B-144591, JAN. 24, 1961

B-144591: Jan 24, 1961

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INC.: REFERENCE IS MADE TO YOUR LETTERS OF DECEMBER 2. WAS PERMITTED TO ENTER INTO SOME TYPE OF JOINT VENTURE WITH WILLIAMS AND BURROWS. IT IS BELIEVED NECESSARY TO REVIEW THE ACTIONS CULMINATING IN THE SCHEDULED CLOSING OF THE ADVERTISED CAPEHART PROJECT WHEN ALL OF THE REQUISITE DOCUMENTS SUCH AS THE LEASE. HOUSING CONTRACT ARE EXECUTED AND COPIES EXCHANGED AND THE FHA INITIALLY ENDORSES THE MORTGAGE NOTE FOR MORTGAGE INSURANCE. FIVE BIDS WERE RECEIVED AND OPENED ON JUNE 1. 000 THE FHA'S ESTIMATE OF REPLACEMENT COST FOR THE PROJECT WAS $7. IT IS EVIDENT THAT NO BID IN EXCESS OF $7. 774 COULD HAVE BEEN ACCEPTED. IT IS CLEAR THAT UNDER THE STATUTE A LETTER OF ACCEPTABILITY COULD ONLY HAVE BEEN ISSUED TO THE LOW BIDDER.

B-144591, JAN. 24, 1961

TO SHERIDEN, INC.:

REFERENCE IS MADE TO YOUR LETTERS OF DECEMBER 2, 17 AND 21, 1960, AND JANUARY 4, 1961, CONCERNING THE ISSUANCE OF A LETTER OF ACCEPTABILITY TO THE ALOHA CONSTRUCTION CO. AND ASSOCIATES FOR THE CONSTRUCTION OF A CAPEHART HOUSING PROJECT AT THE NAVAL AIR STATION, LEMOORE, CALIFORNIA. YOU ALLEGE THAT THE ALOHA CONSTRUCTION CO. WAS PERMITTED TO ENTER INTO SOME TYPE OF JOINT VENTURE WITH WILLIAMS AND BURROWS, GENERAL CONTRACTORS, AFTER ISSUANCE OF THE LETTER OF ACCEPTABILITY.

IT IS BELIEVED NECESSARY TO REVIEW THE ACTIONS CULMINATING IN THE SCHEDULED CLOSING OF THE ADVERTISED CAPEHART PROJECT WHEN ALL OF THE REQUISITE DOCUMENTS SUCH AS THE LEASE, BUILDING LOAN AGREEMENT, MORTGAGE, HOUSING CONTRACT ARE EXECUTED AND COPIES EXCHANGED AND THE FHA INITIALLY ENDORSES THE MORTGAGE NOTE FOR MORTGAGE INSURANCE.

ON APRIL 11, 1960, THE DEPARTMENT OF THE NAVY ISSUED AN INVITATION FOR BIDS FOR CONSTRUCTION OF HOUSING AT THE NAVAL AIR STATION, LEMOORE, CALIFORNIA. FIVE BIDS WERE RECEIVED AND OPENED ON JUNE 1, 1960, IN THE FOLLOWING AMOUNTS:

TABLE

NAME BASIC BID

(1) YOUSEM CONSTRUCTION CORP. $8,105,000

(2) ALOHA CONSTRUCTION CO. AND ASSOCIATES 7,771,771

(3) SHERIDEN-BROWNE (JOINT VENTURE) 7,936,000

(4) CROWN CONSTRUCTION CO. 8,159,000

(5) L. E. DIXON AND W. E. KIER CONSTR.CO. 8,875,000

THE FHA'S ESTIMATE OF REPLACEMENT COST FOR THE PROJECT WAS $7,874,774. SINCE SECTION 803 (B) (3) (A) OF TITLE VIII OF THE NATIONAL HOUSING ACT, AS AMENDED, 12 U.S.C. 1748B (B) (3) (A) PROHIBITS A MORTGAGE IN AN AMOUNT IN EXCESS OF FHA'S REPLACEMENT COST ESTIMATE OF THE PROJECT, IT IS EVIDENT THAT NO BID IN EXCESS OF $7,874,774 COULD HAVE BEEN ACCEPTED. THUS, IT IS CLEAR THAT UNDER THE STATUTE A LETTER OF ACCEPTABILITY COULD ONLY HAVE BEEN ISSUED TO THE LOW BIDDER, THE ALOHA CONSTRUCTION CO. AND ASSOCIATES, AND EVEN IF SUCH LOW BIDDER HAD BEEN FOUND TO BE INELIGIBLE, YOUR NEXT LOWEST BID COULD NOT HAVE BEEN ACCEPTED SINCE IT WAS IN EXCESS OF THE STATUTORY MORTGAGE LIMIT.

THE LOW BID CONTAINED INFORMATION SHOWING THE PRINCIPALS OF THE BIDDER TO BE THE ALOHA CONSTRUCTION CO., SAM LEN, JACK BASKIN AND RALPH SUTRO, AND CONTAINED THE INFORMATION REQUIRED AS TO THE FINANCIAL RESOURCES AND EXPERIENCE OF EACH OF THE PRINCIPALS. THEREAFTER, ON OR ABOUT JUNE 6, 1960, AND IN ACCORDANCE WITH THE ESTABLISHED PRACTICE FOLLOWED IN CAPEHART PROJECTS, ALL BIDS WERE TRANSMITTED BY THE DISTRICT PUBLIC WORKS OFFICER TO THE FHA SAN FRANCISCO FIELD OFFICE WITH THE REQUEST THAT THE LOW BIDDER BE PROCESSED FOR ELIGIBILITY FOR MORTGAGE INSURANCE. BY LETTER OF AUGUST 8, 1960, TO THE DISTRICT PUBLIC WORKS OFFICER, THE FIELD OFFICE OF FHA, AFTER DISCUSSING CERTAIN FINANCIAL AND EXPERIENCE INFORMATION OBTAINED BY IT CONCERNING THE PRINCIPALS OF THE LOW BIDDER, ADVISED THE DISTRICT PUBLIC WORKS OFFICER THAT:

"IF IT IS YOUR DECISION, IN THE LIGHT OF THE FOREGOING INFORMATION, TO AWARD THE CONTRACT TO THE ALOHA CONSTRUCTION CO. AND ASSOCIATES, NAMING ALL PARTIES JOINT-VENTURING AS CO-PRINCIPALS AND BONDED AS CO PRINCIPALS, A COMMITMENT TO INSURE WILL BE ISSUED.'

AFTER CONSIDERING ALL OF THE AVAILABLE INFORMATION, INCLUDING THAT PROVIDED BY THE FHA IN ITS ABOVE-MENTIONED LETTER, THE DISTRICT PUBLIC WORKS OFFICER, AS CONTRACTING OFFICER, DETERMINED THAT THE LOW BIDDER QUALIFIED AS AN "ELIGIBLE BIDDER" WITHIN THE REQUIREMENTS OF 42 U.S.C. 1594 (B). ACCORDINGLY, ON AUGUST 15, 1960, A LETTER OF ACCEPTABILITY WAS ISSUED TO ALOHA CONSTRUCTION CO. AND ASSOCIATES, SAM LEN, RALPH SUTRO AND JACK BASKIN. ON DECEMBER 27, 28 AND 29, 1960, THE ,CLOSING" FOR THE PROJECT WAS EFFECTED IN ACCORDANCE WITH THE CUSTOMARY REQUIREMENTS.

OF PARTICULAR INTEREST, IN THE LIGHT OF THE ALLEGATIONS IN YOUR LETTER OF DECEMBER 2, 1960, IS THE FACT THAT THE HOUSING CONTRACT COVERING THE CONSTRUCTION OF THE PROJECT AND THE PERFORMANCE AND PAYMENT BONDS PROVIDED AT THE CLOSING WERE EXECUTED WITH THE BIDDERS, ALOHA CONSTRUCTION CO. AND ASSOCIATES, SAM LEN, RALPH SUTRO AND JACK BASKIN, AS PRINCIPALS. THUS, WHATEVER REQUIREMENTS WERE IMPOSED BY THE SURETY AS A CONDITION FOR THE ISSUANCE OF THE SAID BONDS BY IT, THE FACT IS THAT THE BONDS REQUIRED TO BE FURNISHED TO PERMIT "CLOSING" WERE PROVIDED BY THE CONTRACTOR IN ACCORDANCE WITH ITS OBLIGATION.

IT IS THEREFORE CLEAR THAT NO PARTIES OTHER THAN THOSE COMPRISING THE "ELIGIBLE BIDDER," TO WHOM THE LETTER OF ACCEPTABILITY WAS ISSUED, ARE PARTIES TO THE HOUSING CONTRACT. IT IS TO BE ESPECIALLY NOTED THAT NO JOINT VENTURE INVOLVING WILLIAMS AND BURROWS IS A PARTY TO THE SAID CONTRACT.

IN THE INTEREST OF COMPLETENESS, HOWEVER, YOU ARE ADVISED THAT PRIOR TO

"CLOSING" THE ELIGIBLE BUILDER DID DISCUSS WITH THE DISTRICT PUBLIC WORKS OFFICER THE POSSIBILITY OF SUBCONTRACTING THE WORK TO THE FIRM OF WILLIAMS AND BURROWS BUT WAS ADVISED BY THAT OFFICER THAT ANY CONSENT BY THE NAVY TO SUCH SUBCONTRACTING, AS PROVIDED FOR IN ARTICLE X OF THE HOUSING CONTRACT, WOULD BE FOR CONSIDERATION AFTER THE CLOSING HAD BEEN EFFECTED AND THE HOUSING CONTRACT EXECUTED BY THE ELIGIBLE BIDDER. THE DISTRICT PUBLIC WORKS OFFICER ALSO ADVISED THAT SUCH CONSENT WOULD REQUIRE THE APPROVAL OF THE MORTGAGEE AND THE COMMISSIONER OF FHA AND, IF GIVEN, WOULD BE ON TERMS AND CONDITIONS WHICH WOULD NOT DILUTE OR DIMINISH THE OBLIGATIONS OF THE ELIGIBLE BIDDER UNDER THE CONTRACT NOR REDUCE THE RIGHTS OF PERSONS COVERED BY THE PAYMENT BOND.

ACCORDINGLY, ON THE RECORD BEFORE US, WE HAVE NO ALTERNATIVE BUT TO DENY YOUR PROTEST.