B-161460, MAY 25, 1967

B-161460, MAY 25, 1967

TO THE SECRETARY OF THE AIR FORCE:

REFERENCE IS MADE TO THE LETTER OF MAY 8, 1967, FROM YOUR DEPUTY GENERAL COUNSEL REQUESTING OUR DECISION ON A MATTER INVOLVING THE APPROPRIATE DISTRIBUTION OF FUNDS IN THE GOVERNMENT'S POSSESSION.

IT APPEARS THAT THE AIR FORCE ENTERED INTO SEVERAL CONTRACTS WITH BELL FLYING SERVICE, INC., TO PROVIDE FLIGHT INSTRUCTION FOR THE T-41 AIRCRAFT NEAR SEVEN BASES. ON FEBRUARY 28, 1967, THE COMPANY DEFAULTED IN ALL ITS SEVEN CONTRACTS, AND SINCE THAT TIME THE AIR FORCE HAS BEEN CONFRONTED WITH THE PROBLEM OF THE PROPER ALLOCATION OF FUNDS, AMOUNTING TO APPROXIMATELY $86,000, WHICH REPRESENT AMOUNTS EARNED BUT UNPAID UNDER THE DEFAULTED CONTRACTS. IT IS REPORTED THAT THERE ARE THREE CLAIMANTS TO THESE FUNDS--- THE AIR FORCE FOR ITS EXCESS REPROCUREMENT COSTS, THE UNPAID EMPLOYEES OF THE BELL FLYING SERVICE FOR UNPAID WAGES, AND THE INTERNAL REVENUE SERVICE FOR TAXES OWED BY BELL FLYING SERVICE.

BECAUSE OF THE UNCERTAINTIES ASSOCIATED WITH SECURING THE NECESSARY FACILITIES NEAR THE BASES, THE IMPORTANCE OF CONTINUANCE OF THE PILOT TRAINING, AND THE IMPOSSIBILITY OF OBTAINING FIXED PRICE PROPOSALS WITHOUT ALLOWING FOR A LONG DELAY, THE AIR FORCE NEGOTIATED A COST PLUS-FIXED-FEE CONTRACT TO REPROCURE THE TRAINING SERVICES. IT THEREFORE IS IMPOSSIBLE TO DETERMINE AT THIS TIME EXACTLY HOW MUCH THE AIR FORCE WILL INCUR IN EXCESS REPROCUREMENT COSTS, BUT IT IS STATED THAT FROM INFORMATION GATHERED SO FAR IT APPEARS CLEAR THAT THESE COSTS WILL EXCEED THE $86,000 PRESENTLY BEING WITHHELD. IT IS FURTHER REPORTED THAT IT HAS BEEN FOUND THAT EMPLOYEES ON ALL BASES WERE OWED BACK WAGES AMOUNTING TO APPROXIMATELY $48,000 AND THAT BECAUSE OF THE TAX DELINQUENCY OF BELL FLYING SERVICE, THE INTERNAL REVENUE SERVICE HAS PLACED LIENS ON THE WITHHELD FUNDS AMOUNTING TO APPROXIMATELY $50,000. ATTACHED TO THE REQUEST FOR OUR DECISION WAS A LETTER DATED MAY 3, 1967, FROM THE SOLICITOR OF LABOR, ASKING THE AIR FORCE TO GIVE PRIORITY TO THE UNPAID WAGES CLAIM OF THE WORKERS.

THE SERVICE CONTRACT ACT OF 1965, P.L. 89-286, 41 U.S.C. 351-357 (THE PROVISIONS OF WHICH WERE INCORPORATED IN THE SUBJECT CONTRACT), PROVIDES THAT EVERY CONTRACT ENTERED INTO BY THE UNITED STATES IN EXCESS OF $2,500, WITH CERTAIN EXCEPTIONS, THE PRINCIPAL PURPOSE OF WHICH IS TO FURNISH SERVICES THROUGH THE USE OF SERVICE EMPLOYEES, SHALL CONTAIN CERTAIN LABOR STANDARDS STIPULATIONS, INCLUDING THE PAYMENT OF SPECIFIED MINIMUM WAGES. SECTION 3 OF THE ACT (41 U.S.C. 352) PROVIDES THAT SO MUCH OF THE ACCRUED PAYMENT DUE ON THE CONTRACT MAY BE WITHHELD AS IS NECESSARY TO COMPENSATE UNDERPAID EMPLOYEES, AND THAT ON ORDER OF THE SECRETARY OF LABOR ANY COMPENSATION FOUND DUE SHALL BE PAID DIRECTLY TO THE EMPLOYEES FROM THE WITHHELD MONIES.

IN THE CIRCUMSTANCES OF THIS CASE, AND IN CONSIDERATION OF THE PURPOSE OF THE ACT, THE GENERAL ACCOUNTING OFFICE WOULD NOT BE REQUIRED TO OBJECT TO PRIORITY BEING GIVEN TO PAYMENT OF THE AMOUNTS DUE THE AGGRIEVED EMPLOYEES IN ACCORDANCE WITH THE REQUEST OF THE SOLICITOR OF LABOR.

AFTER PAYMENT OF THE CLAIMS OF EMPLOYEES, WE AGREE WITH THE DEPUTY GENERAL COUNSEL THAT THE TAX CLAIM IS SUBORDINATE TO THE EXCESS COST CLAIM.