B-136025, JUNE 23, 1958, 37 COMP. GEN. 840

B-136025, JUNE 23, 1958, 37 COMP. GEN. 840

CONTRACTS - ACTUAL COSTS - ARBITRATION AWARDS - DAMAGES UNDER A CONSTRUCTION CONTRACT BETWEEN THE FEDERAL GOVERNMENT AND A STATE WHICH OBLIGATES THE GOVERNMENT TO REIMBURSE THE STATE FOR ACTUAL COSTS, AN ARBITRATION AWARD REPRESENTING DAMAGES FOR BREACH OF CONTRACT DUE TO AN ENGINEERING MISTAKE WHICH NECESSITATED A CHANGE IN SPECIFICATIONS MAY BE ADMINISTRATIVELY DETERMINED TO BE AN ITEM OF ACTUAL COST FOR PAYMENT UNDER THE CONTRACT.

TO W. E. CORBIN, DEPARTMENT OF THE INTERIOR, JUNE 23, 1958:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 30, 1958, WITH ENCLOSURES, REQUESTING A DECISION AS TO WHETHER IT IS PROPER TO CERTIFY FOR PAYMENT A VOUCHER COVERING A CLAIM OF THE STATE OF WASHINGTON FOR $15,547.50, AS THE BALANCE DUE FROM THE UNITED STATES FOR SERVICES RENDERED IN CONNECTION WITH THE CONSTRUCTION OF A FISHWAY AT KALAMA RIVER FALLS, COWLITZ COUNTY, WASHINGTON, IN ACCORDANCE WITH THE TERMS OF A CONTRACT NO. 14-19-008-2646, DATED JUNE 16, 1954, AS AMENDED.

THE SERVICE CONTRACT WAS ENTERED INTO BY THE DEPARTMENT OF THE INTERIOR, FISH AND WILDLIFE SERVICE, WITH THE STATE OF WASHINGTON, DEPARTMENT OF FISHERIES, PURSUANT TO THE PROVISIONS OF SECTION 757, TITLE 16, U.S.C. AND IN ACCORDANCE WITH A JUNE 23, 1948, AGREEMENT BETWEEN THE UNITED STATES AND THE STATES OF OREGON, WASHINGTON AND IDAHO, RELATING TO THE CONSERVATION OF THE FISHERY RESOURCES OF THE COLUMBIA RIVER BASIN. THE CONTRACT, AS AMENDED, PROVIDED FOR PAYMENT BY THE UNITED STATES OF COSTS UP TO A MAXIMUM OF $220,000 FOR CONSTRUCTION OF THE KALAMA RIVER FISHWAY (PROJECT NO. 852-A-W-SI-12).

ARTICLE IV OF THE CONTRACT PROVIDED FOR THE PAYMENT BY THE UNITED STATES OF THE VALUE AS DETERMINED BY THE FISH AND WILDLIFE SERVICE "OF LABOR, MATERIALS, AND OTHER ITEMS OF COST INCURRED IN CONNECTION WITH SAID PROJECT.' SECTION 6 OF THE JUNE 23, 1948, AGREEMENT PROVIDED THAT PAYMENTS TO STATES WERE TO INCLUDE "ONLY ACTUAL COSTS OF SUCH SERVICES AS ARE INCURRED IN CONNECTION WITH THE PROSECUTION OF THE PROJECT.'

THE STATE OF WASHINGTON, DEPARTMENT OF FISHERIES, ENTERED INTO A CONSTRUCTION CONTRACT WITH LEE HOFFMAN OF BEAVERTON, OREGON, UNDER WHICH THE REQUIRED CONSTRUCTION WORK WAS TO BE PERFORMED FOR A TOTAL CONSIDERATION OF $143,585. VARIOUS DISPUTES AROSE BETWEEN THE CONTRACTOR AND THE STATE, AND THE CONTRACT PRICE WAS ADJUSTED FROM TIME TO TIME TO COVER ADDITIONS AND DELETIONS FROM THE ORIGINAL REQUIREMENTS. THE LAST CHANGE ORDER, WHICH REDUCED THE CONTRACT PRICE BY THE AMOUNT OF $8,470, WAS ISSUED FOLLOWING THE CONFIRMATION ON OCTOBER 15, 1957, BY THE SUPERIOR COURT OF THE STATE OF WASHINGTON IN AND FOR THE COUNTY OF THURSTON, OF AN ARBITRATION AWARD OF $39,758.78 TO THE CONTRACTOR.

IT IS REPORTED THAT FIVE CHANGE ORDERS WERE ISSUED WHICH RESULTED IN INCREASING THE CONTRACT PRICE TO $163,857.27. IT APPEARS THAT IN ADDITION TO THAT AMOUNT THE STATE OF WASHINGTON BECAME OBLIGATED TO PAY TO THE CONTRACTOR THE SUM OF $15,547.50 REPRESENTING $14,247.50 AS DAMAGES FOR BREACH OF CONTRACT, AND THE SUMS OF $1,050 AND $250 TO COVER ARBITRATION FEES PAYABLE BY MR. HOFFMAN AND COSTS INCURRED IN PRESENTING HIS CASE TO THE ARBITRATORS.

THE AMOUNT OF $14,247.50 AWARDED TO THE CONSTRUCTION CONTRACTOR AS DAMAGES FOR BREACH OF THE CONTRACT RELATED TO A DECISION BY THE STATE OF WASHINGTON THAT THE CONTRACTOR SHOULD NOT BE PERMITTED TO PROCEED FURTHER WITH A PROPOSED METHOD OF DE-WATERING THE PROJECT BY MAKING AN OPEN CUT THROUGH THE BANK ON THE WEST SIDE OF THE KALAMA RIVER. THAT DECISION WAS MADE BECAUSE OF THE POSSIBILITY THAT IF THE CUT WERE MADE THE RIVER MIGHT CUT BELOW THE EXISTING CHANNEL AND CAUSE A LOWERING OR ABANDONMENT OF THE FISHWAY. THE STATE DENIED THE ALLEGATION THAT THE CHIEF ENGINEER HAD GRANTED PERMISSION TO CUT THE RIVER BANK, BUT, IN ANY EVENT, THE REVOCATION OF ANY SUCH PERMISSION AND THE MAKING OF OTHER ARRANGEMENTS FOR DE-WATERING THE PROJECT WOULD NOT NECESSARILY HAVE CONSTITUTED A BREACH OF THE CONTRACT, BUT COULD HAVE BEEN CONSIDERED AS A CHANGE IN THE CONTRACT, WARRANTING AN EQUITABLE ADJUSTMENT IN THE CONTRACT PRICE.

YOU STATE THAT THE ARBITRATION AWARD HAS NOT BEEN APPROVED BY THE BUREAU AS AN "ACTUAL COST" OF SERVICES PERFORMED WITHIN THE MEANING OF SECTION 6 OF THE JUNE 23, 1948, AGREEMENT BECAUSE OF DOUBT AS TO THE PROPRIETY OF SUCH ACTION. YOU REFER TO A LETTER DATED DECEMBER 4, 1956, FROM THE DEPARTMENT'S REGIONAL SOLICITOR, TO THE ASSISTANT ATTORNEY GENERAL, STATE OF WASHINGTON, RAISING THE QUESTION AS TO WHETHER THE STATE WOULD BE ENTITLED TO REIMBURSEMENT FOR AMOUNTS PAID AS DAMAGES FOR BREACH OF THE CONSTRUCTION CONTRACT. IN THE EVENT THAT WE WOULD NOT AUTHORIZE THE INSTANT VOUCHER TO BE CERTIFIED FOR PAYMENT ON THE PRESENT RECORD, YOU REQUEST ADVICE AS TO WHETHER THE VOUCHER MAY BE CERTIFIED IF THERE HAS BEEN AN ADMINISTRATIVE DETERMINATION THAT THE AMOUNT CLAIMED IS AN ACTUAL COST OF SERVICES PERFORMED WITHIN THE MEANING OF THE JUNE 23, 1948, AGREEMENT.

WE BELIEVE THAT ARTICLE IV OF THE CONTRACT, BY WHICH THE UNITED STATES AGREED TO SHARE THE COST OF THE PROJECT, REQUIRES THAT A FAVORABLE DETERMINATION BE MADE BY THE BUREAU BEFORE THE VOUCHER MAY BE CERTIFIED FOR PAYMENT. HOWEVER, SO FAR AS OUR OFFICE IS CONCERNED, WE WOULD BE REQUIRED ON THE PRESENT RECORD TO OBJECT TO A DETERMINATION BY WHICH THE STATE OF WASHINGTON WOULD BE CONSIDERED ENTITLED TO THE CLAIMED AMOUNT OF $15,547.50 AS AN ITEM OF "ACTUAL COST" OF THE SERVICES PERFORMED ON THE PROJECT IN QUESTION. THERE IS NO EVIDENCE THAT THE STATE DID NOT EMPLOY A COMPETENT ENGINEER TO SUPERVISE THE CONSTRUCTION WORK AND IT IS NOT UNUSUAL IN THE ADMINISTRATION OF CONSTRUCTION CONTRACTS FOR SOME ENGINEERING MISTAKES TO BE MADE WITH THE RESULT THAT COSTS ARE INCURRED WHICH ARE IN EXCESS OF THE AMOUNTS PAYABLE FOR WORK PERFORMED STRICTLY IN ACCORDANCE WITH THE CONTRACT SPECIFICATIONS AND CHANGE ORDERS ISSUED UNDER THE CONTRACT. HAD THE CONTRACTOR AND THE STATE OF WASHINGTON AGREED TO AN EQUITABLE ADJUSTMENT IN THE CONTRACT PRICE TO COVER THE ADDITIONAL EXPENSES CAUSED BY A CHANGE IN THE APPARENTLY APPROVED METHOD OF DIVERTING WATER FROM THE PROJECT, THERE WOULD HAVE BEEN NO QUESTION AS TO THE OBLIGATION OF THE UNITED STATES TO REIMBURSE THE STATE FOR THE AMOUNT OF SUCH PRICE ADJUSTMENT.

THE MERE FACT THAT THE CONTRACTOR CLAIMED DAMAGES FOR BREACH OF THE CONTRACT SHOULD NOT, IN OUR OPINION, RESULT IN A FAILURE BY THE UNITED STATES TO REIMBURSE THE STATE OF WASHINGTON FOR THE AMOUNTS PAID TO THE CONTRACTOR IN ACCORDANCE WITH THE FINDINGS AND DECISION OF THE ARBITRATORS ON THE VARIOUS DISPUTES WHICH AROSE OUT OF THE PERFORMANCE OF THE CONTRACT WORK. THE RESPONSIBILITY OF THE STATE WAS SOMEWHAT SIMILAR TO THAT OF A GOVERNMENT COST-PLUS-A-FIXED-FEE CONTRACTOR AND WE HAVE HELD THAT SUCH A CONTRACTOR SHOULD NOT BE DENIED REIMBURSEMENT FOR LOSS OR DAMAGE CAUSED BY THE NEGLIGENCE OF AN EMPLOYEE, IF THE CONTRACTOR IS NOT CHARGEABLE WITH ANY BREACH OF HIS CONTRACTUAL DUTIES AND OBLIGATIONS, INCLUDING THE DUTY TO EXERCISE DUE DILIGENCE TO EMPLOY AND RETAIN COMPETENT, TRUSTWORTHY AND CAREFUL PERSONNEL. SEE 20 COMP. GEN. 149.

ACCORDINGLY, YOU ARE ADVISED THAT THE VOUCHER MAY BE CERTIFIED IF THE BUREAU OF COMMERCIAL FISHERIES SHOULD DETERMINE THAT THE AMOUNT CLAIMED IS AN ACTUAL COST OF SERVICES PERFORMED WITHIN THE MEANING OF ARTICLE IV OF THE SERVICE CONTRACT AND SECTION 6 OF THE REFERENCED JUNE 23, 1948, AGREEMENT BETWEEN THE UNITED STATES AND THE STATES OF OREGON, WASHINGTON AND IDAHO.

THE FILE OF CORRESPONDENCE AND DOCUMENTS FORWARDED WITH YOUR LETTER IS RETURNED HEREWITH.