B-160601, JAN. 17, 1967

B-160601: Jan 17, 1967

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TO THE SECRETARY OF AGRICULTURE: REFERENCE IS MADE TO LETTER 6320 OF DECEMBER 22. LIQUIDATED DAMAGES AT THE RATE OF $100 PER DAY WERE PROVIDED FOR FAILURE OF THE CONTRACTOR TO COMPLETE THE CONTRACT ON TIME. THE CONTRACT WAS SUPPORTED BY A PERFORMANCE BOND AND A PAYMENT BOND FURNISHED BY THE NATIONAL UNION FIRE INSURANCE COMPANY. 273.01 WERE MADE TO THE CONTRACTOR. 141.73 WERE MADE TO THE ASSIGNEE. THE CONTRACTOR WAS TERMINATED FOR DEFAULT. THE SURETY ON THE BONDS ELECTED TO HAVE THE WORK COMPLETED BY A CONTRACTOR OF ITS OWN CHOOSING. 000 HAVE BEEN MADE AGAINST THE PAYMENT BOND. LIQUIDATED DAMAGES HAVE BEEN ASSESSED UNDER THE CONTRACT IN THE AMOUNT OF $4. THE CONTRACTING OFFICER PROPOSED A SETTLEMENT WHICH WOULD HAVE PAID $2.

B-160601, JAN. 17, 1967

TO THE SECRETARY OF AGRICULTURE:

REFERENCE IS MADE TO LETTER 6320 OF DECEMBER 22, 1966, FROM THE ASSISTANT SECRETARY, REQUESTING A DECISION AS TO THE DISPOSITION TO BE MADE OF THE BALANCE REMAINING DUE UNDER CONTRACT NO. 50-19 BETWEEN THE MID-STATE CONSTRUCTION COMPANY AND THE FOREST SERVICE.

THE CONTRACT REQUIRED THE CONTRACTOR TO RECONSTRUCT A SECTION OF THE KILGORE-YALE CREEK ROAD IN THE TARGHEE NATIONAL FOREST. LIQUIDATED DAMAGES AT THE RATE OF $100 PER DAY WERE PROVIDED FOR FAILURE OF THE CONTRACTOR TO COMPLETE THE CONTRACT ON TIME. THE CONTRACT WAS SUPPORTED BY A PERFORMANCE BOND AND A PAYMENT BOND FURNISHED BY THE NATIONAL UNION FIRE INSURANCE COMPANY.

AFTER FOUR PARTIAL PAYMENTS AGGREGATING $86,273.01 WERE MADE TO THE CONTRACTOR, IT ASSIGNED PAYMENTS TO THE BANK OF COMMERCE OF IDAHO FALLS. THEREAFTER, THREE PARTIAL PAYMENTS TOTALING $48,141.73 WERE MADE TO THE ASSIGNEE.

SUBSEQUENTLY, THE CONTRACTOR WAS TERMINATED FOR DEFAULT. THE SURETY ON THE BONDS ELECTED TO HAVE THE WORK COMPLETED BY A CONTRACTOR OF ITS OWN CHOOSING. THE SURETY HAS PRESENTED EVIDENCE TO THE CONTRACTING OFFICER SHOWING THAT IT PAID THE COMPLETING CONTRACTOR $15,840 TO FINISH THE WORK. ADDITIONALLY, IT HAS STATED THAT CLAIMS AMOUNTING TO APPROXIMATELY $30,000 HAVE BEEN MADE AGAINST THE PAYMENT BOND.

BECAUSE OF DELAYS ENCOUNTERED IN THE PERFORMANCE OF CONTRACT NO. 50 19, LIQUIDATED DAMAGES HAVE BEEN ASSESSED UNDER THE CONTRACT IN THE AMOUNT OF $4,800. A BALANCE OF $18,595.83 REMAINS DUE UNDER THE CONTRACT AFTER THE DEDUCTION OF THE LIQUIDATED DAMAGES. THE BALANCES CONSISTS OF PERCENTAGES WITHHELD FROM THE CONTRACTOR DURING ITS PERFORMANCE AND MONIES EARNED IN THE COMPLETION OF THE WORK.

THE CONTRACTING OFFICER CONTACTED BOTH THE ASSIGNEE AND THE SURETY TO ASCERTAIN WHETHER AN AGREEMENT COULD BE REACHED AS TO THE DISPOSITION OF THE CONTRACT BALANCE. THE CONTRACTING OFFICER PROPOSED A SETTLEMENT WHICH WOULD HAVE PAID $2,755.83 TO THE ASSIGNEE AND $15,840 TO THE SURETY. THE ASSIGNEE ADVISED THAT IT WOULD ACCEPT THE PROPOSAL. HOWEVER, THE SURETY REFUSED TO ACCEPT THE SETTLEMENT PROPOSAL BECAUSE IT BELIEVES THAT IT IS ENTITLED TO THE ENTIRE REMAINING BALANCE. FURTHER, THE SURETY REQUESTED THAT THE LIQUIDATED DAMAGES BE REMITTED ON THE BASIS THAT THE CONTRACTOR SHOULD HAVE BEEN DEFAULTED EARLIER THAN IT WAS.

WITH RESPECT TO THE LATTER POINT, THERE IS NO REQUIREMENT THAT A CONTRACTOR BE TERMINATED FOR DEFAULT AS SOON AS IT BECOMES DELINQUENT IN PERFORMANCE. RATHER, IT IS OPTIONAL WITH THE CONTRACTING OFFICER WHETHER THE CONTRACTOR SHOULD BE TERMINATED FOR FAILURE TO PERFORM WITH DILIGENCE OR BE ALLOWED TO CONTINUE THE CONTRACT. OF COURSE, THE CONTRACTING OFFICER MAY NOT IDLY STAND BY ALLOWING LIQUIDATED DAMAGES TO ACCRUE INDEFINITELY; HE SHOULD ACT REASONABLY. 11 COMP. GEN. 384. IN THIS CASE, THE RECORD SHOWS THAT ON A NUMBER OF OCCASIONS THE CONTRACTING OFFICER AND HIS REPRESENTATIVES CONFERRED WITH THE CONTRACTOR'S REPRESENTATIVES CONCERNING THE DELINQUENCY IN PERFORMANCE AND THE LIQUIDATED DAMAGE ASSESSMENT THAT WOULD RESULT THEREFROM, AND ACCELERATION OF THE WORK WAS REQUESTED. THE CONTRACTOR'S REPRESENTATIVES ADVISED THAT STEPS WERE BEING TAKEN TO COMPLETE THE WORK AND THEY ALWAYS INDICATED A DESIRE TO SEE THE WORK THROUGH TO COMPLETION. MOREOVER, THE CONTRACTOR DID NOT REQUEST THAT ANY DEFAULT ACTION BE TAKEN WITH RESPECT TO ITS DELINQUENCY. WHEN IT SEEMED EVIDENT TO THE CONTRACTING OFFICER THAT THE CONTRACTOR COULD NOT SATISFACTORILY COMPLETE THE CONTRACT, HE RESORTED TO DEFAULT TERMINATION. MOREOVER, THE RECORD SHOWS THAT THE SURETY WAS FURNISHED REPORTS PERIODICALLY OF THE CONTRACTOR'S DELINQUENCY AND THEREFORE WAS NOT UNMINDFUL OF THE SITUATION SO THAT, IF IT WISHED, IT MIGHT HAVE ENTERED INTO SOME ARRANGEMENT WITH THE CONTRACTOR TO ACCELERATE PERFORMANCE TO AN EARLIER COMPLETION.

THE CONTRACTING OFFICER HAS STATED THAT IN HIS OPINION THE ASSESSED LIQUIDATED DAMAGES ARE REASONABLE AND PROPER AND SHOULD NOT BE REMITTED. THE ACTION OF THE CONTRACTING OFFICER IN PROVIDING THE CONTRACTOR WITH AN OPPORTUNITY TO COMPLETE THE DELINQUENT CONTRACT APPEARS TO HAVE BEEN REASONABLE IN THE CIRCUMSTANCES AND WE THEREFORE AGREE WITH HIS RECOMMENDATION.

AS INDICATED ABOVE, AFTER THE DEDUCTION OF LIQUIDATED DAMAGES, THERE REMAINS A BALANCE OF $18,595.83 AND THE SURETY HAS FURNISHED EVIDENCE SHOWING IT PAID THE COMPLETING CONTRACTOR $15,840. OUR OFFICE HAS HELD THAT AS BETWEEN AN ASSIGNEE AND A SURETY, THE LATTER IS ENTITLED TO THE FUNDS UNPAID AND STILL OWING BY THE GOVERNMENT UNDER THE CONTRACT TO THE EXTENT OF ITS ACTUAL COST OF COMPLETION OF THE CONTRACT. B-42933, SEPTEMBER 21, 1944. SEE ALSO B-159285, JUNE 17, 1966. ANY BALANCE WHICH REMAINS AFTER ALLOWANCE FOR THE SURETY'S COST OF COMPLETION MAY BE PAID OVER TO THE SURETY TO REIMBURSE IT FOR EXPENDITURES UNDER THE PAYMENT BOND ONLY UPON AGREEMENT OF THE ASSIGNEE OR JUDGMENT OF A COURT OF COMPETENT JURISDICTION. B-155504, JULY 8, 1966, AND B-160232, NOVEMBER 4, 1966.

ACCORDINGLY, THE SURETY MAY BE PAID $15,840. NO PAYMENT SHOULD BE MADE OF THE REMAINING ..END :