B-163625, MAR. 14, 1968

B-163625, MAR. 14, 1968

CONTRACTS - PAYMENTS - ASSIGNMENTS DECISION TO SECY OF STATE CONCERNING PROPRIETY OF PAYMENT TO ASSIGNEE OF CONTRACT WHO HAS DEFAULTED ON COMPUTER PROGRAM DESIGN CONTRACT WITH STATE DEPT. WHERE CONTRACTOR WHO DID NOT PERFORM SATISFACTORILY HAS DISSOLVED FIRM AND CAN NOT BE LOCATED PAYMENT FOR AMOUNT DETERMINED TO BE REASONABLE MAY NOT BE MADE TO ASSIGNEE UNTIL TERMINATION FOR DEFAULT AND DISPUTES PROCEDURE OF CLAUSE 15 IS COMPIED WITH. THEREAFTER PAYMENT MAY BE MADE TO ASSIGNEE ON THE BASIS THAT PAYMENT IS IN FULL AND FINAL SETTLEMENT OF CLAIMS.

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER OF FEBRUARY 19, 1968, FROM MR. R. J. O- BRIEN, CONTRACTING OFFICER, OFFICE OF PROCUREMENT, CONTRACT SERVICES DIVISION, AGENCY FOR INTERNATIONAL DEVELOPMENT, REQUESTING ADVICE AS TO WHETHER HE MAY APPROVE PAYMENT OF THE SUM OF $6,100 TO THE AMERICAN SECURITY AND TRUST COMPANY, ASSIGNEE OF SYSTEMS UNLIMITED, INC.

IT IS REPORTED THAT CONTRACT NO. AID/CSD-1114, IN THE TOTAL FIXED PRICE AMOUNT OF $11,195 WAS AWARDED TO SYSTEMS UNLIMITED, INC., ON JANUARY 17, 1966. THE CONTRACT CALLED FOR THE COMPILATION OF INFORMATION ON PAYMENTS MADE TO U.S. EXPORTERS AND INVOLVED THE "DESIGN OF A COMPREHENSIVE SYSTEM WHICH INCLUDES MANUAL SORTING OF DOCUMENTS IN FILE CABINETS, EDITING, KEYPUNCHING, PUNCHED CARD VERIFICATION, AND FINALLY THE DESIGN OF COMPUTER PROGRAMS TO ANALYZE THE DATE (SIC) FOR THE PURPOSE OF PRODUCING A SERIES OF REPORTS.' UNDER THE TERMS OF THE CONTRACT ALL WORK AND SERVICES WERE TO HAVE BEEN COMPLETED 30 DAYS FROM THE EFFECTIVE DATE OF THE CONTRACT.

ON JANUARY 27, 1966, AID FORMALLY ACKNOWLEDGE NOTIFICATION FROM THE CONTRACTOR OF THE ASSIGNMENT OF MONIES DUE, OR TO BECOME DUE, UNDER THE CONTRACT TO THE AMERICAN SECURITY AND TRUST COMPANY. IT IS REPORTED THAT A LOAN OF $7,000 WAS PROVIDED BY THE ASSIGNEE TO THE CONTRACTOR UNDER THE ASSIGNMENT.

IT IS STATED THAT SEVERAL MONTHS FOLLOWING THE COMPLETION DATE OF THE CONTRACT, THE COGNIZANT TECHNICAL OFFICE ADVISED THE CONTRACTING OFFICER THAT ALTHOUGH THE CONTRACTOR HAD PERFORMED THE REQUIRED WORK AND SERVICES IN SUBSTANCE THE QUALITY OF THE WORK WAS DEFICIENT AND REPORTS PRODUCED CONTAINED ERRORS AND OMISSIONS BEYOND THE NORMAL TOLERANCE. BECAUSE OF THIS, IT IS REPORTED, AID WAS REQUIRED TO INVEST BOTH TIME AND MONEY TO RENDER THE REPORTS USEFUL WORKING DOCUMENTS. THE ADDITIONAL INVESTMENT ON BEHALF OF AID IS ESTIMATED TO BE IN EXCESS OF $300. FURTHER, IN THE OPINION OF THE TECHNICAL OFFICE, THE CONTRACTOR'S PERFORMANCE WAS "BARELY DEQUATE" AND THE REPORTS INCOMPLETE. ACCORDINGLY, THAT OFFICE RECOMMENDED THAT THE CONTRACTOR BE REIMBURSED AT AN AMOUNT THAT REPRESENTED A FAIR AND REASONABLE PRICE FOR SERVICES RENDERED, BUT NOT THE STIPULATED PRICE OF THE CONTRACT.

DURING APRIL 1966, IT IS STATED, THE CONTRACTING OFFICER MET WITH THE ATTORNEY FOR THE CONTRACTOR FOR THE PURPOSE OF NEGOTIATING A SETTLEMENT UNDER THE CONTRACT. AN AMOUNT OF $6,100 WAS ACCEPTED AND AGREED TO BY THE ATTORNEY.

THE CONTRACTING OFFICER STATES THAT HE IS ANXIOUS TO MAKE PAYMENT UNDER THE CONTRACT TO THE ASSIGNEE AT THE NEGOTIATED PRICE OF $6,100 BUT, IN HIS OPINION, HE IS UNABLE TO DO SO BECAUSE: (1) ALTHOUGH SYSTEMS UNLIMITED HAS NOT BEEN DISSOLVED, THE PRESIDENT OF THE COMPANY WHO EXECUTED THE CONTRACT HAS DISAPPEARED AND EFFORTS TO LOCATE HIM HAVE PROVED FRUITLESS, (2) IN THE ABSENCE OF A PARTY WITH WHOM THE AGENCY CAN EXECUTE A MUTUAL AGREEMENT SETTLEMENT, NO AUTHORITY EXISTS TO MAKE A UNILATERAL AND BINDING ADMINISTRATIVE DECISION WHICH WOULD PERMIT PAYMENT UNDER THE CONTRACT, (3) THE CHANGES CLAUSE OF THE CONTRACT CANNOT BE USED TO SUPPORT SUCH ACTION, AND (4) ALTHOUGH THE GOVERNMENT HAS RECEIVED SOME BUT NOT ALL OF THE PERFORMANCE DUE UNDER THE CONTRACT IT WOULD APPEAR THAT THE CONTRACTOR IS IN BREACH OF CONTRACT.

IN ADDITION TO THE ABOVE, WE HAVE INFORMALLY ASCERTAINED FROM THE CONTRACTING OFFICER THE FOLLOWING ADDITIONAL FACTS. THE CONTRACTOR, SYSTEMS UNLIMITED, HAS NOT BEEN PAID ANY PORTION OF THE CONTRACT PRICE AND NO OFFICER WITH POWER TO BIND THE CORPORATION COULD BE LOCATED. THE CONTRACTING OFFICER ESTIMATES THAT THE GOVERNMENT SUFFERED DAMAGES OF APPROXIMATELY $5,000 DUE TO THE FAULTY PERFORMANCE AND THAT THE NEGOTIATED SETTLEMENT FIGURE OF $6,100 IS A FAIR AND REASONABLE PRICE FOR THE ACTUAL WORK PERFORMED BY THE CONTRACTOR. IN THAT CONNECTION, THE CONTRACTING OFFICER STATED THAT THE ASSIGNEE WOULD ACCEPT THE $6,100 IN FULL AND FINAL SETTLEMENT AND WOULD GIVE THE GOVERNMENT A RELEASE UPON RECEIPT OF THAT AMOUNT. FINALLY, IT HAS BEEN ASCERTAINED THAT ALTHOUGH THE CONTRACT CONTAINED A "DISPUTES" ARTICLE AND A "TERMINATION FOR DEFAULT OR FOR CONVENIENCE OF THE GOVERNMENT" ARTICLE, NO TERMINATION FOR DEFAULT OR FINDINGS OF FACT HAS BEEN MADE.

THE ASSIGNMENT TO THE AMERICAN SECURITY AND TRUST COMPANY WAS MADE BY THE CONTRACTOR PURSUANT TO CLAUSE 11 OF THE GENERAL PROVISIONS OF THE CONTRACT ENTITLED "ASSIGNMENT OF CLAIMS.' AN ASSIGNMENT PASSES TITLE TO MONEY DUE UNDER A CONTRACT AS THOUGH IT WERE THE SALE OF A CHATTEL. MCCORD V UNITED STATES, 9 CT. CLS. 155, AFFIRMED 95 U.S. 61. THUS, THE PAYMENT TO AN ASSIGNEE EXTINGUISHES THE CLAIM OF THE ASSIGNOR AS TO THE AMOUNT PAID EVEN THOUGH THE GOVERNMENT MAY NOT BE OBLIGATED TO HONOR THE ASSIGNMENT. BAILEY V UNITED STATES, 109 U.S. 432. ACCORDINGLY, IT IS CLEAR THAT THE ASSIGNEE IN THIS CASE WOULD BE THE PROPER PAYEE TO RECEIVE MONIES DUE UNDER THE CONTRACT SINCE IT IS THE LEGAL OWNER OF ANY CLAIMS ON SUCH MONIES. THIS BEING TRUE, THE FACT THAT THE PRESIDENT OR OTHER OFFICERS OF THE CONTRACTOR CANNOT BE LOCATED SO THAT A MUTUAL SETTLEMENT AGREEMENT CAN BE EXECUTED DOES NOT APPEAR TO BE RELEVANT TO THE QUESTION OF THE ASSIGNEE'S RIGHT TO RECEIVE THE $6,100 OR THE PROPRIETY OF THE GOVERNMENT'S MAKING SUCH PAYMENT TO THE ASSIGNEE.

IT SHOULD BE NOTED, HOWEVER, THAT THE UNITED STATES "HAS THE SAME RIGHT - WHICH BELONGS TO EVERY CREDITOR, TO APPLY THE UNAPPROPRIATED MONIES OF HIS DEBTOR, IN HIS HANDS, IN EXTINGUISHMENT OF THE DEBTS DUE HIM.-" UNITED STATES V MUNSEY TRUST CO., 332 U.S. 237, 239 CITING GRATIOT V UNITED STATES, 15 PET. 336, 370 AND MCKNIGHT V UNITED STATES, 98 U.S. 179, 186. ACCORDINGLY, WE CAN SEE NO OBJECTION TO UNILATERALLY DEDUCTING THE GOVERNMENT'S ESTIMATED DAMAGES FOR THE CONTRACTOR'S DEFAULT IN PERFORMANCE FROM THE CONTRACT PRICE AND PAYMENT OF THE REMAINDER TO THE ASSIGNEE. SEE IN THIS REGARD PARAGRAPH (E) OF THE "TERMINATION" CLAUSE (CLAUSE 15 OF THE GENERAL PROVISIONS) WHICH WE BELIEVE TO BE APPLICABLE HERE. THAT PARAGRAPH PROVIDES THAT IN THE EVENT OF THE FAILURE OF THE CONTRACTOR AND CONTRACTING OFFICER TO AGREE (AS PROVIDED IN PARAGRAPH (D) ( AS TO THE AMOUNTS TO BE PAID TO THE CONTRACTOR IN CONNECTION WITH TERMINATION OF WORK PURSUANT TO THE CLAUSE, THE CONTRACTING OFFICER SHALL DETERMINE, ON THE BASIS OF INFORMATION AVAILABLE TO HIM, THE AMOUNT, IF ANY, DUE TO THE CONTRACTOR BY REASON OF THE TERMINATION AND SHALL PAY TO THE CONTRACTOR THE AMOUNT DETERMINED. PARAGRAPH (F) OF THE CLAUSE PROVIDES FOR AN APPEAL UNDER THE ,DISPUTES" CLAUSE FROM THE CONTRACTING OFFICER'S DETERMINATION.

CLAUSE 15 OF THE GENERAL PROVISIONS SETS FORTH THE PROCEDURES TO BE FOLLOWED BY THE GOVERNMENT IN DEFAULT SITUATIONS OF THE KIND PRESENTED HERE. THAT CLAUSE FURNISHES ADEQUATE AUTHORITY FOR MAKING UNILATERAL ADMINISTRATIVE DECISIONS (IF AGREEMENT CANNOT BE REACHED) ON THE AMOUNT OF COMPENSATION DUE THE CONTRACTOR IN THE EVENT OF DEFAULT IN PERFORMANCE. THE CONTRACTOR WAS, AND IS, ENTITLED TO AN ADMINISTRATIVE FINDING OF FACT AND DECISION BY THE CONTRACTING OFFICER AND A RIGHT OF APPEAL THEREFROM TO THE ADMINISTRATOR OF THE AGENCY UNDER THE DISPUTES CLAUSE. THE PRESENT INABILITY TO LOCATE THE PRESIDENT OF THE CONTRACTOR DOES NOT, IN OUR OPINION, PROVIDE A BASIS FOR DISPENSING WITH THE PROCEDURES PROVIDED FOR IN THE CONTRACT.

YOU ARE ADVISED THAT PRIOR TO MAKING PAYMENT OF THE AMOUNT OF $6,100 TO THE ASSIGNEE, THE PROCEDURE SET FORTH IN CLAUSE 15 SHOULD BE FOLLOWED. THE FINDING OF FACT AND DECISION OF THE CONTRACTING OFFICER MADE PURSUANT TO THAT CLAUSE SHOULD BE SENT TO THE LAST KNOWN ADDRESS OF THE CONTRACTOR WITH A COPY THEREOF FURNISHED TO THE CONTRACTOR'S ATTORNEY. THEREAFTER, ANY PAYMENT TO THE ASSIGNEE SHOULD BE MADE ON THE UNDERSTANDING THAT SUCH PAYMENT IS IN FULL AND FINAL SETTLEMENT. AN UNCONDITIONAL RELEASE SHOULD ALSO BE SECURED IN RETURN FOR PAYMENT.