B-123322, JULY 11, 1955, 35 COMP. GEN. 6

B-123322: Jul 11, 1955

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TO THE EXTENT THAT AUDITS AND INSPECTIONS ARE NOT ACTUALLY PERFORMED BY THE GOVERNMENT. SUCH AGREEMENTS ARE MADE PURSUANT TO TITLE IV OF THE HOUSING ACT OF 1950. HAVE REQUIRED THE CHARGING OF FEES TO COVER INSPECTION AND AUDIT COSTS OF THE GOVERNMENT IN CONNECTION WITH SUCH LOANS. THE LOAN AGREEMENTS HAVE CONTAINED A PROVISION WHEREBY THE COLLEGE AGREES TO PAY THE GOVERNMENT A FIXED FEE RANGING FROM $2. ACCOUNTS PERTAINING TO THE PROJECT. * * * FINANCING OF THE LOANS IS ACCOMPLISHED THROUGH THE ISSUANCE OF BONDS BY THE COLLEGE. WHICH ARE EITHER SOLD TO THE PUBLIC OR PURCHASED BY THE GOVERNMENT WHERE NECESSARY. IN THE EVENT ALL BONDS ARE SOLD TO THE PUBLIC. THERE IS. IT SOMETIMES HAPPENS THAT MONEYS ARE RECEIVED BY A COLLEGE FROM THE GOVERNMENT OUT OF WHICH THE COLLEGE PAYS THE GOVERNMENT THE FIXED AUDIT AND INSPECTION FEE.

B-123322, JULY 11, 1955, 35 COMP. GEN. 6

LOANS - EDUCATIONAL INSTITUTION HOUSING CONSTRUCTION - AUDITING AND INSPECTION FEES FIXED AUDIT AND INSPECTION FEES PAID TO THE GOVERNMENT FROM ADVANCES TO COLLEGES UNDER HOUSING LOAN AGREEMENTS MADE PURSUANT TO TITLE IV OF THE HOUSING ACT OF 1950 MAY BE REFUNDED IN WHOLE OR IN PART, OR COLLECTIONS WAIVED, TO THE EXTENT THAT AUDITS AND INSPECTIONS ARE NOT ACTUALLY PERFORMED BY THE GOVERNMENT.

TO THE ADMINISTRATOR, HOUSING AND HOME FINANCE AGENCY, JULY 11, 1955:

IN YOUR LETTER OF MARCH 16, 1955, YOU REQUEST TO BE ADVISED WHETHER WE WOULD OBJECT TO CERTAIN PROCEDURES PROPOSED TO BE ESTABLISHED BY THE COMMUNITY FACILITIES ADMINISTRATION WHICH WOULD PERMIT THE WAIVER OF COLLECTIONS FROM OR THE MAKING OF REFUNDS TO COLLEGES IN CONNECTION WITH THE FIXED FEE CHARGED FOR ADULT AND INSPECTION EXPENSES UNDER COLLEGE HOUSING LOAN AGREEMENTS.

SUCH AGREEMENTS ARE MADE PURSUANT TO TITLE IV OF THE HOUSING ACT OF 1950, AS AMENDED, 12 U.S.C. 1749-1749C, TO ASSIST COLLEGES IN PROVIDING HOUSING FOR THEIR STUDENTS AND FACULTY. RECENT ANNUAL APPROPRIATIONS FOR THE OFFICE OF THE ADMINISTRATOR, HOUSING AND HOME FINANCE AGENCY, HAVE REQUIRED THE CHARGING OF FEES TO COVER INSPECTION AND AUDIT COSTS OF THE GOVERNMENT IN CONNECTION WITH SUCH LOANS. AS A RESULT, THE LOAN AGREEMENTS HAVE CONTAINED A PROVISION WHEREBY THE COLLEGE AGREES TO PAY THE GOVERNMENT A FIXED FEE RANGING FROM $2,600 TO $7,500 FOR PAYMENT OF

* * * THE GOVERNMENT'S EXPENSE OF SUPERVISING AND INSPECTING THE WORK APPERTAINING TO THE DEVELOPMENT OF THE PROJECT AND OF AUDITING THE BOOKS, RECORDS, AND ACCOUNTS PERTAINING TO THE PROJECT. * * *

FINANCING OF THE LOANS IS ACCOMPLISHED THROUGH THE ISSUANCE OF BONDS BY THE COLLEGE, WHICH ARE EITHER SOLD TO THE PUBLIC OR PURCHASED BY THE GOVERNMENT WHERE NECESSARY. IN THE EVENT ALL BONDS ARE SOLD TO THE PUBLIC, THERE IS, OF COURSE, NO NEED FOR FURTHER PARTICIPATION IN THE PROJECT BY THE GOVERNMENT, AND THE LOAN AGREEMENT AUTOMATICALLY TERMINATES. HOWEVER, BY REASON OF THE ADVANCE PAYMENT PROVISIONS OF THE AGREEMENTS, IT SOMETIMES HAPPENS THAT MONEYS ARE RECEIVED BY A COLLEGE FROM THE GOVERNMENT OUT OF WHICH THE COLLEGE PAYS THE GOVERNMENT THE FIXED AUDIT AND INSPECTION FEE, AND THEREAFTER ALL BONDS ARE SOLD TO THE PUBLIC.

IT OBVIOUSLY WAS NOT INTENDED BY THE APPROPRIATION ACT PROVISIONS TO REQUIRE THE EXACTION OF A FEE FOR AUDIT AND INSPECTION SERVICES BY THE GOVERNMENT WHERE NO SUCH SERVICES ARE PERFORMED. INDEED, THE CONTRACT FEE CLAUSE STATES SPECIFICALLY THAT THE FEE IS TO BE FOR PAYMENT OF THE GOVERNMENT'S EXPENSES OF AUDIT AND INSPECTION. WHETHER THE NON PERFORMANCE OF SUCH SERVICES BE CONSIDERED AS A FAILURE OF CONSIDERATION, AS FAILURE TO PERFORM A CONSTRUCTIVE CONDITION OF THE CONTRACT FEE CLAUSE, OR AS A FRUSTRATION OF THE PURPOSES OF THE CONTRACT FEE CLAUSE, IT IS CLEAR THAT THE COLLEGE SHOULD BE ABSOLVED FROM LIABILITY FOR THE FEE OR SUCH PART THEREOF AS MAY COVER SERVICES NOT PERFORMED BY THE GOVERNMENT.

YOU ARE ADVISED, THEREFORE, THAT WE HAVE NO OBJECTION TO THE PROPOSED PROCEDURE FOR WAIVER OR REFUND OF AUDIT AND INSPECTION FEES IN PROPER CASES. IT IS SUGGESTED, HOWEVER, THAT FUTURE CONTRACT FEE CLAUSES BE DRAFTED TO COVER THIS CONTINGENCY.