B-146582, OCTOBER 2, 1961, 41 COMP. GEN. 222

B-146582: Oct 2, 1961

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CONTRACTS - PRICE ADJUSTMENT - PRICE REDETERMINATION - OVERPAYMENTS - INTEREST AN OVERPAYMENT TO A CONTRACTOR UNDER A MILITARY REPAIR CONTRACT THAT CONTAINS A PRICE REDETERMINATION CLAUSE IS A DEBT ON WHICH THE GOVERNMENT HAS A RIGHT TO CHARGE INTEREST AND WHERE A CONTRACTOR DISPUTES AN AMOUNT DETERMINED BY A CONTRACTING OFFICER TO REPRESENT THE OVERPAYMENT AND. REFUNDS A LESSER AMOUNT DETERMINED BY THE BOARD TO HAVE BEEN OVERPAID BUT DOES NOT PAY THE INTEREST. THE CONTRACTOR IS REGARDED AS INDEBTED FOR THE INTEREST CHARGEABLE FROM THE DATE OF THE DETERMINATION OF OVERPAYMENT BY THE CONTRACTING OFFICER AND FAILURE TO REFUND THE INTEREST DUE IS A PROPER BASIS TO CONTINUE THE CONTRACTOR'S NAME ON THE "HOLD-UP LIST" OF CONTRACTORS INDEBTED TO THE GOVERNMENT.

B-146582, OCTOBER 2, 1961, 41 COMP. GEN. 222

CONTRACTS - PRICE ADJUSTMENT - PRICE REDETERMINATION - OVERPAYMENTS - INTEREST AN OVERPAYMENT TO A CONTRACTOR UNDER A MILITARY REPAIR CONTRACT THAT CONTAINS A PRICE REDETERMINATION CLAUSE IS A DEBT ON WHICH THE GOVERNMENT HAS A RIGHT TO CHARGE INTEREST AND WHERE A CONTRACTOR DISPUTES AN AMOUNT DETERMINED BY A CONTRACTING OFFICER TO REPRESENT THE OVERPAYMENT AND, AFTER APPEAL TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS, REFUNDS A LESSER AMOUNT DETERMINED BY THE BOARD TO HAVE BEEN OVERPAID BUT DOES NOT PAY THE INTEREST, THE CONTRACTOR IS REGARDED AS INDEBTED FOR THE INTEREST CHARGEABLE FROM THE DATE OF THE DETERMINATION OF OVERPAYMENT BY THE CONTRACTING OFFICER AND FAILURE TO REFUND THE INTEREST DUE IS A PROPER BASIS TO CONTINUE THE CONTRACTOR'S NAME ON THE "HOLD-UP LIST" OF CONTRACTORS INDEBTED TO THE GOVERNMENT.

TO L. B. SMITH, INC., OCTOBER 2, 1961:

WE REFER TO YOUR LETTER OF AUGUST 3, 1961, AND SUBSEQUENT CORRESPONDENCE, RELATING TO THE INCLUSION OF YOUR FIRM ON THE " HOLD-UP LIST," PURSUANT TO AN INDEBTEDNESS UNDER CONTRACT NO. DA-36-034-0RD 876, REPORTED BY THE DEPARTMENT OF THE ARMY.

REGARDING THE MATTER YOU HAVE SUBMITTED HERE, THE RECORD REVEALS THAT DURING THE YEAR 1952, YOU WERE ENGAGED IN THE PERFORMANCE OF WORK FOR THE ORDNANCE CORPS, DEPARTMENT OF THE ARMY, CONSISTING OF THE REBUILDING OF A NUMBER OF GOVERNMENT TRUCKS UNDER CONTRACTS CONTAINING PRICE REDETERMINATION CLAUSES. IN PARTICULAR, CONTRACT NO. DA-36-034 ORD-876, AS AMENDED, CALLED FOR THE REBUILDING OF 3,500 ARMY TRUCKS, AT YOUR PLANT AT CHAMBERSBURG, PENNSYLVANIA. THE CONTRACT WAS COMPLETED ON SCHEDULE, BY DECEMBER 31, 1952, AND YOU MADE A COST SUBMISSION AS REQUIRED BY THE CONTRACT, ON APRIL 13, 1953, CLAIMING A PRICE OF $4,577,120. HOWEVER, NEGOTIATIONS BETWEEN YOU AND THE CONTRACTING OFFICER ON A REDETERMINED PRICE WERE UNSUCCESSFUL AND, ON NOVEMBER 27, 1953, THE CONTRACTING OFFICER MADE A UNILATERAL DETERMINATION, FINDING THAT $2,786,125 WAS A FAIR AND REASONABLE PRICE. HE REQUESTED THAT YOU REFUND $1,787,912.83, AS THE DIFFERENCE BETWEEN THE SUM OF $4,574,037.83 PAID TO YOU ON THE PRICE REDETERMINED PORTION OF THE CONTRACT, AND HIS FINDING OF $2,786,125. YOU FILED AN APPEAL BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS, UNDER THE " DISPUTES" CLAUSE OF THE CONTRACT, ON DECEMBER 22, 1953.

YOU WERE ADVISED BY THE DEPARTMENT OF THE ARMY THAT PENDING THE APPEAL, INTEREST ON THE UNPAID DEBT (LESS APPLICABLE TAX CREDITS) WOULD BE ACCRUING AT THE RATE OF 5 PERCENT PER ANNUM, AS PER APPLICABLE POLICY, FROM THE DATE OF ORIGINAL DEMAND. IN THIS CASE THAT DATE WAS NOVEMBER 27, 1953, WHEN THE CONTRACTING OFFICER MADE HIS UNILATERAL FINDING AS TO PRICE. WITH REGARD TO TAX CREDITS, THE DEPARTMENT ADVISED YOU IN A LETTER DATED NOVEMBER 9, 1955, THAT IT WOULD ACCEPT THE CONTRACTOR'S ESTIMATE OF AN AMOUNT TO BE HELD IN FORBEARANCE PENDING ISSUANCE OF A TAX CREDIT CERTIFICATE BY THE DISTRICT DIRECTOR OF INTERNAL REVENUE UPON THE CONTRACTOR'S APPLICATION THEREFOR.

ON JANUARY 20, 1956, YOU SUBMITTED A CHECK FOR $500,000 IN PARTIAL REPAYMENT OF THE PRINCIPAL INDEBTEDNESS, BUT WITHOUT PREJUDICE TO THE RIGHTS OF EITHER PARTY AS TO THE DISPUTE.

UNDER DATE OF MARCH 27, 1961, THE ARMED SERVICES BOARD OF CONTRACT APPEALS FOUND THAT YOU SHOULD BE ALLOWED A REDETERMINED CONTRACT PRICE OF $1,000 PER VEHICLE, OR $3,500,000 ( ASBCA NO. 2358). THIS AMOUNT DEDUCTED FROM YOUR PAYMENTS OF $4,574,037.83, REFLECTED AN OVERPAYMENT OF $1,074,037.83.

ON JUNE 9, 1961, YOU SUBMITTED A CHECK FOR $449,037.83 WITH ACCOMPANYING LETTER, STATING THAT SUCH CHECK WAS ON ACCOUNT UNDER CONTRACT NO. DA-36- 034-ORD-876, WITHOUT PREJUDICE TO EITHER PARTY TO CLAIM ADDITIONAL AMOUNTS UNDER THE CONTRACT; AND THAT AN AMOUNT OF $125,000 IS COVERED BY ESTIMATED FEDERAL INCOME TAX ADJUSTMENT.

IT IS REPORTED BY THE DEPARTMENT OF THE ARMY THAT NO TAX CREDIT CERTIFICATE HAS BEEN RECEIVED FROM YOU COVERING THE $125,000.

WE ARE ADVISED THAT AFTER REFLECTING THE PAYMENTS OF $949,037.83 ($500,000 PLUS $449,037.83), AND MISCELLANEOUS SETOFFS OF $5,358.84, FOR A TOTAL OF $954,396.67, ON THE AMOUNT OF $1,074,037.83 PRINCIPAL INDEBTEDNESS PLUS INTEREST, YOU ARE CURRENTLY LISTED ON THE " HOLD-UP LIST," PURSUANT TO CONTRACT NO. DA-36-034-ORD-876, AS INDEBTED IN THE AMOUNT OF $419,763.50 PLUS INTEREST. THIS INCLUDES AN AMOUNT ON WHICH YOU HAVE FAILED TO SUPPLY A TAX CREDIT CERTIFICATE.

YOU CONTEND THAT A LEGITIMATE DISPUTE EXISTS BETWEEN YOU AND THE GOVERNMENT AS TO THE GOVERNMENT'S RIGHT TO INTEREST IN THIS TYPE OF CASE. YOU THEREFORE ASSERT YOU SHOULD NOT BE CONTINUED ON THE " HOLD UP LIST," THEREBY PREJUDICING YOUR POSITION AS A CONTRACTOR ON GOVERNMENT CONTRACTS, AFTER PAYMENT OF AN AMOUNT EQUAL TO THE PRINCIPAL INDEBTEDNESS.

ASIDE FROM THE FACT THAT PART OF YOUR INDEBTEDNESS ARISES FROM A FAILURE TO SUPPLY A TAX CREDIT CERTIFICATE, IT APPEARS TO US THAT YOUR LIABILITY FOR INTEREST AS CHARGED IS CLEAR. IN A RECENT CASE, SWARTZBAUGH V. UNITED STATES, 289 F.2D 81, SIMILAR IN FACTS TO THE SITUATION HERE CONSIDERED, THE COURT STATED IN PART AS FOLLOWS:

WHILE OTHER CONTENTIONS ARE MADE BY PLAINTIFF, THE CENTRAL AND CONTROLLING QUESTION IS THE PROPRIETY OF THE GOVERNMENT CHARGING INTEREST FROM THE DATE OF THE UNILATERAL DETERMINATION OF THE AMOUNT DUE FROM THE PLAINTIFF TO DEFENDANT. THE DETERMINATION OF THE APPROPRIATE RATE TO BE APPLIED, IF INTEREST WAS PROPERLY ALLOWABLE WAS WITHIN THE DISCRETION AND JUDGMENT OF THE DISTRICT COURT. * * * THE DISTRICT JUDGE DETERMINED THAT FIVE PERCENT WAS AN APPROPRIATE RATE OF INTEREST. IT WAS LIKEWISE PERMISSIBLE FOR THE GOVERNMENT TO OFFSET ACCOUNTS DUE TO PLAINTIFF ON OTHER CONTRACTS AGAINST AN AMOUNT OWING TO THE GOVERNMENT FOR OVERPAYMENT TO PLAINTIFF ON THE CONTRACT WHICH WAS SUBJECT TO PRICE REDETERMINATION.

WE COME, THEN, TO THE CRUCIAL QUESTION OF WHETHER AS OF JULY 21, 1955, THE PLAINTIFF WAS INDEBTED TO THE UNITED STATES IN ANY AMOUNT UPON WHICH INTEREST SHOULD BE CHARGED. PLAINTIFF ASSERTS THAT UNTIL IT HAD EXHAUSTED ITS APPEAL PROCEDURES AND A FINAL DETERMINATION WAS MADE BY THE ARMED SERVICES BOARD OF CONTRACT APPEALS IN 1957, IT OWED NOTHING TO THE GOVERNMENT OR AT LEAST THE AMOUNT OF ITS DEBT WAS NOT FIXED OR LIQUIDATED, AND THEREFORE IT SHOULD NOT PAY INTEREST ON THE AMOUNT OVERPAID TO IT UNTIL DECISION ON ITS APPEAL CONCLUDED THE MATTER. WE DO NOT AGREE. PLAINTIFF ENTERED INTO A CONTRACT WHICH GAVE THE CONTRACTING OFFICER THE RIGHT, ABSENT AGREEMENT BETWEEN HIM AND THE CONTRACTOR, TO UNILATERALLY DETERMINE WHETHER THE CONTRACTOR HAD BEEN OVERPAID AND BY HIS FINDINGS IN THIS REGARD TO MAKE THE PRICE REDETERMINATION CALLED FOR BY THE CONTRACT. THERE HAVING BEEN A DISPUTE BETWEEN PLAINTIFF AND THE CONTRACTING OFFICER, THE CONTRACT PROVIDED THAT THE DISPUTE,"SHALL BE DECIDED BY THE CONTRACTING OFFICER, WHO SHALL REDUCE HIS DECISION TO WRITING AND MAIL A COPY THEREOF TO THE CONTRACTOR.' THIS THE CONTRACTING OFFICER DID ON JULY 21, 1955, AND, THEREUPON, DEMANDED PAYMENT OF THE AMOUNT UNILATERALLY DETERMINED TO BE OWING BY PLAINTIFF TO THE GOVERNMENT. THE FACT THAT NEITHER THE CONTRACT NOR ANY STATUTE THEN PROVIDED FOR INTEREST TO BE CHARGED ON A DETERMINED OVERPAYMENT BY THE GOVERNMENT TO PLAINTIFF DOES NOT DETRACT FROM THE GOVERNMENT'S RIGHT TO COLLECT INTEREST ON MONEY OVERPAID TO AND WITHHELD FROM IT BY A CONTRACTOR. * * *

IT WOULD NOT BE QUESTIONED HERE BUT THAT INTEREST WOULD BE CHARGEABLE AGAINST PLAINTIFF FOR THE AMOUNT THE CONTRACTING OFFICER UNILATERALLY DETERMINED WAS OWING BY PLAINTIFF TO THE GOVERNMENT IF, WITHOUT APPEAL, PLAINTIFF HAD FAILED TO PAY SUCH AMOUNT AFTER DEMAND. DOES THE FACT THAT PLAINTIFF EXERCISED HIS RIGHT TO APPEAL TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS, WHICH THEREAFTER REDUCED THE AMOUNT OF PLAINTIFF'S DEBT, ALTER THE SITUATION? WE THINK NOT. ( PAGES 84-85.)

IN VIEW OF THE ABOVE, WE SEE NO REASON TO REQUEST THAT YOUR INDEBTEDNESS BE REDUCED OR THAT YOUR FIRM BE REMOVED FROM THE " HOLD-UP LIST.'

YOUR ATTORNEY INFORMS US THAT SETOFFS HAVE BEEN TAKEN AGAINST THE L. B. SMITH, INC., INDEBTEDNESS ON AMOUNTS DUE TO L. B. SMITH WHITE TRUCK CORPORATION AND L. B. SMITH, INC., OF PHILADELPHIA. HE STATES THAT SUCH SETOFFS ARE IMPROPER SINCE THESE FIRMS ARE SEPARATE AND DISTINCT FROM L. B. SMITH, INC. IF SPECIFIC CLAIMS FOR THE AMOUNTS SO WITHHELD ARE FILED ON BEHALF OF THE TWO LAST-NAMED CORPORATIONS, WE WILL BE GLAD TO CONSIDER THE PROPRIETY OF THE ACTION TAKEN.