B-139295, DEC. 31, 1959

B-139295: Dec 31, 1959

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CONTINENTAL ELECTRONICS MANUFACTURING COMPANY: FURTHER REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 22. SINCE THE TERMINATION ACTION INITIALLY TAKEN FOR DEFAULT WAS CHANGED ADMINISTRATIVELY TO ONE FOR THE CONVENIENCE OF THE GOVERNMENT AND THE AMOUNT FOUND TO BE DUE IN SETTLEMENT WAS ADMINISTRATIVELY NEGOTIATED DIRECTLY WITH THE SUBCONTRACTOR. YOU HAVE EXPRESSED CONCERN AS TO THE ACTION WHICH MIGHT BE TAKEN UPON REVIEW AND AUDIT OF THE TRANSACTIONS AND ACCOUNTS BY OUR OFFICE. THE SUBCONTRACT WAS ENTERED INTO JUNE 23. WAS TERMINATED BY YOU FOR DEFAULT. THE CONTRACTING OFFICER DETERMINED THAT THE DEFAULT ACTION WAS NOT JUSTIFIED AND THAT THE TERMINATION SHOULD BE REGARDED AS ONE FOR THE CONVENIENCE OF THE GOVERNMENT.

B-139295, DEC. 31, 1959

TO MR. R. F. BURGERT, COMPTROLLER, CONTINENTAL ELECTRONICS MANUFACTURING COMPANY:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 22, 1959, AS SUPPLEMENTED BY YOUR LETTERS OF NOVEMBER 4 AND 23, 1959, RELATIVE TO A PAYMENT IN EXCESS OF $1,000,000 WHICH YOUR COMPANY HAD BEEN DIRECTED TO MAKE IN SETTLEMENT OF TERMINATED SUBCONTRACT NO. NOBAR-75244/1 WITH S. VOLPE AND COMPANY, INC., BOSTON, MASSACHUSETTS, UNDER YOUR COST REIMBURSABLE CONTRACT NO. NOBSR-75244 WITH THE BUREAU OF SHIPS, DEPARTMENT OF THE NAVY, FOR THE CONSTRUCTION AND INSTALLATION ON GOVERNMENT-OWNED PROPERTY OF A RADIO COMMUNICATION FACILITY. SINCE THE TERMINATION ACTION INITIALLY TAKEN FOR DEFAULT WAS CHANGED ADMINISTRATIVELY TO ONE FOR THE CONVENIENCE OF THE GOVERNMENT AND THE AMOUNT FOUND TO BE DUE IN SETTLEMENT WAS ADMINISTRATIVELY NEGOTIATED DIRECTLY WITH THE SUBCONTRACTOR, AND IN VIEW OF THE LARGE SUM INVOLVED, YOU HAVE EXPRESSED CONCERN AS TO THE ACTION WHICH MIGHT BE TAKEN UPON REVIEW AND AUDIT OF THE TRANSACTIONS AND ACCOUNTS BY OUR OFFICE.

THE SUBCONTRACT WAS ENTERED INTO JUNE 23, 1958, WITH VOLPE FOR THE CONSTRUCTION OF ANCHORS AND FOUNDATIONS, AND WAS TERMINATED BY YOU FOR DEFAULT, EFFECTIVE FEBRUARY 12, 1959, WITH THE APPROVAL OF THE OFFICER IN CHARGE. VOLPE APPEALED THIS ACTION TO THE CONTRACTING OFFICER, AND FOLLOWING HEARINGS BY THE BUREAU OF YARDS AND DOCKS AWARD AND REVIEW BOARD, WHICH HAD BEEN APPOINTED TO HEAR THE APPEAL AND MAKE RECOMMENDATIONS TO THE CONTRACTING OFFICER, THE CONTRACTING OFFICER DETERMINED THAT THE DEFAULT ACTION WAS NOT JUSTIFIED AND THAT THE TERMINATION SHOULD BE REGARDED AS ONE FOR THE CONVENIENCE OF THE GOVERNMENT. NEGOTIATIONS FOR SETTLEMENT WERE THEN ENTERED INTO WITH THE SUBCONTRACTOR AND PAYMENT OF THE SUM OF $1,357,475.63 WAS DETERMINED BY THE CONTRACTING OFFICER TO BE REASONABLE AND IN THE INTEREST OF THE UNITED STATES. THEREUPON, YOU RECEIVED A DIRECTIVE DATED SEPTEMBER 17, 1959, FROM THE OFFICER IN CHARGE OF CONSTRUCTION REQUESTING THAT THE NEGOTIATED SETTLEMENT BE FORMALIZED AND THE TRANSACTION BE EXPEDITED.

IN YOUR LETTER OF NOVEMBER 4, 1959, YOU STATED THAT SIMULTANEOUSLY WITH REQUESTING OUR CONSIDERATION OF THIS MATTER YOU COMPLIED WITH THE DIRECTIVE OF SEPTEMBER 17, 1959, TO THE EXTENT OF PREPARING THE NOTICE OF CONVENIENCE TERMINATION AND THE SUPPLEMENTAL AGREEMENT OF SETTLEMENT. YOU STATED FURTHER IN THIS LETTER THAT YOU ALSO HAD REQUESTED THAT A COPY OF THE CONTRACTING OFFICER'S DECISION, AND A COPY OF THE SUBCONTRACTOR'S TERMINATION CLAIM WHICH HAD BEEN SUBMITTED DIRECTLY TO THE CONTRACTING OFFICER, BE FORWARDED TO YOU.

WITH YOUR LETTER OF NOVEMBER 23, 1959, YOU TRANSMITTED A COPY OF A RECENT ADMINISTRATIVE DIRECTIVE REQUIRING YOU TO WITHHOLD ANY FURTHER PAYMENT TO VOLPE AND ANY OTHER SUBCONTRACTOR AMOUNTS SUFFICIENT TO COVER POSSIBLE VIOLATIONS OF THE APPLICABLE CONTRACT LABOR STANDARDS PROVISIONS. YOU ALSO TRANSMITTED WITH THIS LETTER A COPY OF A TRUSTEE WRIT SERVED ON YOU TO EFFECT AN ATTACHMENT IN THE SUM OF $300,000 WHICH SUM R. SARGENT, INC., AND THE ELLSWORTH CONSTRUCTION CORPORATION (SUBCONTRACTORS OF VOLPE) HAVE CLAIMED TO BE DUE THEM IN A LOCAL CIVIL ACTION FILED AGAINST S. VOLPE AND COMPANY AND ITS SURETY.

THE PRIME CONTRACT PROVIDES THAT THE BUREAU OF YARDS AND DOCKS SHALL BE THE AUTHORIZED REPRESENTATIVE OF THE BUREAU OF SHIPS WITH RESPECT TO CIVIL WORKS ITEM CALLED FOR THEREUNDER, WHICH INCLUDES THE WORK COVERED BY THE VOLPE SUBCONTRACT; THAT AS SUCH REPRESENTATIVE, "THE BUREAU OF YARDS AND DOCKS SHALL APPROVE THE TERMS OF ALL SUBCONTRACTS FOR CIVIL WORKS; APPROVE THE PLANS AND SPECIFICATIONS FOR CIVIL WORKS; APPROVE CHANGES AND ALTERATIONS FOR CIVIL WORKS; INSPECT CONSTRUCTION FEATURES, SUPERVISE AND EXPEDITE THE PERFORMANCE OF THIS CONTRACT WITH RESPECT TO CIVIL WORKS.' THE "DISPUTES" ARTICLE PRESCRIBED BY ASPR 7-203.12 AND INCORPORATED IN THE CONTRACT PROVIDES THAT ANY DISPUTE (OTHER THAN ONE COVERING THE ALLOWABILITY OF COSTS) CONCERNING A QUESTION OF FACT ARISING UNDER THIS CONTRACT WHICH IS NOT DISPOSED OF BY AGREEMENT SHALL BE DECIDED BY THE CONTRACTING OFFICER; AND ANY DISPUTE CONCERNING THE ALLOWABILITY OF COST UNDER THIS CONTRACT SHALL BE DECIDED BY THE DIRECTOR, CONTRACT AUDIT DIVISION; THAT THE DECISIONS OF THE CONTRACTING OFFICER AND THE DIRECTOR, CONTRACT AUDIT DIVISION, SHALL BE FINAL AND CONCLUSIVE, UNLESS APPEALED TO THE SECRETARY WITHIN 30 DAYS AFTER RECEIPT OF A WRITTEN COPY OF SUCH DECISIONS; THAT THE DECISION OF THE SECRETARY OR HIS DULY AUTHORIZED REPRESENTATIVE FOR THE HEARING OF SUCH APPEALS SHALL BE FINAL AND CONCLUSIVE UNLESS THEY ARE FRAUDULENT OR CAPRICIOUS, OR ARBITRARY, OR SO GROSSLY ERRONEOUS AS NECESSARILY TO IMPLY BAD FAITH, OR NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. SEE 41 U.S.C. 321-322, AND VOLENTINE AND LITTLETON V. UNITED STATES, 136 C.CLS. 638.

THE SUBCONTRACT WITH VOLPE PROVIDES UNDER THE SECOND WHEREAS CLAUSE AND ARTICLE 2, AS SUPPLEMENTED BY PARAGRAPH 8, OF THE "GENERAL REQUIREMENTS," THAT THE CHIEF OF THE BUREAU OF YARDS AND DOCKS SHALL ACT AS THE CONTRACTING OFFICER AND REPRESENTATIVE OF THE GOVERNMENT IN ALL MATTERS RELATING TO THE PERFORMANCE OF THE SUBCONTRACT, AND THAT THE OFFICER IN CHARGE OF CONSTRUCTION, UNDER THE DIRECTION OF THE CONTRACTING OFFICER, SHALL HAVE COMPLETE CHARGE OF THE WORK SO FAR AS IT AFFECTS THE INTERESTS OF THE GOVERNMENT. ARTICLE 22 OF THE SUBCONTRACT PROVIDES, IN EFFECT, THAT THE RIGHT OF THE SUBCONTRACTOR TO PROCEED SHALL NOT BE TERMINATED AS PROVIDED THEREIN BECAUSE OF ANY DELAY IN THE COMPLETION OF THE WORK DUE TO CAUSES OTHER THAN NORMAL WEATHER BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE SUBCONTRACTOR, PROVIDED THAT DUE NOTICE OF THE CAUSES OF DELAY IS GIVEN THE OFFICER IN CHARGE; THAT THE OFFICER IN CHARGE SHALL ASCERTAIN THE FACTS AS TO THE CAUSES OF THE DELAY AND THAT HIS FINDINGS OF FACT THEREON SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES, SUBJECT ONLY TO APPEAL AS PROVIDED BY ARTICLE 25. ARTICLE 22 ALSO PROVIDES THAT IN THE EVENT A DEFAULT NOTICE OF TERMINATION IS DELIVERED TO THE SUBCONTRACTOR AND IT IS THEREAFTER DETERMINED THAT THE DEFAULT OR FAILURE IS DUE TO CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE SUBCONTRACTOR, THE DEFAULT NOTICE SHOULD BE CANCELLED AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES SHALL BE DETERMINED ON THE BASIS OF TERMINATION FOR THE CONVENIENCE OF THE GOVERNMENT UNDER ARTICLE 23. SUBPARAGRAPH (D) OF ARTICLE 23 PROVIDES THAT THE SUBCONTRACTOR AND THE OFFICER IN CHARGE MAY AGREE UPON THE AMOUNT TO BE PAID TO THE SUBCONTRACTOR BY REASON OF THE TERMINATION, THAT THE SUBCONTRACT SHALL BE AMENDED ACCORDINGLY, AND THAT THE SUBCONTRACTOR SHALL BE PAID THE AGREED AMOUNT, OR IN THE EVENT AN APPEAL HAS BEEN TAKEN, THE AMOUNT FINALLY DETERMINED ON SUCH APPEAL. ARTICLE 25 PROVIDES THAT ALL DISPUTES CONCERNING QUESTIONS OF FACT ARISING UNDER THE SUBCONTRACT SHALL BE DECIDED BY THE CONTRACTING OFFICER WHOSE DECISION SHALL BE FINAL AND CONCLUSIVE.

WITH RESPECT TO THE SUBCONTRACTOR'S APPEAL FROM THE ACTION TAKEN TO TERMINATE ITS SUBCONTRACT FOR DEFAULT, THE ADMINISTRATIVE REPORT RECEIVED FROM THE DEPARTMENT OF THE NAVY DISCLOSES THAT YOUR REPRESENTATIVES AS WELL AS THE OFFICER IN CHARGE WERE GIVEN FULL OPPORTUNITY TO PLACE BEFORE THE BOARD ALL THE FACTS RELATING TO THE MATTER IN DISPUTE; THAT AFTER DUE DELIBERATION THE BOARD FOUND THAT THE DEFAULT ACTION WAS NOT JUSTIFIED AND RECOMMENDED THAT THE TERMINATION BE CHANGED TO ONE FOR THE CONVENIENCE OF THE GOVERNMENT. THIS RECOMMENDATION WAS BASED ON THE BOARD'S FINDINGS THAT THE FAILURE OF THE SUBCONTRACTOR TO MEET THE REQUIRED COMPLETION DATES WAS DUE TO CAUSES BEYOND ITS CONTROL AND WITHOUT ITS FAULT OR NEGLIGENCE, THE MAJOR CAUSE BEING THE SUBSTANTIAL DELAY INCURRED IN OBTAINING APPROVAL OF THE BONDING PROCESS REQUIRED FOR THIS WORK. THE BOARD FOUND THAT IT WAS ULTIMATELY NECESSARY TO CHANGE THE PROCESS STIPULATED IN THE CONTRACT SPECIFICATIONS TO ANOTHER PROCESS FOR 90 PERCENT OF THE WELDS REQUIRED. IN FACT, IT SEEMS REASONABLY CLEAR FROM THE INFORMATION AND DATE OF RECORD THAT THE BONDING PROCESS REQUIRED BY THE SUBCONTRACT SPECIFICATIONS ACTUALLY WAS NOT SUITABLE FOR USE UNDER THE CONDITIONS EXISTING ON THIS PARTICULAR JOB. NOTHING HAS BEEN FURNISHED BY YOU NOR DISCLOSED BY OUR EXAMINATIONS WHICH WE FEEL WOULD AFFORD A PROPER BASIS FOR QUESTIONING THE CONTRACTING OFFICER'S DECISION.

WITH RESPECT TO THE DETERMINATION OF THE AMOUNT DUE THE SUBCONTRACTOR UNDER ITS TERMINATION CLAIM, THE ADMINISTRATIVE REPORT DISCLOSES THAT THE SUBCONTRACTOR'S BOOKS OF ACCOUNT WERE AUDITED BY THE NAVAL AREA AUDIT REPRESENTATIVE AND THAT SETTLEMENT ON THE BASIS OF ACTUAL COST WAS THEREAFTER AGREED UPON WITH VOLPE IN THE AMOUNT OF $2,368,128.08, LESS PREVIOUS PARTIAL PAYMENTS IN THE AMOUNT OF $1,010,652.45, MAKING A NET SETTLEMENT OF $1,357,475.63; THAT THIS SETTLEMENT PROVIDED NO PROFIT FOR THE SUBCONTRACTOR AND WAS APPROVED BY THE CONTRACTING OFFICER AS BEING ADVANTAGEOUS TO AND IN THE BEST INTEREST OF THE GOVERNMENT. AS YOU ARE AWARE, HOWEVER, FOLLOWING RECEIPT OF YOUR LETTERS, EXAMINATIONS WERE MADE BY REPRESENTATIVES OF OUR OFFICE AND CERTAIN QUESTIONABLE ITEMS OF COST ALLOWED THE SUBCONTRACTOR AND THE REPORTED LABOR VIOLATIONS REFERRED TO BY YOU, WERE BROUGHT TO THE ATTENTION OF THE ADMINISTRATIVE AGENCY. THE BUREAU OF YARDS AND DOCKS HAS REPORTED THAT FURTHER NEGOTIATIONS WITH RESPECT TO THESE ITEMS WERE ENTERED INTO BY THE CONTRACTING OFFICER WITH VOLPE FOR THE APPROPRIATE ADJUSTMENTS IN THE PROPOSED TERMINATION SETTLEMENT; THAT AN AGREEMENT HAS BEEN REACHED WITH THE SUBCONTRACTOR WHEREBY THE NET AMOUNT PAYABLE UNDER THE SETTLEMENT HAS BEEN REDUCED TO $1,347,475.63 IN FULL SETTLEMENT OF ALL CLAIMS ARISING OUT OF THIS SUBCONTRACT. IN OTHER WORDS, THIS SETTLEMENT WILL INCLUDE ALL CLAIMS OF VOLPE AND HIS SUBCONTRACTORS GROWING OUT OF THE PERFORMANCE OF THE SUBCONTRACT WORK.

WE HAVE BEEN FURTHER ADVISED BY THE BUREAU OF YARDS AND DOCKS THAT YOU HAVE NOW BEEN FURNISHED FULL DETAILS CONCERNING ALL THE CONSIDERATIONS AND DETERMINATIONS OF COST INCIDENT TO THE TERMINATION OF THE SUBCONTRACT AND THE NEGOTIATIONS OF THE PROPOSED SETTLEMENT WITH VOLPE, INCLUDING COPIES OF THE SUBCONTRACTOR'S TERMINATION CLAIM, AND THE PERTINENT FINDINGS AND DECISIONS OF THE CONTRACTING OFFICER. BASED UPON OUR REVIEW AND CONSIDERATION OF ALL THE FACTS AND CIRCUMSTANCES MADE AVAILABLE TO US, WE BELIEVE THAT THE SETTLEMENT IS REASONABLE. IN THE EVENT YOU MAY HAVE ANY FURTHER QUESTIONS OR DOUBT WITH RESPECT TO THE DETERMINATIONS OF THE CONTRACTING OFFICER, WE SUGGEST THAT THE MATTER BE PRESENTED BY AN APPROPRIATE APPEAL TO THE SECRETARY OF THE NAVY FOR HIS REVIEW AND FINAL ADMINISTRATIVE DETERMINATION IN ACCORDANCE WITH THE APPEAL PROCEDURE PRESCRIBED IN THE PRIME CONTRACT.