B-145764, JUL. 17, 1961

B-145764: Jul 17, 1961

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JR.: REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 21. 782.30 WHICH THE CONTRACTOR CLAIMED WAS OWED TO IT UNDER CONTRACT ORD-895. DEMAND WAS MADE ON JUNE 2. FOR INTEREST AT THE RATE OF 5 PERCENT PER ANNUM FROM THE DATE OF THE AGREEMENT UNLESS PAYMENT WAS RECEIVED BEFORE JULY 2. ALTHOUGH FAIRMOUNT SPECIFICALLY REQUESTED THAT IT BE RELIEVED FROM PAYING INTEREST SINCE IT WAS NOT ASKING OR EXPECTING INTEREST FROM THE GOVERNMENT FOR MONEY DUE UNDER ORD-895. 685.70 WAS APPLIED TO THE DEBT. THE LATTER AMOUNT WAS SET-OFF AGAINST THE DEBT ON JANUARY 18. 314.57 WAS APPLIED TO PRINCIPAL WHILE $11.85 WAS APPLIED TO INTEREST. THE BALANCE WOULD HAVE BEEN $455.88. WHICH IS THE AMOUNT REFERRED TO IN THE PROPOSED SETTLEMENT AGREEMENT AS DUE UNDER ORD- 895.

B-145764, JUL. 17, 1961

TO LIEUTENANT COLONEL MERLE C. RIDEOUT, JR.:

REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 21, 1961, REQUESTING OUR COMMENTS ON THE PROPOSED AGREEMENT IN RESOLUTION OF CLAIMS IN FAVOR OF AND AGAINST THE GOVERNMENT UNDER CONTRACTS NOS. DA-36-034-ORD 894, -895 AND - 2144 WITH THE PENCOYD STEEL AND FORGE CORPORATION, PHILADELPHIA, PENNSYLVANIA (IN BANKRUPTCY) AND THE FAIRMOUNT STEEL CORPORATION, BALTIMORE, MARYLAND.

THE AMOUNT OF THE GOVERNMENT'S CLAIM AGAINST FAIRMOUNT STEEL UNDER CONTRACT ORD-894 DEPENDS UPON THE PROPRIETY OF CHARGING THE CONTRACTOR INTEREST UNDER SUPPLEMENTAL AGREEMENT NO. 7, DATED NOVEMBER 6, 1958. THAT AGREEMENT, THE CONTRACTOR AGREED TO PAY THE GOVERNMENT $12,468 AS A REDUCTION IN THE CONTRACT PRICE FOR LATENT DEFECTS IN SIX TUBE FORGINGS FOR WHICH THE CONTRACTOR HAD PREVIOUSLY BEEN PAID. EXTENSIVE CORRESPONDENCE FOLLOWED IN WHICH THE CONTRACTOR REQUESTED THE CONTRACTING OFFICER AND, LATER, THE OFFICE OF THE COMPTROLLER OF THE ARMY, TO SET OFF AGAINST THE DEBT THE AMOUNT OF $4,782.30 WHICH THE CONTRACTOR CLAIMED WAS OWED TO IT UNDER CONTRACT ORD-895. THE CONTRACTOR AGREED TO SEND A CHECK FOR THE BALANCE DUE ($7,685.70) AFTER THE SET-OFF HAD BEEN ACCOMPLISHED. THE SUPPLEMENTAL AGREEMENT DID NOT PROVIDE FOR PAYMENT OF INTEREST ON THE INDEBTEDNESS, BUT DEMAND WAS MADE ON JUNE 2, 1959, FOR INTEREST AT THE RATE OF 5 PERCENT PER ANNUM FROM THE DATE OF THE AGREEMENT UNLESS PAYMENT WAS RECEIVED BEFORE JULY 2, 1959. ALTHOUGH FAIRMOUNT SPECIFICALLY REQUESTED THAT IT BE RELIEVED FROM PAYING INTEREST SINCE IT WAS NOT ASKING OR EXPECTING INTEREST FROM THE GOVERNMENT FOR MONEY DUE UNDER ORD-895, ON DECEMBER 29, 1959, FAIRMOUNT'S CHECK FOR $7,685.70 WAS APPLIED TO THE DEBT, $6,971.80 TO PRINCIPAL AND $713.90 TO INTEREST. THE ARMY DETERMINED THE AMOUNT DUE FAIRMOUNT UNDER CONTRACT ORD-895 SHOULD BE REDUCED BY $455.88, FROM $4,782.30 TO $4,326.42. THE LATTER AMOUNT WAS SET-OFF AGAINST THE DEBT ON JANUARY 18, 1960, AND $4,314.57 WAS APPLIED TO PRINCIPAL WHILE $11.85 WAS APPLIED TO INTEREST, LEAVING A BALANCE DUE THE GOVERNMENT OF $1,181.63. IF THE AMOUNTS APPLIED TO INTEREST HAD BEEN APPLIED TO PRINCIPAL, THE BALANCE WOULD HAVE BEEN $455.88, WHICH IS THE AMOUNT REFERRED TO IN THE PROPOSED SETTLEMENT AGREEMENT AS DUE UNDER ORD- 895. WHEN THE OFFICE OF THE COMPTROLLER OF THE ARMY DETERMINED THE BALANCE OF THE DEBT TO BE ADMINISTRATIVELY UNCOLLECTIBLE, THE DEBT WAS FORWARDED TO OUR CLAIMS DIVISION ON JUNE 8, 1960, IN THE AMOUNT OF $1,181.63, AS OF JANUARY 18, 1960.

IN CASES SUCH AS THIS, IT HAS BEEN OUR OPINION THAT INTEREST WHICH IS NOT AUTHORIZED BY CONTRACT OR BY STATUTE SHOULD NOT ORDINARILY BE INCLUDED AS A PART OF THE TOTAL INDEBTEDNESS CERTIFIED AS DUE THE UNITED STATES, ALTHOUGH IN REPORTING DEBTS TO THE DEPARTMENT OF JUSTICE WE WILL RECOMMEND THAT INTEREST BE ASKED FOR IN ANY COMPLAINT FILED, SINCE THE UNITED STATES HAS BEEN HELD ENTITLED TO RECOVER INTEREST IN ADDITION TO THE PRINCIPAL SUM DUE UNDER A CONTRACT IN ACCORDANCE WITH ESTABLISHED PRINCIPLES OF COMMON LAW. SEE ROYAL INDEMNITY CO. V. UNITED STATES (1940) 313 U.S. 289, 295-297.

THE LETTER OF OCTOBER 12, 1960, FROM OUR CLAIMS DIVISION TO FAIRMOUNT STEEL DEMANDED PAYMENT OF $455.88 AND STATED THE INDEBTEDNESS AS FOLLOWS:

CHART

"AMOUNT DUE THE UNITED STATES FOR SIX TUBE FORGINGS AS

AFORESAID $12,468.00

LESS PAYMENT RECEIVED FROM CONTRACTOR ON

DECEMBER 29, 1959 7,685.70

$ 4,782.30

DEDUCT: SET-OFF UNDER CONTRACT DA-36-034-ORD-895

AS AFORESAID 4,326.42

AMOUNT DUE THE UNITED STATES $ 455.88"

THEREAFTER, AT THE REQUEST OF THE OFFICE OF THE COMPTROLLER, DEPARTMENT OF THE ARMY, A REVISED DEMAND IN THE AMOUNT OF $1,181.63 WAS MADE ON THE DEBTOR.

THE CONTRACTING OFFICER, ARMY ORDNANCE DISTRICT, PHILADELPHIA, IN AN EFFORT TO CONCLUDE CONTRACTS DA-36-034-ORD-894, -895 AND -2144 AND TO SETTLE ALL OPPOSING CLAIMS OF THE GOVERNMENT AND THE CONTRACTORS WHICH AROSE FROM THESE THREE CONTRACTS, NEGOTIATED AN AGREEMENT IN WHICH THE GOVERNMENT OFFERED TO RELEASE THE CONTRACTORS FROM OBLIGATIONS TOTALLING $14,382, IN RETURN FOR THE CONTRACTORS RELEASING THE GOVERNMENT FROM OBLIGATIONS FOR RENTAL, PLANT REHABILITATION AND COST OF REMOVAL OF GOVERNMENT-OWNED EQUIPMENT WHICH THE CONTRACTING OFFICER DETERMINED WOULD COST THE GOVERNMENT $26,122 IN THE ABSENCE OF THE AGREEMENT.

THE CONTRACTING OFFICER USED THE BALANCE OF $455.88 AS DUE AND OWING BY THE FAIRMOUNT STEEL CORPORATION, UNDER CONTRACT ORD-894 AS STATED IN OUR LETTER OF OCTOBER 12, 1960, IN ARRIVING AT THE TOTAL OBLIGATIONS OF THE CONTRACTORS. THAT BALANCE IS THE CORRECT STATEMENT OF THE PRINCIPAL AMOUNT OF THE DEBT IN ACCORDANCE WITH THE POLICY OF OUR OFFICE, ALTHOUGH IT IGNORES THE APPLICATION TO INTEREST BY THE ARMY OF A PORTION OF THE AMOUNT RECEIVED.

THE REPORT OF THE CONTRACTING OFFICER DISCLOSES THAT COSTS TO THE GOVERNMENT WILL BE FAR GREATER IF THE AGREEMENT IS NOT APPROVED. IN THE CIRCUMSTANCES, IT APPEARS TO BE IN THE BEST INTEREST OF THE GOVERNMENT TO SEEK FINAL APPROVAL OF THE AGREEMENT FROM THE COURT HAVING JURISDICTION OVER THE BANKRUPTCY OF PENCOYD STEEL AND FORGE CORPORATION, AND OUR OFFICE WILL OFFER NO OBJECTION TO SUCH A COURSE OF ACTION.