B-162119, AUG. 4, 1967

B-162119, AUG. 4, 1967

CONTRACTS - DISPUTES - PAYMENTS PENDING DISPUTE DETERMINATION DECISION TO SECY. OF THE INTERIOR CONCERNING WITHHOLDING OF AMOUNTS DUE CONTRACTOR, DEROSE INDUSTRIES, INC., CONCERNING GOVT.'S LOSS DUE TO DESTRUCTION OF BUILDING BY FIRE WHICH WAS BEING CONSTRUCTED BY CONTRACTOR. AMOUNTS DUE CONTRACTOR UNDER REPLACEMENT CONTRACT MAY BE PAID TO CONTRACTOR ON CONDITION THAT ACTION IS WITHOUT PREJUDICE TO GOVT.'S CLAIM SINCE PERFORMANCE BOND UNDER ORIGINAL CONTRACT WILL PROTECT THE GOVT. AND IT IS INDICATED THAT ADMINISTRATIVE SETTLEMENT OF DISPUTE CONCERNING CONTRACTOR'S LIABILITY FOR LOSS RESULTING FROM FIRE WILL NOT BE RESOLVED FOR SOME TIME.

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER DATED MAY 19, 1967 (D-280), FROM THE CHIEF ENGINEER, BUREAU OF RECLAMATION, DENVER, COLORADO, AND TO A LETTER DATED JULY 12, 1967, FROM THE ACTING ASSISTANT SECRETARY FOR ADMINISTRATION, TO THE CLAIMS DIVISION OF OUR OFFICE, REQUESTING OUR ADVICE CONCERNING COLLECTION OF A CLAIM BY THE GOVERNMENT IN THE AMOUNT OF $106,153.53 AGAINST DEROSE INDUSTRIES, INC. (DEROSE), UNDER CONTRACT NO. 14-06-D-5651, DATED JULY 22, 1965, AND THE PROPRIETY OF WITHHOLDING FROM DEROSE THE AMOUNT OF $44,609 DUE UNDER CONTRACT NO. 14-16-0003-12,218 IN PARTIAL LIQUIDATION OF THE GOVERNMENT'S CLAIM.

THE FILE FORWARDED TO OUR OFFICE SHOWS THAT THE BUREAU OF RECLAMATION AWARDED CONTRACT NO. 14-06-D-5651 TO DEROSE FOR THE CONSTRUCTION OF TWO DORMITORY BUILDINGS AT THE OTTAWA, OHIO, JOB CORPS CONSERVATION CENTER, WHICH IS OPERATED FOR THE OFFICE OF ECONOMIC OPPORTUNITY BY THE BUREAU OF SPORT FISHERIES AND WILDLIFE OF YOUR DEPARTMENT. THE CLAIM IN QUESTION CONCERNS THE GOVERNMENT'S LOSS DUE TO THE DESTRUCTION BY FIRE ON APRIL 5, 1966, OF ONE OF THE BUILDINGS (DORMITORY NO. 2) AFTER THE GOVERNMENT HAD ACCEPTED ALL OF THE CONTRACT WORK AND HAD MADE FINAL PAYMENT TO THE CONTRACTOR.

BY LETTER DATED JUNE 8, 1966, THE CONTRACTOR WAS NOTIFIED BY THE BUREAU OF RECLAMATION THAT THE BUREAU HAD DETERMINED THE CAUSE OF THE FIRE WAS THE IMPROPER INSTALLATION BY THE CONTRACTOR OF A WATER HEATER, IN THAT THE HEATER HAD BEEN PLACED, IN VIOLATION OF THE INSTRUCTIONS OF THE MANUFACTURER OF THE HEATER, TOO CLOSE TO A COMBUSTIBLE WALL OF THE HEATER ENCLOSURE; THEREFORE, THE CONTRACTOR WAS REQUESTED TO TAKE ACTION TO REPAIR OR TO REPLACE THE BUILDING AT ITS OWN EXPENSE. BY LETTER DATED JUNE 22, 1966, ADDRESSED TO THE BUREAU OF RECLAMATION, THE CONTRACTOR DISCLAIMED LIABILITY FOR THE DAMAGE. ON JUNE 23, 1966, THE BUREAU OF SPORT FISHERIES AND WILDLIFE AWARDED TO THE CONTRACTOR, AFTER ADVERTISING, THE REPLACEMENT CONTRACT, NO. 14-16-0003-12,218, IN THE AMOUNT OF $88,213, WHICH HAS APPARENTLY BEEN COMPLETED.

IN A LETTER DATED JANUARY 13, 1967, THE BUREAU OF SPORT FISHERIES AND WILDLIFE NOTIFIED THE CONTRACTOR THAT THE BALANCE OF $44,609 DUE UNDER THE SECOND CONTRACT WAS BEING SET OFF AGAINST ITS INDEBTEDNESS TO THE GOVERNMENT UNDER THE ORIGINAL CONTRACT. HOWEVER, THE CONTRACTOR, IN A LETTER DATED FEBRUARY 20, 1967, TO THE BUREAU, AGAIN DISCLAIMED LIABILITY AND REQUESTED THAT THE FINAL PAYMENT OF $44,609 DUE UNDER THE SECOND CONTRACT BE RELEASED.

IN ITS LETTER OF MAY 19, 1967, TO OUR OFFICE, THE BUREAU OF RECLAMATION ITEMIZED THE CONTRACTOR'S INDEBTEDNESS AS FOLLOWS: $88,213 AS THE REPLACEMENT CONTRACT PRICE; $2,500 FOR GOVERNMENT ENGINEERING AND OVERHEAD ON THE REPLACEMENT CONTRACT; $13,480.79 FOR GOVERNMENT SUPPLIES LOST IN THE FIRE; $450 FOR REMOVAL DEBRIS; AND $1,509.74 FOR INVESTIGATION OF THE CAUSE OF THE FIRE, TOTAL $106,153.53. FURTHER, THE BUREAU STATES THAT STOPPAGE OF PAYMENT HAS BEEN ENTERED ONA CHECK IN THE AMOUNT OF $44,609, WHICH THE BUREAU OF SPORT FISHERIES AND WILDLIFE HAS ISSUED TO DEROSE FOR THE BALANCE DUE UNDER THE REPLACEMENT CONTRACT PRIOR TO THE RECEIPT FROM THE BUREAU OF RECLAMATION OF THE REQUEST FOR SET OFF.

WITH HIS LETTER OF JULY 12, 1967, THE ACTING ASSISTANT SECRETARY HAS FURNISHED TO OUR OFFICE COPIES OF ADDITIONAL DOCUMENTATION SUBMITTED BY THE CONTRACTOR IN JUNE 1967 IN SUPPORT OF THE DISCLAIMER OF LIABILITY, AND HAS ADVISED THAT THE MATTER IS NOW ADMINISTRATIVELY VIEWED AS GIVING RISE TO A DISPUTE COGNIZABLE UNDER THE DISPUTES CLAUSE OF THE CONTRACT. ON THE BASIS, THEREFORE, THAT THE DISPUTE MAY NOT BE RESOLVED FOR SOME TIME, AND IN VIEW OF THE PROTECTION AFFORDED THE GOVERNMENT BY THE PERFORMANCE BOND UNDER THE ORIGINAL CONTRACT AND OF THE CONTRACTOR'S REPORTEDLY SATISFACTORY FINANCIAL RESPONSIBILITY, THE ACTING ASSISTANT SECRETARY RECOMMENDS THAT RELEASE TO THE CONTRACTOR OF THE FUNDS DUE UNDER THE REPLACEMENT CONTRACT BE AUTHORIZED, WITHOUT PREJUDICE TO THE GOVERNMENT'S POSITION IN THE DISPUTE.

EXAMINATION OF THE DOCUMENTATION SUBMITTED BY THE CONTRACTOR SHOWS THAT WHILE THE GOVERNMENT INSPECTED THE BUILDINGS AT VARIOUS TIMES DURING THE PERFORMANCE OF THE CONTRACT AND ISSUED TO THE CONTRACTOR EXTENSIVE PUNCH LISTS OF ITEMS REQUIRING EITHER PERFORMANCE, ADJUSTMENT OR CORRECTION, THE ONLY ITEMS WHICH CONCERNED THE WATER HEATER IN DORMITORY NO. 2 WERE 2 GENERAL NOTATION'S THAT ELBOWS SHOULD BE INSTALLED ON THE ENDS OF THE WATER HEATER WASTE LINES, AND THAT THE WATER HEATER ENCLOSURE SHOULD BE MADE AIRTIGHT. ADDITIONALLY, THE REPORT BY THE LOCAL FIRE DEPARTMENT CONCLUDES THAT THE FIRE WAS ATTRIBUTABLE TO AGAS LEAK, WHILE THE REPORT OF THE CONTRACTOR'S INSURANCE COMPANY CONCLUDES IT WAS ARSON. FURTHER, THE BUREAU OF RECLAMATION HAS FORWARDED TO OUR OFFICE A COPY OF A LETTER DATED JULY 14, 1967, FROM THE CONTRACTING OFFICER TO THE CONTRACTOR'S ATTORNEY, ACKNOWLEDGING RECEIPT OF COPIES OF THE DOCUMENTATION, CONCEDING THAT THERE NOW APPEAR TO BE QUESTIONS OF FACT IN DISPUTE WHICH ARE COGNIZABLE UNDER THE CONTRACT DISPUTES CLAUSE, AND ADVISING THAT THE CONTRACTING OFFICER'S DECISION WILL BE DEFERRED FOR A PERIOD OF 30 DAYS FROM THE DATE OF HIS LETTER TO ALLOW FOR THE SUBMISSION OF ANY SUPPLEMENTAL MATERIAL ON BEHALF OF THE CONTRACTOR.

IN THE CIRCUMSTANCES, THERE BEING NO EXISTING DETERMINATION OF LIABILITY ON THE PART OF THE CONTRACTOR, THERE APPEARS TO BE NO BASIS ON WHICH COLLECTION ACTION OR SETOFF MAY BE JUSTIFIED AT THE PRESENT TIME. ACCORDINGLY, WE SEE NO OBJECTION TO THE RELEASE TO THE CONTRACTOR OF THE PROCEEDS OF THE CHECK ISSUED IN PAYMENT OF THE BALANCE DUE UNDER CONTRACT NO. 14-16-0003-12,218 ON CONDITION THAT SUCH ACTION IS WITHOUT PREJUDICE TO ANY CLAIM WHICH THE GOVERNMENT MAY HAVE AGAINST THE CONTRACTOR UNDER CONTRACT NO. 14-06-D-5651 AFTER THE DISPUTE HAS BEEN RESOLVED. ACCORDINGLY, THE BUREAU OF SPORT FISHERIES AND WILDLIFE MAY BE AUTHORIZED TO TAKE ACTION TO HAVE THE TREASURER OF THE UNITED STATES RELEASE STOPPAGE OF PAYMENT ON THE CHECK IN QUESTION.

THE FILE FORWARDED BY THE BUREAU OF RECLAMATION AND BY THE ACTING ASSISTANT SECRETARY IS RETURNED.