B-153310, JUN. 5, 1964

B-153310: Jun 5, 1964

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GENERAL SERVICES ADMINISTRATION: WE HAVE A LETTER DATED MAY 7. HOW THEY WERE DETERMINED. ONE MATERIAL FACTOR WHICH WE BELIEVE REQUIRES VERY CAREFUL CONSIDERATION IS THAT THE COST OF SUCH BONDS NORMALLY WOULD BE REFLECTED IN THE CONTRACT PRICE AND. WE ARE BOUND TO CONCLUDE THAT THE INCLUSION OF THE PROPOSED PROVISIONS IN GOVERNMENT CONTRACTS WOULD BE CONTRARY TO THE PRINCIPLES STATED IN B 148930. WE BELIEVE IT APPROPRIATE TO POINT OUT THAT PRESENT BOND REQUIREMENTS OF CONSTRUCTION CONTRACTS ARE PURSUANT TO SPECIFIC LEGISLATION BY THE CONGRESS AND NOT THROUGH PROMULGATION OF ADMINISTRATIVE REGULATIONS IN THIS AREA. THE COLLECTION OF FEDERAL WITHHOLDING TAXES ON PAYROLLS UNDER A GOVERNMENT CONTRACT IS SPECIFICALLY PROVIDED FOR IN THE INTERNAL REVENUE LAWS.

B-153310, JUN. 5, 1964

TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

WE HAVE A LETTER DATED MAY 7, 1964, FROM YOUR ASSISTANT GENERAL COUNSEL, REGULATIONS AND GENERAL LAW DIVISION, REQUESTING OF VIEWS ON AMENDING SECTION 16 OF THE GENERAL PROVISIONS OF STANDARD FORM 23-A, AS PROPOSED BY THE COMMISSIONER, INTERNAL REVENUE SERVICE, TREASURY DEPARTMENT.

WHILE THE LETTER INDICATES THE COMMISSIONER HAS CONCLUDED THAT A CONSIDERABLE LOSS TO THE GOVERNMENT RESULTS FROM THE NONPAYMENT BY CONTRACTORS AND SUBCONTRACTORS OF TAXES WITHHELD FROM WAGES PAID IN THE PROSECUTION OF WORK PROVIDED FOR IN GOVERNMENT CONSTRUCTION CONTRACTS, THE LETTER DOES NOT SHOW THE AMOUNTS INVOLVED; HOW THEY WERE DETERMINED; OR THE FACTORS CONSIDERED IN ARRIVING AT SUCH CONCLUSION.

ONE MATERIAL FACTOR WHICH WE BELIEVE REQUIRES VERY CAREFUL CONSIDERATION IS THAT THE COST OF SUCH BONDS NORMALLY WOULD BE REFLECTED IN THE CONTRACT PRICE AND, HENCE, WOULD BE BORNE BY THE GOVERNMENT. IN THE ABSENCE OF ADEQUATE STATISTICS, WE KNOW OF NO BASIS FOR ANTICIPATING THAT THE ADDITIONAL COST OF THE CONSTRUCTION CONTRACTS AFFECTED BY THE PROPOSED PROVISION WOULD NOT MORE THAN OFFSET THE INCREASED REVENUES COLLECTED THEREBY. THEREFORE, WE ARE BOUND TO CONCLUDE THAT THE INCLUSION OF THE PROPOSED PROVISIONS IN GOVERNMENT CONTRACTS WOULD BE CONTRARY TO THE PRINCIPLES STATED IN B 148930, JULY 2, 1962, 42 COMP. GEN. 1, AND THE PRIOR DECISIONS CITED THEREIN.

IN ADDITION TO THE FOREGOING, WE BELIEVE IT APPROPRIATE TO POINT OUT THAT PRESENT BOND REQUIREMENTS OF CONSTRUCTION CONTRACTS ARE PURSUANT TO SPECIFIC LEGISLATION BY THE CONGRESS AND NOT THROUGH PROMULGATION OF ADMINISTRATIVE REGULATIONS IN THIS AREA. THE COLLECTION OF FEDERAL WITHHOLDING TAXES ON PAYROLLS UNDER A GOVERNMENT CONTRACT IS SPECIFICALLY PROVIDED FOR IN THE INTERNAL REVENUE LAWS, AND IS BASICALLY A MATTER INDEPENDENT OF AND APART FROM THE CONTRACT ITSELF. WHERE THE CONGRESS HAS PROVIDED REMEDIES AND PROCEDURES FOR THE ENFORCEMENT OF STATUTORY REQUIREMENTS, WE DO NOT BELIEVE THAT ADDITIONAL AND DIFFERENT REMEDIES MAY BE CREATED BY REGULATION IN THE ABSENCE OF SPECIFIC AUTHORIZATION THEREFOR.

IN THE EVENT YOU ARE INCLINED TO GIVE FAVORABLE CONSIDERATION TO THE PROPOSED AMENDMENT, WE SUGGEST THAT THE FOLLOWING QUESTIONS BE RESOLVED BEFORE THE AMENDMENT IS MADE EFFECTIVE:

1. HOW WOULD THE AMOUNTS OF GROSS WAGES IN THE VARIOUS TYPES OF CONSTRUCTION CONTRACTS, OR THE SIZE OF THE BONDS REQUIRED TO COVER THE TAXES DEDUCTED, BE DETERMINED IN ADVANCE OF ACTUAL PERFORMANCE OF THE CONTRACTS?

2. DOES THE TERM "HIS OR ITS SUBCONTRACTORS" IN PARAGRAPH "/B)" OF THE AMENDMENT REFER ONLY TO FIRST TIER SUBCONTRACTORS? IF NOT, TO WHAT TIER DOES THE TERM EXTEND?

3. IN APPLYING THE PROVISION TO SUBCONTRACTORS, WILL IT BE PRACTICABLE TO DETERMINE THE PERCENTAGE OF SUBCONTRACTORS' PAYROLLS WHILE RELATES EXCLUSIVELY TO THE WORK COVERED BY THE GOVERNMENT CONTRACT?

4. WOULD THE SUBCONTRACTOR'S ACTION OF FURNISHING A BOND TO THE CONTRACTING AGENCY RESULT IN THE CREATION OF AN UNDESIRABLE PRIVITY BETWEEN THE SUBCONTRACTOR AND THE GOVERNMENT?

WHILE YOUR ASSISTANT GENERAL COUNSEL'S LETTER DOES NOT MENTION THE PRESENT PROVISIONS OF SECTION 16 OF STANDARD FORM 23-A, WE ASSUME THAT THE PROPOSED AMENDING PARAGRAPHS ARE INTENDED TO BE IN ADDITION TO THE PRESENT PROVISIONS OF THAT SECTION. IF THIS ASSUMPTION IS INCORRECT, WE SUGGEST THAT ADDITIONAL CONSIDERATION BE GIVEN TO THE ADVISABILITY OF RETAINING SUCH PROVISIONS IN ANY AMENDMENT OF SECTION 16.