B-166264, JUN. 1, 1970

B-166264: Jun 1, 1970

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ARE APPLICABLE TO DEFAULT COSTS SINCE EXCESS REPROCUREMENT IS CONTRACTOR'S DEBT OWED UNITED STATES. SECRETARY: REFERENCE IS MADE TO LETTERS OF FEBRUARY 20 AND JUNE 9. FOUR OF ITS CONTRACTS WERE TERMINATED FOR DEFAULT. UNDER FIVE CONTRACTS IT WAS DETERMINED THAT THE CONTRACTOR WAS INDEBTED TO EMPLOYEES FOR AN AGGREGATE AMOUNT OF $21. THE REQUEST FOR OUR DECISION WAS OCCASIONED BY A REQUEST FROM THE DEPARTMENT OF LABOR THAT FUNDS WITHHELD BE TURNED OVER TO THE SECRETARY OF LABOR FOR APPLICATION TO A JUDGMENT ENTERED ON JUNE 10. " WHEREIN THE CONTRACTOR WAS FOUND TO BE INDEBTED TO CERTAIN NAMED EMPLOYEES WHO WERE EMPLOYED ON THREE OF ITS AIR FORCE CONTRACTS FOR UNDERPAYMENTS UNDER THE FAIR LABOR STANDARDS ACT IN THE TOTAL AMOUNT OF $38.

B-166264, JUN. 1, 1970

CONTRACTS--LABOR STIPULATIONS--WITHHOLDING UNPAID WAGES, OVERTIME, ETC.- MUTUALITY OF OBLIGATION REQUIREMENT REGARDING DISTRIBUTABLE FUNDS SET OFF AND WITHHELD UNDER AIR FORCE CONTRACTS FOR MESSING OPERATIONS TERMINATED FOR DEFAULT AND INVOLVING FEDERAL JUDGMENT FOR EMPLOYEE UNDERPAYMENT VIOLATING CONTRACT WORK HOURS STANDARDS ACT, AS ACT DOES NOT AUTHORIZE WITHHOLDING FROM CONTRACTOR'S UNRELATED ACCOUNTS FOR UNFOUND, UNDERPAID WORKERS, BUT ONLY AMOUNTS PRIMARILY NECESSARY TO SATISFY DEBTS TO AGGRIEVED EMPLOYEES AND TO GOVERNMENT THEREUNDER, CONTRACT BALANCES, AFTER SATISFACTION OF AMOUNTS SPECIFICALLY FOUND THEREIN FOR LABOR LAW UNDERPAYMENTS, ARE APPLICABLE TO DEFAULT COSTS SINCE EXCESS REPROCUREMENT IS CONTRACTOR'S DEBT OWED UNITED STATES, SUBJECT TO MONIES OTHERWISE DUE CONTRACTOR UNDER ANY CONTRACT. SEE COMP. GEN. DECS. AND CT. CASES CITED.

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTERS OF FEBRUARY 20 AND JUNE 9, 1969, FROM YOUR DEPUTY GENERAL COUNSEL REQUESTING OUR DECISION ON A MATTER INVOLVING LEGAL PRIORITIES AND THE APPROPRIATE DISTRIBUTION TO BE MADE OF FUNDS WITHHELD BY THE AIR FORCE UNDER CONTRACTS WITH MANAGEMENT SERVICES, INC.

IT APPEARS THAT THE MATTER INVOLVES EIGHT CONTRACTS ENTERED INTO WITH MANAGEMENT SERVICES, INC. (MANAGEMENT SERVICES) FOR THE OPERATION OF DINING HALLS AND IN-FLIGHT KITCHENS AT VARIOUS AIR FORCE BASES. COMMENCING IN DECEMBER 1965, FOUR OF ITS CONTRACTS WERE TERMINATED FOR DEFAULT, RESULTING IN A TOTAL OF $36,680.07 EXCESS COSTS INCURRED IN REPROCUREMENT OF THE CONTRACT SERVICES. UNDER FIVE CONTRACTS IT WAS DETERMINED THAT THE CONTRACTOR WAS INDEBTED TO EMPLOYEES FOR AN AGGREGATE AMOUNT OF $21,260.52 UNDER THE CONTRACT WORK HOURS STANDARDS ACT (40 U.S.C. 327, ET SEQ.). THE AIR FORCE HAS WITHHELD BALANCES DUE THE CONTRACTOR UNDER THE VARIOUS CONTRACTS, IN THE AGGREGATE AMOUNT OF $58,579.19.

THE REQUEST FOR OUR DECISION WAS OCCASIONED BY A REQUEST FROM THE DEPARTMENT OF LABOR THAT FUNDS WITHHELD BE TURNED OVER TO THE SECRETARY OF LABOR FOR APPLICATION TO A JUDGMENT ENTERED ON JUNE 10, 1968, BY THE UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF FLORIDA, ENTITLED, "W. WILLARD WIRTZ, SECRETARY OF LABOR, UNITED STATES DEPARTMENT OF LABOR, PLAINTIFF, V. MANAGEMENT SERVICES, INC; OF PENSACOLA, A CORPORATION, DEFENDANT," WHEREIN THE CONTRACTOR WAS FOUND TO BE INDEBTED TO CERTAIN NAMED EMPLOYEES WHO WERE EMPLOYED ON THREE OF ITS AIR FORCE CONTRACTS FOR UNDERPAYMENTS UNDER THE FAIR LABOR STANDARDS ACT IN THE TOTAL AMOUNT OF $38,138.38. THE JUDGMENT INCLUDED THE FOLLOWING PROVISION:

"IT IS FURTHER ORDERED THAT MONIES NOW BEING WITHHELD BY THE UNITED STATES AIR FORCE ON CONTRACTS ENTERED INTO BY THE DEFENDANT AT VARIOUS AIR FORCE BASES AND UPON WHICH THE EMPLOYEES NAMED IN THE COMPLAINT HEREIN PERFORMED WORK SHALL BE APPLIED TO SATISFY THE PROVISIONS OF THIS JUDGMENT

THE AMOUNTS WITHHELD UNDER TWO OF THE CONTRACTS (HICKAM AIR FORCE BASE) WERE TRANSFERRED TO OUR OFFICE PRIOR TO OUR RECEIPT OF THE ORIGINAL REQUEST FOR OUR DECISION. THEREAFTER THE AMOUNTS WITHHELD FROM THREE CONTRACTS AT EGLIN AIR FORCE BASE, AND THE AMOUNT WITHHELD FROM THE CONTRACT AT SEYMOUR JOHNSON AIR FORCE BASE WERE TRANSFERRED TO OUR OFFICE.

OUTLINED BELOW IS A SUMMARY OF THE ESSENTIAL FACTS, AS REPORTED TO US BY YOUR DEPUTY GENERAL COUNSEL, WITH RESPECT TO THE CONTRACTS AWARDED THE COMPANY AT EACH BASE.

SEYMOUR JOHNSON AIR FORCE BASE. THE COMPANY WAS NOT IN DEFAULT OF CONTRACT NUMBER 31(610)-2079, AND, THEREFORE, NO EXCESS REPROCUREMENT COSTS WERE INCURRED. HOWEVER, SINCE THE COMPANY HAD ON OCCASION PAID ITS EMPLOYEES BY CHECKS FOR WHICH FUNDS IN THE ACCOUNT WERE NOT SUFFICIENT, THE CONTRACTING OFFICER WITHHELD $3,616.29, CITING THE AUTHORITY OF THE CONTRACT WORK HOURS STANDARDS ACT. THE BASE PROCUREMENT OFFICER HAS REPORTED THAT THE TOTAL OF ALL OUTSTANDING BAD CHECKS IS $2,626.66. THE FLORIDA JUDGMENT INCLUDED A TOTAL OF $3,000.00 DUE TO SPECIFICALLY NAMED EMPLOYEES FOR WORK UNDER THOSE CONTRACTS. ON APRIL 4, 1969, THE SUM OF $3,580.13 WAS TRANSMITTED TO OUR OFFICE.

EGLIN AIR FORCE BASE. THE COMPANY HAD THREE CONTRACTS AT THIS BASE, NAMELY, CONTRACT NUMBERS 08(635)-4508, -4519, AND -4643 NONE OF WHICH WERE IN DEFAULT. HOWEVER, IN PERFORMING CONTRACT 4508, THE COMPANY VIOLATED THE CONTRACT WORK HOURS STANDARDS ACT BY UNDERPAYING ITS EMPLOYEES AN AMOUNT REPORTED BY THE LETTER OF JUNE 9 TO BE $283.95. (IN THE BREAKDOWN OF WAGES DUE EMPLOYEES EARLIER FURNISHED OUR OFFICE, THE SUM OF $285.09 WAS SHOWN TO BE DUE THEM; THEREFORE THAT FIGURE WILL BE USED FOR PAYMENT PURPOSES.) THE CONTRACTING OFFICER WITHHELD $7,740.50 FROM THAT CONTRACT. THE COMPANY ALSO VIOLATED THE SAME ACT IN PERFORMING CONTRACT 4519, BY UNDERPAYING EMPLOYEES $1,918.98. FROM THIS CONTRACT, THE CONTRACTING OFFICER WITHHELD $9,474.61. WHILE NO LABOR LAW VIOLATIONS WERE FOUND UNDER CONTRACT 4643, AN AMOUNT OF $1,263.11 WAS WITHHELD UNDER THAT CONTRACT. IN SUMMARY THE REPORTED UNDERPAYMENT UNDER THE THREE CONTRACTS AT EGLIN AMOUNTED TO $2,204.07, AND THE AMOUNT WITHHELD THEREFROM TOTALED $18,478.22, WHICH LATTER SUM WAS SENT TO OUR OFFICE ON APRIL 7, 1969. IN ADDITION IT APPEARS THAT $7,180.00 WAS ASSESSED AS LIQUIDATED DAMAGES FOR THE VIOLATIONS REPORTED. PAYMENTS UNDER THESE CONTRACTS WERE ASSIGNED BY THE CONTRACTOR TO THE CITIZENS AND PEOPLES NATIONAL BANK, PENSACOLA, FLORIDA. HOWEVER, BY LETTER OF NOVEMBER 28, 1969, TO OUR OFFICE THE BANK ADVISED THAT IT HAD NO CLAIM TO ANY OF THE FUNDS WITHHELD. IT SHOULD ALSO BE NOTED THAT NO UNDERPAYMENTS TO EMPLOYEES WORKING UNDER THESE CONTRACTS WERE INCLUDED IN THE FLORIDA JUDGMENT.

MOODY AIR FORCE BASE. THE COMPANY DEFAULTED UNDER THE ONLY CONTRACT NO. 09(607)-1647, IT HELD AT THIS BASE, AS A RESULT OF WHICH THERE WERE EXCESS REPROCUREMENT COSTS IN THE SUM OF $6,403.10. WHILE THE AIR FORCE DID NOT RECORD ANY VIOLATION OF THE CONTRACT WORK HOURS STANDARDS ACT, THE FLORIDA JUDGMENT FOUND THAT THE EMPLOYEES OF MANAGEMENT SERVICES AT THIS BASE WERE NOT COMPENSATED IN CONFORMANCE WITH THE FAIR LABOR STANDARDS ACT AND WERE DUE A TOTAL AMOUNT OF $27,999.52. THE SUM OF $18,510.16 WAS WITHHELD FROM THIS CONTRACT, WHICH WAS $12,107.06 IN EXCESS OF THE ACTUAL REPROCUREMENT COSTS. THIS EXCESS WAS SET ASIDE BY THE AIR FORCE AS A MISCELLANEOUS RECEIPT IN ORDER THAT IT MIGHT BE UTILIZED FOR EXCESS REPROCUREMENT COSTS INCURRED BY THE GOVERNMENT IN OTHER CONTRACTS WHERE THE COMPANY HAD DEFAULTED, SUCH AS THE CONTRACTS AT HICKAM AIR FORCE BASE DISCUSSED BELOW.

MATHER AIR FORCE BASE. IN ITS ONLY CONTRACT AT THIS BASE, NUMBER 04(612) -3661, THE COMPANY DEFAULTED, AND EXCESS REPROCUREMENT COSTS ARISING FROM THE DEFAULT AMOUNTED TO $6,629.98. AGAIN, THE AIR FORCE DID NOT FIND ANY VIOLATIONS OF THE CONTRACT WORK HOURS STANDARDS ACT, BUT THE FLORIDA JUDGMENT FOUND THAT WORKERS ON THAT CONTRACT WERE NOT PAID IN ACCORDANCE WITH THE FAIR LABOR STANDARDS ACT, AND WERE DUE A TOTAL OF $7,138.86. THE CONTRACTING OFFICER WITHHELD FROM THE CONTRACT BALANCE THE SUM OF $10,801.73, WHICH WAS $4,171.75 IN EXCESS OF THE AMOUNT NECESSARY TO SATISFY THE REPROCUREMENT COSTS AFOREMENTIONED.

THIS EXCESS AMOUNT WAS ALSO APPLIED BY THE AIR FORCE IN PARTIAL LIQUIDATION OF THE EXCESS REPROCUREMENT COSTS INCURRED AT HICKAM.

HICKAM AIR FORCE BASE. THE COMPANY HAD THREE CONTRACTS AT THIS BASE: 64(605)-3721, -3942 AND -4065. THE COMPANY COMPLETED CONTRACT 3721, BUT CONTRACTS 3942 AND 4065 WERE TERMINATED FOR DEFAULT. EXCESS REPROCUREMENT COSTS INCURRED UNDER THE LATTER TWO CONTRACTS WERE $23,646.99. VIOLATIONS OF THE CONTRACT WORK HOURS STANDARDS ACT WERE REPORTED UNDER BOTH CONTRACTS, $6,258.45 BEING FOUND OWED TO EMPLOYEES UNDER CONTRACT 3942, AND $10,172.48 UNDER CONTRACT 3721. CITING THE LABOR LAW VIOLATIONS IN BOTH CONTRACTS, $1,767.29 WAS WITHHELD FROM CONTRACT 3942 AND $5,405.50 WAS WITHHELD FROM CONTRACT 3721. THE TOTAL AMOUNT OF $7,172.79 WAS, AS PREVIOUSLY STATED, FORWARDED TO OUR OFFICE IN DECEMBER 1965 FOR DISTRIBUTION TO THE UNDERPAID EMPLOYEES. APPLICATION OF THE EXCESS WITHHOLDINGS FROM THE MOODY AND MATHER CONTRACTS, TO THE EXCESS COSTS ASSESSED WOULD LEAVE A BALANCE OF $7,368.18 STILL DUE THEREFOR. AMOUNTS DUE EMPLOYEES PERFORMING UNDER THESE CONTRACTS WERE INCLUDED IN THE JUDGMENT OF THE U. S. DISTRICT COURT.

IT SHOULD ALSO BE NOTED THAT AN ADDITIONAL SUM OF $40,440 IS ASSESSABLE AS LIQUIDATED DAMAGES FOR ALL THE LABOR LAW VIOLATIONS REPORTED AGAINST THE CONTRACTOR.

UNDER THE CONTRACT WORK HOURS STANDARDS ACT THE COMPTROLLER GENERAL IS AUTHORIZED AND DIRECTED TO PAY AGGRIEVED EMPLOYEES FROM ANY AMOUNTS WITHHELD PURSUANT THERETO THE AMOUNTS ADMINISTRATIVELY DETERMINED TO BE DUE THEM. THE CONTRACTOR RESPONSIBLE FOR VIOLATIONS OF THIS ACT IS LIABLE TO THE EMPLOYEES FOR UNDERPAYMENT OF WAGES AND TO THE GOVERNMENT FOR LIQUIDATED DAMAGES, WITH AUTHORITY IN THE PERSON "WHOSE DUTY IT IS TO APPROVE THE PAYMENT OF MONIES * * * IN CONNECTION WITH THE PERFORMANCE OF THE CONTRACT WORK" TO DIRECT THE WITHHOLDING OF SUCH AMOUNTS AS ARE DETERMINED TO BE NECESSARY TO SATISFY THE DEBTS TO THE AGGRIEVED EMPLOYEES AND TO THE GOVERNMENT. IN THIS REGARD, WE RECENTLY HAD OCCASION TO STATE IN OUR DECISION TO THE SECRETARY OF LABOR, B 167000, JUNE 26, 1969, THAT THE LANGUAGE OF THE ABOVE ACT MAKES IT CLEAR THAT CONGRESS INTENDED THAT THE FULL AMOUNT WITHHELD SHOULD FIRST BE APPLIED TO UNDERPAYMENTS OWED THE EMPLOYEES RATHER THAN TO THE LIQUIDATED DAMAGES ASSESSED UNDER THE ACT. IN LINE WITH THAT DECISION THE DEPARTMENT OF LABOR HAS ISSUED AN AMENDMENT TO SECTION 5.14(D) OF TITLE 29 OF THE CODE OF FEDERAL REGULATIONS BY ADDING A NEW SUBPARAGRAPH (2) THERETO.

IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AS REFERRED TO ABOVE WE HAVE DIRECTED THAT THE AMOUNTS WITHHELD BY THE AIR FORCE AND TRANSMITTED TO OUR OFFICE TO COVER THE WAGES ADMINISTRATIVELY DETERMINED TO BE DUE UNDER THE CONTRACT WORK HOURS STANDARDS ACT TO WORKERS EMPLOYED UNDER CONTRACTS NUMBERS 08(635)4508, 08(635)4519, 64(605)3942, 64(605)3721, AND 31(610)2079, BE DISTRIBUTED TO SUCH WORKERS. SINCE THE AMOUNTS SO WITHHELD UNDER CONTRACTS 64(605)3942 AND 64(605)3721 ARE INSUFFICIENT TO PAY THE FULL AMOUNTS FOUND DUE TO WORKERS THEREUNDER, SUCH AMOUNTS WILL BE PRORATED, IT BEING OUR VIEW THAT THE ACT DOES NOT AUTHORIZE WITHHOLDING FOR UNDERPAID WORKERS OF AMOUNTS DUE THE EMPLOYING CONTRACTOR UNDER OTHER CONTRACTS THAN THOSE UNDER WHICH THE UNDERPAYMENTS WERE FOUND. SEE WHITNEY BROTHERS PLUMBING & HEATING, INC. V. UNITED STATES, 224 F. SUPP. 860 (1963); 48 COMP. GEN. 387 (1968).

WITH RESPECT TO THE JUDGMENT OF THE FLORIDA DISTRICT COURT MENTIONED ABOVE, AND THE QUOTED PORTION PROVIDING FOR APPLICATION THERETO OF MONIES BEING WITHHELD BY THE UNITED STATES AIR FORCE ON CONTRACTS OF THE DEFENDANT, WE CANNOT INTERPRET THAT AS APPLYING TO ANYTHING OTHER THAN MONIES WHICH WOULD OTHERWISE HAVE BEEN PAYABLE TO THE CONTRACTOR. ACTION BY THE SECRETARY OF LABOR UNDER THE AUTHORITY OF 29 U.S.C. 216(C), SUCH AS THE CASE IN WHICH THE JUDGMENT WAS ENTERED, IS SOLELY FOR THE BENEFIT OF THE UNDERPAID WORKERS, AND THE UNITED STATES IS NOT A PARTY THERETO. IN THE SUBJECT ACTION NO CLAIMS OF THE UNITED STATES, NOR ANY QUESTIONS OF PRIORITIES, WERE PRESENTED OR CONSIDERED, AND THE ONLY EFFECT OF THE JUDGMENT, SO FAR AS THE UNITED STATES IS CONCERNED, IS TO PROTECT THE GOVERNMENT AGAINST ANY CLAIM BY THE CONTRACTOR, WHO CONSENTED TO IT, FOR MONIES PAID IN ACCORDANCE THEREWITH. IN THIS CONNECTION IT IS TO BE NOTED THAT THE FAIR LABOR STANDARDS ACT CONTAINS NO AUTHORIZATION FOR WITHHOLDING OF WAGE UNDERPAYMENTS FROM CONTRACT BALANCES, AND IN THE ABSENCE OF THIS JUDGMENT ANY MONIES DUE THE CONTRACTOR AFTER SATISFACTION OF CLAIMS OF THE GOVERNMENT WOULD BE PAYABLE TO THE CONTRACTOR.

SINCE THE EXCESS COSTS OF REPROCUREMENT OF THE SERVICES CALLED FOR BY THE SEVERAL DEFAULTED CONTRACTS ARE DEBTS OWED BY THE CONTRACTOR TO THE GOVERNMENT THEY MAY BE COLLECTED BY SETOFF FROM ANY BALANCES DUE THE CONTRACTOR BY THE GOVERNMENT UNDER ANY CONTRACT.

IN THE CIRCUMSTANCES OF THIS CASE, AND ABSENT ANY SUBMISSION TO OR ADJUDICATION BY THE FLORIDA COURT OF THESE CLAIMS OF THE GOVERNMENT, WE CONCLUDE THAT THE CONTRACT BALANCES WITHHELD BY THE GOVERNMENT, AFTER PAYMENT OF THE AMOUNTS SPECIFICALLY WITHHELD FOR LABOR LAW UNDERPAYMENTS UNDER THE RESPECTIVE CONTRACTS, ARE PROPERLY FOR APPLICATION TO THE EXCESS COSTS INCURRED BY THE GOVERNMENT ON ACCOUNT OF THE CONTRACTOR'S DEFAULTS. AFTER FULL SATISFACTION OF SUCH EXCESS COSTS ANY REMAINING BALANCE MAY BE TURNED OVER TO THE SECRETARY OF LABOR FOR APPLICATION TO THE JUDGMENT OF THE FLORIDA DISTRICT COURT. IT WILL BE NOTED THAT THIS DISPOSITION LEAVES UNSATISFIED THE GOVERNMENT'S CLAIM AGAINST THE CONTRACTOR FOR LIQUIDATED DAMAGES ASSESSABLE FOR THE LABOR LAW VIOLATIONS, BUT WE ASSUME THAT THE REQUEST OF THE SECRETARY OF LABOR THAT THE AMOUNTS WITHHELD BE TURNED OVER TO HIM FOR APPLICATION TO THE JUDGMENT MAY BE CONSTRUED AS INDICATIVE OF HIS WILLINGNESS TO RELIEVE THE CONTRACTOR OF LIABILITY THEREFOR IN ACCORDANCE WITH HIS AUTHORITY UNDER THE CONTRACT WORK HOURS STANDARDS ACT.

IN ACCORDANCE WITH THE ABOVE WE ARE DIRECTING OUR CLAIMS DIVISION TO RETURN TO YOUR DEPARTMENT, FOR DISPOSITION IN ACCORDANCE HEREWITH, THE BALANCE OF THE FUNDS TRANSMITTED HERE AS WITHHOLDINGS UNDER THE ABOVE MENTIONED CONTRACTS, AFTER DISBURSEMENT OF THE AMOUNTS PAYABLE TO THE UNDERPAID EMPLOYEES UNDER THE CONTRACT WORK HOURS STANDARDS ACT AS STATED ABOVE.