B-161190, JULY 5, 1967, 47 COMP. GEN. 1

B-161190: Jul 5, 1967

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THE CONTRACTING OFFICER SHOULD HAVE CONSIDERED THE FEASIBILITY OF WITHDRAWING THE TERMINATION NOTICE. ALTHOUGH THE REPLACEMENT CONTRACT WILL NOT BE DISTURBED. 1967: REFERENCE IS MADE TO LETTER OF JUNE 19. THE REQUIREMENT WAS STATED AS FOLLOWS: "THE CONTRACTOR WILL BE REQUIRED TO FURNISH A PERFORMANCE BOND SATISFACTORY TO THE CONTRACTING OFFICER IN THE PENAL AMOUNT OF 25 PERCENT OF THE GUARANTEE PROVIDED FOR IN PART 2. COPIES OF THE CONTRACT WERE SENT TO THE CONTRACTOR BY THE CONTRACTING OFFICER ON DECEMBER 9. THE LETTER ACCOMPANYING THE CONTRACT STATED THAT THE CONTRACTOR'S OFFER WAS ACCEPTED AND ASSIGNED CONTRACT NO. 14-11-0001-3555/NEG.). THE GUARANTEE AMOUNT IS $18. HAVE BEEN RECEIVED AND ACKNOWLEDGED.'.

B-161190, JULY 5, 1967, 47 COMP. GEN. 1

BONDS - PERFORMANCE - CONTRACT TERMINATION PRIOR TO FURNISHING BOND THE TERMINATION OF A CONTRACT FOR THE CONVENIENCE OF THE GOVERNMENT BECAUSE THE CONTRACTOR FAILED TO MEET A CONDITION OF THE CONTRACT, THE FURNISHING OF A PERFORMANCE BOND WITHIN THE TIME PRESCRIBED, ALTHOUGH AN ADMINISTRATIVE MATTER, THE CONTRACTOR HAVING FURNISHED A SATISFACTORY BOND DESPITE THE NOTICE OF TERMINATION BEFORE THE EXPIRATION OF THE EXTENDED DUE DATE, THE CONTRACTING OFFICER SHOULD HAVE CONSIDERED THE FEASIBILITY OF WITHDRAWING THE TERMINATION NOTICE, THEREBY ELIMINATING THE EXPENSE OF REPROCUREMENT AS WELL AS POSSIBLE CONVENIENCE TERMINATION COSTS. HOWEVER, ALTHOUGH THE REPLACEMENT CONTRACT WILL NOT BE DISTURBED, PROCUREMENT PERSONNEL SHOULD BE INFORMED OF THE RIGHTS AND LIABILITIES OF THE GOVERNMENT AND ITS CONTRACTORS TO PRECLUDE A RECURRENCE OF SIMILAR SITUATIONS.

TO THE SECRETARY OF THE INTERIOR, JULY 5, 1967:

REFERENCE IS MADE TO LETTER OF JUNE 19, 1967, FROM THE DEPUTY ASSISTANT SECRETARY, REPORTING ON THE PROTEST OF NORTH STAR AVIATION CORPORATION AGAINST THE TERMINATION OF CONTRACT NO. 14-11-0001 3555/NEG.) AND THE NEGOTIATION OF A REPLACEMENT CONTRACT WITH ANOTHER COMPANY.

CONTRACT NO. 14-11-0001-3555/NEG.) COVERED THE RENTAL OF AN AIR TANKER AIRCRAFT AND PILOT FOR USE IN DROPPING FIRE RETARDANTS ON FOREST AND RANGE FIRES DURING THE PERIOD MAY 22 TO AUGUST 19, 1967. ARTICLE XVII OF THE CONTRACT REQUIRED THE CONTRACTOR TO FURNISH A PERFORMANCE BOND. THE REQUIREMENT WAS STATED AS FOLLOWS:

"THE CONTRACTOR WILL BE REQUIRED TO FURNISH A PERFORMANCE BOND SATISFACTORY TO THE CONTRACTING OFFICER IN THE PENAL AMOUNT OF 25 PERCENT OF THE GUARANTEE PROVIDED FOR IN PART 2, ARTICLE XII, WITHIN 15 DAYS AFTER EXECUTION OF THIS CONTRACT.'

COPIES OF THE CONTRACT WERE SENT TO THE CONTRACTOR BY THE CONTRACTING OFFICER ON DECEMBER 9, 1966, ALONG WITH A PURCHASE ORDER. THE LETTER ACCOMPANYING THE CONTRACT STATED THAT THE CONTRACTOR'S OFFER WAS ACCEPTED AND ASSIGNED CONTRACT NO. 14-11-0001-3555/NEG.) TO THE PROCUREMENT. THE LETTER, INSOFAR AS PERTINENT, STATED FURTHER:

"PERFORMANCE BOND IN THE PENAL AMOUNT OF 25 PERCENT OF THE GUARANTEE AMOUNT SHALL BE FURNISHED TO THE PORTLAND OFFICE OF THE BUREAU OF LAND MANAGEMENT WITHIN 15 DAYS AFTER RECEIPT OF THIS NOTICE. THE GUARANTEE AMOUNT IS $18,000. WORK CONTEMPLATED UNDER THIS CONTRACT MAY NOT BE STARTED UNTIL SATISFACTORY BONDS, BLANK FORMS ENCLOSED, HAVE BEEN RECEIVED AND ACKNOWLEDGED.'

BY LETTER OF JANUARY 5, 1967, THE CONTRACTING OFFICER ADVISED THE CONTRACTOR THAT THE PERFORMANCE BOND HAD NOT BEEN RECEIVED AND REQUESTED THAT IT BE FURNISHED IMMEDIATELY. ON JANUARY 13, 1967, THE CONTRACTOR ADVISED THE CONTRACTING OFFICER THAT IT HAD THAT DAY MADE APPLICATION FOR THE BOND WITH THE UNITED BONDING COMPANY, BUT A BOND WAS NEVER RECEIVED FROM THE BONDING COMPANY. SUBSEQUENTLY, A BOND WAS RECEIVED FROM THE CONTRACTOR LISTING INDIVIDUAL SURETIES. IT WAS RETURNED ON JANUARY 24, 1967, FOR CORRECTION WITH ADDITIONAL BOND FORMS AND A REQUEST THAT THE BOND BE FURNISHED BY FEBRUARY 15, 1967. ANOTHER BOND WAS FURNISHED ON JANUARY 31, 1967. IT WAS ALSO DEFECTIVE BECAUSE OF ABSENCE OF SIGNATURES OF SURETIES ON THE BOND AND AN IMPROPER NOTARY SEAL ON AN ACCOMPANYING AFFIDAVIT. ON FEBRUARY 3, 1967, THE CONTRACTING OFFICER SENT A LETTER TO THE CONTRACTOR ADVISING THAT THE CONTRACTOR HAD FAILED TO ESTABLISH ITS RESPONSIBILITY BY FAILING TO FURNISH A SATISFACTORY BOND WITHIN A REASONABLE TIME. THE CONTRACTING OFFICER STATED FURTHER THAT THE CONTRACT AND PURCHASE ORDER WERE CANCELED IN THEIR ENTIRETY AND WERE CONSIDERED TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT RATHER THAN FOR DEFAULT. THE LETTER STATED THAT A TERMINATION FOR DEFAULT WOULD HAVE MADE THE CONTRACTOR LIABLE FOR EXCESS COSTS, BUT THAT THERE WOULD BE NO PECUNIARY CHARGES TO THE CONTRACTOR IN THIS CASE. DESPITE THE NOTICE OF TERMINATION, THE CONTRACTOR FURNISHED AN APPARENTLY SATISFACTORY BOND ON FEBRUARY 13, 1967.

IN THE REPORT TO OUR OFFICE, IT IS STATED THAT THE CONTRACTING OFFICER USED INAPPROPRIATE LANGUAGE IN HIS FEBRUARY 3, 1967, LETTER WHEN HE ADVISED THAT THE CONTRACT WAS TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT, SINCE IT IS SUGGESTED THAT NO COMPLETE AND FORMAL CONTRACT EVER CAME INTO EXISTENCE BECAUSE THE CONTRACTOR DID NOT QUALIFY IN THE ABSENCE OF A PERFORMANCE BOND. IT IS THEREFORE ADMINISTRATIVELY RECOMMENDED THAT THE PROTEST BE DENIED.

ON THE RECORD BEFORE US, WE BELIEVE THAT A CONTRACT WAS IN EXISTENCE NOTWITHSTANDING THE ABSENCE OF THE PERFORMANCE BOND. THE CONTRACT WAS CONSUMMATED WHEN THE CONTRACTING OFFICER ADVISED THE CONTRACTOR ON DECEMBER 9, 1966, THAT ITS OFFER WAS ACCEPTED. GARFIELDE V. UNITED STATES, 93 U.S. 242; UNITED STATES V. PURCELL ENVELOPE CO., 249 U.S. 313; UNITED STATES V. CORRIE C. PENNINGTON, 228 F. SUPP. 374. THE OFFER AS ACCEPTED WAS CONTAINED IN THE CONTRACT DOCUMENT WHICH WAS EXECUTED BY BOTH PARTIES AND FURNISHED TO THE CONTRACTOR WITH THE DECEMBER 9, 1966, ACCEPTANCE LETTER. THE CONTRACT DID NOT PROVIDE THAT THE BOND WAS A CONDITION PRECEDENT TO ITS LEGAL EFFECT. THE CONTRACT DID PROVIDE, HOWEVER, THAT THE BOND WILL BE FURNISHED WITHIN 15 DAYS ,AFTER THE EXECUTION OF THIS CONTRACT.' THUS, THE BOND WAS NOT A CONDITION PRECEDENT TO THE CONTRACT, BUT RATHER WAS A CONDITION OF THE CONTRACT.

THE CONTRACTING OFFICER'S LETTER TO THE CONTRACTOR ON DECEMBER 9, 1966, REQUESTED THE BOND TO BE FURNISHED WITHIN 15 DAYS AFTER RECEIPT OF THE LETTER. THE CONTRACTING OFFICER LATER EXTENDED THE CONTRACTOR ADDITIONAL TIME TO FURNISH THE BOND. AS OBSERVED, IN THE JANUARY 24, 1967, LETTER THE CONTRACTING OFFICER REQUESTED THAT A BOND BE FURNISHED BY FEBRUARY 15, 1967. WHILE THE CONTRACTING OFFICER MAY HAVE BEEN FRUSTRATED BY THE CONTRACTOR'S REPEATED FAILURES TO COMPLY TOTALLY WITH THE PERFORMANCE BOND REQUIREMENT AND MAY HAVE BELIEVED THAT THE CONTRACTOR WOULD NEVER COMPLY, THE FACT REMAINS THAT THE CONTRACTING OFFICER WAS PREMATURE IN TERMINATING THE CONTRACT BEFORE THE DUE DATE OF FEBRUARY 15, 1967. AS NOTED ABOVE, THE CONTRACTOR DID FURNISH A BOND ON FEBRUARY 13. IN THE CIRCUMSTANCES, IT APPEARS THAT THE CONTRACTOR WAS NOT ACTUALLY IN DEFAULT AND THAT THE TERMINATION FOR CONVENIENCE WAS THE ONLY MEANS AVAILABLE FOR TERMINATING A CONTRACT WHEN GROUNDS FOR DEFAULT DO NOT EXIST. IN THAT RESPECT, THE DETERMINATION WHETHER A CONTRACT SHOULD BE TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT IS A MATTER OF ADMINISTRATIVE DECISION WHICH DOES NOT REST WITH OUR OFFICE. 18 COMP. GEN. 826; 29 ID. 36; AND 34 ID. 74. HOWEVER, IT WOULD NOT HAVE BEEN INAPPROPRIATE FOR THE CONTRACTING OFFICER TO CONSIDER THE FEASIBILITY OF WITHDRAWING THE TERMINATION NOTICE WHEN HE RECEIVED A PROPER BOND BEFORE FEBRUARY 15, 1967, RATHER THAN LETTING THE TERMINATION STAND WITH ITS ATTENDANT EXPENSES OF REPROCUREMENT AS WELL AS POSSIBLE CONVENIENCE TERMINATION COSTS.

IN ANY EVENT, A REPLACEMENT CONTRACT HAS BEEN LET FOR THE PERIOD WHICH WAS TO BEGIN MAY 22, 1967. IN THE CIRCUMSTANCES, OUR OFFICE WILL NOT REQUIRE FURTHER ACTION WITH RESPECT TO THIS MATTER. HOWEVER, WE BELIEVE THAT APPROPRIATE ACTION SHOULD BE TAKEN BY YOUR DEPARTMENT TO INSURE THAT PROCUREMENT PERSONNEL HAVE A PROPER UNDERSTANDING OF THE RIGHTS AND LIABILITIES OF THE GOVERNMENT AND ITS CONTRACTORS IN SIMILAR SITUATIONS SO AS TO PRECLUDE A RECURRENCE OF SIMILAR SITUATIONS.

THE ENCLOSURES WHICH ACCOMPANIED THE JUNE 19 REPORT ARE RETURNED AS REQUESTED.