B-152698, NOV. 21, 1963

B-152698: Nov 21, 1963

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DEPARTMENT OF THE INTERIOR: REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 1. 615.15 WERE MADE TO THE CONTRACTOR ON MAY 10. ANACONDA ADVISED THE CONTRACTOR'S SURETY THAT NO SUCH PAYMENTS HAD BEEN RECEIVED AND THAT AN INVESTIGATION WAS MADE AND IT WAS FOUND THAT THE ALLEGATIONS WERE TRUE WITH THE RESULT THAT THE SURETY PAID ANACONDA ON JULY 12. YOU STATE THAT THE CASE HAS BEEN FORWARDED TO THE OFFICE OF SURVEY AND REVIEW FOR A DETERMINATION OF WHETHER FRAUD IS INVOLVED. DURING WHICH PERIOD THE SUPPLIER WAS UNPAID. 615.15 FROM THE DATE PAID BY THE GOVERNMENT TO THE DATE ANACONDA ACTUALLY WAS PAID. YOU ADVISE THAT THE INTERNAL REVENUE SERVICE HAS INFORMED THAT THE CONTRACTOR IS INDEBTED FOR UNPAID FEDERAL TAXES.

B-152698, NOV. 21, 1963

TO MR. R. T. ERICKSON, BUREAU OF RECLAMATION, DEPARTMENT OF THE INTERIOR:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 1, 1963, FILE 4-360, REQUESTING AN ADVANCE DECISION AS TO THE ACTION TO TAKE WITH RESPECT TO A FINAL VOUCHER FOR $46,499.96 EARNED BY JAX CONSTRUCTION COMPANY, INC., IN PERFORMANCE OF CONTRACT NO. 14-06-D-4238.

YOU REPORT THAT IN ACCORDANCE WITH A CONTRACT PARAGRAPH PROVIDING FOR PROGRESS PAYMENT FOR DELIVERY TO THE CONSTRUCTION SITE OF MATERIALS WHICH WOULD BECOME A PART OF THE FINISHED CONSTRUCTION AND FOR WHICH PAYMENT IN FULL HAD BEEN MADE BY THE CONTRACTOR, PROGRESS PAYMENTS TOTALING $77,615.15 WERE MADE TO THE CONTRACTOR ON MAY 10, JUNE 12 AND AUGUST 7, 1962, FOR MATERIAL ON HAND NOT INCORPORATED IN THE WORK ON THE BASIS OF ANACONDA WIRE AND CABLE COMPANY INVOICES FURNISHED BY THE CONTRACTOR WITH THE CONTRACTOR'S NOTATION "PAID" AND CITATION TO A CHECK NUMBER. YOU REPORT FURTHER THAT IN LETTER OF APRIL 15, 1963, ANACONDA ADVISED THE CONTRACTOR'S SURETY THAT NO SUCH PAYMENTS HAD BEEN RECEIVED AND THAT AN INVESTIGATION WAS MADE AND IT WAS FOUND THAT THE ALLEGATIONS WERE TRUE WITH THE RESULT THAT THE SURETY PAID ANACONDA ON JULY 12, 1963. YOU STATE THAT THE CASE HAS BEEN FORWARDED TO THE OFFICE OF SURVEY AND REVIEW FOR A DETERMINATION OF WHETHER FRAUD IS INVOLVED.

SINCE THE CONTRACTOR HAD THE USE OF $77,615.15 OF GOVERNMENT FUNDS, INTEREST FREE, FROM 11 TO 14 MONTHS, DURING WHICH PERIOD THE SUPPLIER WAS UNPAID, YOU INQUIRE WHETHER A DEDUCTION SHOULD BE MADE FROM THE FINAL VOUCHER OF $5,260.55, COMPUTED ON THE BASIS OF 6 PERCENT PER ANNUM OF $77,615.15 FROM THE DATE PAID BY THE GOVERNMENT TO THE DATE ANACONDA ACTUALLY WAS PAID. IN ADDITION, YOU ADVISE THAT THE INTERNAL REVENUE SERVICE HAS INFORMED THAT THE CONTRACTOR IS INDEBTED FOR UNPAID FEDERAL TAXES, PENALTIES AND INTEREST IN THE AMOUNT OF $63,628.61, AND YOU INQUIRE WHETHER THE BALANCE FINALLY DETERMINED TO BE DUE THE CONTRACTOR SHOULD BE REMITTED TO THE INTERNAL REVENUE SERVICE.

ORDINARILY, PROGRESS PAYMENTS ARE MADE FOR THE WORK AND MATERIALS INCORPORATED IN THE WORK ON A PERIODIC BASIS AS THE WORK PROGRESSES WITHOUT REGARD TO WHETHER THE CONTRACTOR'S MATERIALMEN AND SUPPLIERS HAVE BEEN PAID. IT IS PRESUMED THEREFORE THAT, IF THE CONTRACTOR HAD NOT BILLED FOR THE MATERIAL AT THE TIME IT DID, IT WOULD HAVE BEEN PAID FOR THE MATERIAL AS IT WOULD HAVE BEEN INCORPORATED INTO THE WORK. THEREFORE, THE CONTRACTOR WAS OVERPAID UNDER THE CONTRACT FROM THE TIME IT WAS PAID FOR THE MATERIAL UNTIL THE TIME IT WAS ACTUALLY INCORPORATED INTO THE WORK, AT WHICH TIME THE CONTRACTOR PROBABLY WOULD HAVE BILLED AND WOULD HAVE BEEN PAID FOR THE MATERIAL SO INCORPORATED. ACCORDINGLY, IN FIGURING THE INTEREST DUE THE GOVERNMENT FOR THE OVERPAYMENTS MADE, THE CONTRACTOR SHOULD BE ALLOWED AGAINST THE PRINCIPAL SUM APPROPRIATE PERIODIC CREDITS FOR THE VALUE OF MATERIAL INCORPORATED INTO THE WORK IN THE PERIOD. OTHER WORDS, THE SUMMARY SHEET FURNISHED INDICATES THAT THE MAY 10, 1962, PROGRESS PAYMENT VOUCHER INCLUDED $60,040 FOR MATERIAL SUPPLIED BY ANACONDA. IN FIGURING THE INTEREST, IT WOULD BE BASED UPON 6 PERCENT PER ANNUM FIGURED ON THAT TOTAL UP UNTIL THE TIME THE NEXT PARTIAL PAYMENT WAS PREPARED, AT WHICH TIME, IF SAY $10,000 OF THE SAID MATERIAL HAD BEEN INCORPORATED INTO THE WORK, THE PRINCIPAL WOULD BE REDUCED TO $50,040 AND THE 6 PERCENT PER ANNUM INTEREST FIGURED ON THAT TOTAL UP UNTIL THE NEXT PARTIAL PAYMENT, AND SO ON UNTIL THE $60,040 AMOUNT IS LIQUIDATED. THE AMOUNTS COVERED IN THE JUNE 12 AND AUGUST 7 VOUCHERS SHOULD BE TREATED IN A SIMILAR FASHION. THE GOVERNMENT IS ENTITLED TO RECOVER INTEREST AT THE RATE OF 6 PERCENT PER ANNUM FOR THE LOSS OF THE USE OF THE EXCESS PARTIAL PAYMENT MONEY FOR THE PERIOD BETWEEN THE TIME OF PARTIAL PAYMENT AND THE TIME THE EXCESS WAS RECOUPED BY THE GOVERNMENT. SEE IN THIS CONNECTION KLEIN V. UNITED STATES, 285 F.2D 778,786.

THE INTEREST COMPUTED TO BE DUE THE GOVERNMENT SHOULD BE DEDUCTED FROM THE FINAL PAYMENT VOUCHER AND THE REMAINING BALANCE SHOULD BE PAID OVER TO THE INTERNAL REVENUE SERVICE AS REQUESTED BY IT. THE GOVERNMENT AS A MATTER OF LAW HAS A RIGHT TO SET OFF THE SUMS DUE UNDER THE CONTRACT AGAINST THE AMOUNT OF TAXES DUE AND OWING. GENERAL CASUALTY COMPANY V. UNITED STATES, 130 CT.CL. 520, 526.