B-126534, FEB. 13, 1956

B-126534: Feb 13, 1956

Additional Materials:

Contact:

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

 

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

YOU HAVE REQUESTED A DECISION AS TO WHETHER THE GOVERNMENT IS ENTITLED TO ANY INTEREST ON THE REPORTED OVERPAYMENT OF $571. WHAT PERCENTAGE AND PERIODS OF TIME SHOULD HAVE BEEN APPLIED IN THE COMPUTATION OF THE INTEREST DUE. THIS TERMINATION CLAIM WILL AMOUNT TO MORE THAN THE REFUND ON THE CONTRACT.'. WERE FORWARDED TO THE CONTRACTOR AND IN A LETTER DATED JUNE 22. DEMAND WAS MADE ON THE CONTRACTOR TO PAY THE SUM OF $571. DA-36-034-ORD-1006 WAS PARTIALLY TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT OF JANUARY 26. THE TERMINATION NOTICE WAS AMENDED BY LETTER DATED FEBRUARY 24. ANOTHER CONTRACT NUMBERED DA-36-034-ORD-1360 WITH THE SAME CONTRACTOR WAS TERMINATED IN ITS ENTIRETY FOR THE CONVENIENCE OF THE GOVERNMENT ON JANUARY 26.

B-126534, FEB. 13, 1956

TO CAPTAIN LYLE L. RITCHIE, FINANCE AND ACCOUNTING OFFICER, DEPARTMENT OF THE ARMY:

THERE HAS BEEN RECEIVED BY REFERENCE FROM THE OFFICE OF THE CHIEF OF FINANCE YOUR LETTER DATED NOVEMBER 29, 1955, WITH ENCLOSURES, INCLUDING BUREAU VOUCHER NO. 1006-37, FOR $43,422.40, IN FAVOR OF L. A. YOUNG SPRING AND WIRE COMPANY, TRENTON, NEW JERSEY, COVERING A CLAIM FOR REFUND OF INTEREST CHARGED ON AN AMOUNT CONSIDERED AS HAVING BEEN OVERPAID TO THAT COMPANY FOR SUPPLIES FURNISHED UNDER CONTRACT NO. DA-36-034-ORD-1006, DATED JUNE 10, 1952, AS AMENDED. YOU HAVE REQUESTED A DECISION AS TO WHETHER THE GOVERNMENT IS ENTITLED TO ANY INTEREST ON THE REPORTED OVERPAYMENT OF $571,046.80 AND, IF SO, WHAT PERCENTAGE AND PERIODS OF TIME SHOULD HAVE BEEN APPLIED IN THE COMPUTATION OF THE INTEREST DUE.

SUPPLEMENTAL AGREEMENT NO. 13 TO THE CONTRACT, ENTERED INTO ON FEBRUARY 19, 1954, PURSUANT TO THE PRICE REDETERMINATION ARTICLE OF THE CONTRACT, HAD THE EFFECT OF REDUCING THE TOTAL CONTRACT PRICE BY THE AMOUNT OF $691,676.78 AND ULTIMATELY RESULTED IN A CLAIM OF THE GOVERNMENT IN THE AMOUNT OF $571,046.80, REPRESENTING AMOUNTS PAID IN EXCESS OF THE REDETERMINED CONTRACT RATES. BY LETTER DATED JULY 1, 1954, THE GOVERNMENT DEMANDED PAYMENT OF THAT AMOUNT, BUT THE CONTRACTOR REQUESTED PERMISSION TO WITHHOLD SUCH PAYMENT PENDING SETTLEMENT OF ITS TERMINATION CLAIM UNDER CONTRACT NO. DA-36-034-ORD 1006. IN A LETTER DATED JULY 13, 1954, THE CONTRACTOR STATED THAT ,THIS TERMINATION CLAIM WILL AMOUNT TO MORE THAN THE REFUND ON THE CONTRACT.' HOWEVER, ADDITIONAL DEMAND LETTERS DATED AUGUST 16 AND SEPTEMBER 8, 1954, WERE FORWARDED TO THE CONTRACTOR AND IN A LETTER DATED JUNE 22, 1955, DEMAND WAS MADE ON THE CONTRACTOR TO PAY THE SUM OF $571,046.80 PLUS 4 PERCENT INTEREST THEREON.

CONTRACT NO. DA-36-034-ORD-1006 WAS PARTIALLY TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT OF JANUARY 26, 1954, AND THE TERMINATION NOTICE WAS AMENDED BY LETTER DATED FEBRUARY 24, 1954. ANOTHER CONTRACT NUMBERED DA-36-034-ORD-1360 WITH THE SAME CONTRACTOR WAS TERMINATED IN ITS ENTIRETY FOR THE CONVENIENCE OF THE GOVERNMENT ON JANUARY 26, 1954. THE CONTRACTOR'S INITIAL TERMINATION PROPOSAL WAS FILED ON JULY 29, 1954, AND THE CONTRACTOR'S FOURTH AND FINAL PROPOSAL IN THE TOTAL AMOUNT OF $982,438.65 WAS RECEIVED BY THE GOVERNMENT ON MAY 4, 1955. IN THE MEANTIME, THE CONTRACTOR HAD REQUESTED A PARTIAL PAYMENT ON THE TERMINATION CLAIM TO LIQUIDATE THE OVERPAYMENT OF $571,046.80 WHICH RESULTED FROM THE PRICE REDETERMINATION AGREEMENT OF FEBRUARY 19, 1954. IN A PRICE ANALYSIS REPORT OF FEBRUARY 10, 1955, A PARTIAL PAYMENT OF $409,000 WAS RECOMMENDED AND IN A SUBSEQUENT PRICE ANALYSIS REPORT OF MAY 3, 1955, A PARTIAL PAYMENT OF $575,000 WAS RECOMMENDED AS FAIR AND REASONABLE.

NO PARTIAL PAYMENT WAS MADE AND AS OF THE DATE OF THE LAST PRICE ANALYSIS REPORT IT APPEARS TO HAVE BEEN CONSIDERED THAT ACTION ON THE CONTRACTOR'S REQUEST WAS NO LONGER REQUIRED SINCE IT WAS BELIEVED THAT A FINAL TERMINATION SETTLEMENT AGREEMENT WOULD SOON BE EFFECTED. EVENTUALLY, ON AUGUST 19, 1955, A GROSS TERMINATION SETTLEMENT AGREEMENT DESIGNATED AS AMENDMENTS TO THE TWO CONTRACTS WAS EXECUTED PROVIDING FOR THE PAYMENT TO THE CONTRACTOR OF THE AMOUNT OF $713,123.77.

THERE IS NO DEFINITE INDICATION AS TO WHAT PART OF SUCH AMOUNT REPRESENTS A SETTLEMENT UNDER CONTRACT NO. DA-36-034-ORD-1006. IT APPEARS, HOWEVER, THAT IF THE TERMINATION CLAIM UNDER THIS CONTRACT HAD BEEN CONSIDERED SEPARATELY THE AMOUNT ALLOWABLE THEREON WOULD HAVE BEEN APPROXIMATELY EQUAL TO THE OVERPAYMENT COMPUTED ON THE BASIS OF THE PRICE REDETERMINATION AGREEMENT, SINCE THE CONTRACTOR HAD ORIGINALLY CLAIMED THE AMOUNT OF $746,415.96 UNDER CONTRACT NO. DA-36 034-ORD-1006 AS COMPARED WITH THE AMOUNT OF $156,097.19 CLAIMED UNDER CONTRACT NO. DA-36-034-ORD- 1360.

THE MATTER OF CHARGING INTEREST TO THE CONTRACTOR WAS FIRST BROUGHT TO THE ATTENTION OF THE CONTRACTING OFFICER IN A REPORT OF THE DISTRICT TERMINATION SETTLEMENT REVIEW BOARD IN WHICH IT WAS INDICATED THAT INTEREST AT THE RATE OF 4 PERCENT SHOULD BE CHARGED ON THE AMOUNT OF $571,046.80. THE SAME CONCLUSION WAS REACHED BY THE OFFICE OF CHIEF OF ORDNANCE SETTLEMENT REVIEW BOARD WHICH APPROVED THE $713,123.77 SETTLEMENT FIGURE SUBJECT TO SETOFF OF THE AMOUNT OF $571,046.80, PLUS 4 PERCENT INTEREST FROM FEBRUARY 19, 1954. HOWEVER, IN VIEW OF THE PROVISIONS OF ARMY REGULATION 35-3290, RELATING TO THE COLLECTION OF DEBTS DUE FROM GOVERNMENT CONTRACTORS WHERE THEY HAVE REQUESTED PERMISSION TO PAY SUCH DEBTS ON AN INSTALLMENT BASIS, THE CONTRACTOR WAS CHARGED FOR THE PERIOD FEBRUARY 9, 1954, TO AUGUST 19, 1955, AND THE TOTAL SUM OF $43,422.40 WAS DEDUCTED IN MAKING PAYMENT ON NOVEMBER 4, 1955, OF THE NET AMOUNT OF $98,654.57 ON THE TERMINATION CLAIMS ($713,123.77 LESS THE TOTAL OF THE SUMS OF $571,046.80 AND $43,422.40).

THE UNITED STATES IS ENTITLED TO INTEREST ON ITS CREDITS BUT IS NOT LIABLE FOR INTEREST ON CHARGES AGAINST IT IN THE SETTLEMENT OF MUTUAL CLAIMS. UNITED STATES V. VERDIER, 164 U.S. 213; UNITED STATES V. NORTH AMERICAN COMPANY, 253 U.S. 330. BUT SEE STANDARD STEEL CAR COMPANY V. UNITED STATES, 67 C.CLS. 445, 489, 490, WHICH IS TO THE EFFECT THAT THESE DECISIONS OF THE SUPREME COURT HAVE NO APPLICATION IN A SITUATION WHERE THE CLAIM OF THE GOVERNMENT IS MERELY ONE OF SEVERAL ITEMS OF A SINGLE MUTUAL ACCOUNT.

IN THE CIRCUMSTANCES, PARTICULARLY THE APPARENT FACT THAT THE LIQUIDATED AMOUNTS DUE ON THE MUTUAL CLAIMS UNDER THE SAME CONTRACT PRACTICALLY OFFSET EACH OTHER, YOU ARE ADVISED THAT WE WOULD NOT BE REQUIRED TO OBJECT TO PAYMENT IN FULL ON BUREAU VOUCHER NO. 1006-37. THE FILE SUBMITTED WITH YOUR LETTER IS RETURNED HEREWITH.