SUPPLIES AND WAGES AND WOULD CANCEL ITS OBLIGATION FOR THE AMOUNT OF $325. WAS NOT AUTHORIZED AS A MATTER OF LAW AND WAS NOT IN THE BEST INTEREST OF THE GOVERNMENT.

B-122309, I-18399, JAN. 11, 1956

TO HONORABLE EDMUND F. MANSURE, ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

REFERENCE IS MADE TO LETTER DATED NOVEMBER 1, 1955, SIGNED BY D. C. LYNCH FOR THE DIRECTOR OF ACCOUNTS, OFFICE OF THE COMPTROLLER, FILE REFERENCE CFF, TRANSMITTING TO THE CHIEF, CLAIMS DIVISION OF THE GENERAL ACCOUNTING OFFICE, FOR APPROPRIATE ACTION, CERTAIN FILES OF YOUR AGENCY IN THE CASE OF THE MID-CONTINENT MINING CORPORATION.

THE FILES INCLUDE CERTAIN RECORDS PERTAINING TO CLAIMS FILED AGAINST THE GOVERNMENT BECAUSE OF THE FAILURE OF THE MID-CONTINENT MINING CORPORATION TO SATISFY ITS OUTSTANDING OBLIGATIONS FOR SUPPLIES AND WAGES INCURRED IN AN ATTEMPT TO CARRY OUT PERFORMANCE OF CONTRACT NO. DMP-15 ENTERED INTO AS OF JULY 16, 1952, AND DOCUMENTS EVIDENCING THAT CONCERN'S INDEBTEDNESS TO THE UNITED STATES IN THE AMOUNT OF $325,000 REPRESENTING SUMS ADVANCED BY THE GOVERNMENT, PLUS INTEREST. IT IS STATED IN THE LETTER OF NOVEMBER 1, THAT UNLESS OTHERWISE ADVISED BY OUR OFFICE NO ACTION WILL BE TAKEN "TO RECOVER ANY PART OF SUCH INDEBTEDNESS BY ENFORCING THE LIEN OF THE MORTGAGE OF CERTAIN PROPERTY OF THE CONTRACTOR.'

THE ACTION PROPOSED TO BE TAKEN BY YOUR AGENCY IN YOUR LETTER OF DECEMBER 1, 1954, IN CONNECTION WITH THE PROPOSED TERMINATION OF THE CONTRACT WAS THE SUBJECT OF OUR DECISION OF FEBRUARY 17, 1955, B 122309-I-18399, TO YOU, WHICH SET FORTH AT LENGTH OUR OBJECTIONS TO THE PROPOSED ACTION. THE BASIS OF THE FACTS OF RECORD, NOT ONLY AS DEVELOPED BY OUR REPRESENTATIVES BUT AS REPORTED BY YOUR AGENCY, IT WAS OUR VIEW THAT THE PROPOSED TERMINATION SETTLEMENT AGREEMENT UNDER WHICH THE GOVERNMENT WOULD ASSUME THE CONTRACTOR'S OUTSTANDING OBLIGATIONS FOR SUPPLIES AND WAGES AND WOULD CANCEL ITS OBLIGATION FOR THE AMOUNT OF $325,000 UPON CONVEYANCE TO THE UNITED STATES OF ALL RIGHTS, TITLE AND INTEREST IN CERTAIN PROPERTY HELD BY THE CONTRACTOR, WAS NOT AUTHORIZED AS A MATTER OF LAW AND WAS NOT IN THE BEST INTEREST OF THE GOVERNMENT. ALSO, IT WAS HELD THAT THE AMOUNTS DUE FROM THE CONTRACTOR TO LABORERS AND MATERIALMEN ARE NOT OBLIGATIONS OF THE GOVERNMENT UNDER THE CONTRACT AND THAT THE GOVERNMENT PROPERLY COULD NOT ASSUME SUCH OBLIGATIONS EXCEPT PURSUANT TO SPECIFIC STATUTORY AUTHORITY BY CONGRESS.

IT IS UNDERSTOOD THAT THE CONTRACT HAS NOT BEEN CANCELED WITHOUT LIABILITY TO THE GOVERNMENT AS PROVIDED IN ARTICLE XX OF THE CONTRACT NOR HAS ANY ACTION BEEN TAKEN TO RECOVER ANY PART OF THE CONTRACTOR'S INDEBTEDNESS TO THE UNITED STATES. IN VIEW OF THESE FACTS AND IN ACCORDANCE WITH THE UNDERSTANDING REACHED AT A MEETING HELD HERE ON DECEMBER 14, 1955, BETWEEN REPRESENTATIVES OF YOUR AGENCY (MESSRS. BYRON HARDING AND JOHNSTON RUSSELL) AND REPRESENTATIVES OF OUR OFFICE, THE FILES AND PAPERS ARE RETURNED FOR FURTHER CONSIDERATION, CANCELLATION OF THE CONTRACT AND REPORT OF THE MATTER TO THE ATTORNEY GENERAL WITH A VIEW TO RECOVERY OF THE SUMS ADVANCED TO THE CONTRACTOR.

IN REPORTING THE MATTER OF THE CLAIM AGAINST THE CONTRACTOR FOR $325,000 THE ATTENTION OF THE ATTORNEY GENERAL SHOULD BE CALLED TO THE COMMITMENT OF THE AMERICAN ZINC COMPANY OF ILLINOIS TO ADVANCE TO THE MID-CONTINENT MINING CORPORATION THE SUM OF $75,000 AS CASH OR CREDIT TO BE USED FOR CAPITAL INVESTMENT AND/OR WORKING CAPITAL. IT APPEARS FROM LETTER DATED JULY 21, 1952, FROM THE AMERICAN ZINC COMPANY TO THE MID-CONTINENT MINING CORPORATION, A COPY OF WHICH IS ATTACHED TO THE REPORT OF INVESTIGATION IN THIS CASE AS EXHIBIT 2, THAT THE ADVANCE OF $75,000 WAS TO BE MADE TO MID- CONTINENT IN THE EVENT THE $325,000 ADVANCED BY THE GOVERNMENT WAS NOT SUFFICIENT TO PROVIDE FUNDS NEEDED FOR CAPITAL INVESTMENT IN THE VENTURE. ALTHOUGH THE SUM OF $325,000 WAS EXPENDED BEFORE THE PLANT WAS COMPLETED AND PLACED IN OPERATION, THE AMERICAN ZINC COMPANY OF ILLINOIS REFUSED TO CARRY OUT ITS UNDERTAKING TO ADVANCE THE SUM OF $75,000 OR ANY PART THEREOF. THE ATTORNEY GENERAL SHOULD BE APPRISED OF THE DEFAULT OF THIS CONCERN AND OF THE POSSIBILITY OF ITS BEING LIABLE IN DAMAGES FOR SUCH DEFAULT.