B-170513, OCT 8, 1970, 50 COMP GEN 263

B-170513: Oct 8, 1970

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CONTRACTS - PAYMENTS - WITHHOLDING - PROTECT INTERESTS OF UNITED STATES WITHHOLDING 10 PERCENT FROM THE PROGRESS PAYMENTS DUE ON EACH JOB ORDER UNTIL THE EXPIRATION OF THE 60-DAY GUARANTEE PERIOD PRESCRIBED IN A MASTER CONTRACT FOR REPAIR AND ALTERATION OF VESSELS IS NOT REQUIRED WHERE THE WORK IS PERFORMED IN ACCORDANCE WITH CONTRACT TERMS AND THE REDELIVERED SHIP ACCEPTED BY THE GOVERNMENT. NOR DOES THE PAYMENT CLAUSE REQUIRE THE EXPIRATION OF THE WARRANTY PERIOD BEFORE PAYMENT IS MADE. 1970: REFERENCE IS MADE TO A LETTER OF SEPTEMBER 14. THE MSR CONTRACT WITH SUN IS A STANDARD. UNIFORM DEPARTMENT OF DEFENSE (DOD) CONTRACT PUBLISHED IN APPENDIX F-200.731 OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) AND IS MANDATORY FOR USE BY DOD FOR SHIP REPAIR WORK.

B-170513, OCT 8, 1970, 50 COMP GEN 263

CONTRACTS - PAYMENTS - WITHHOLDING - PROTECT INTERESTS OF UNITED STATES WITHHOLDING 10 PERCENT FROM THE PROGRESS PAYMENTS DUE ON EACH JOB ORDER UNTIL THE EXPIRATION OF THE 60-DAY GUARANTEE PERIOD PRESCRIBED IN A MASTER CONTRACT FOR REPAIR AND ALTERATION OF VESSELS IS NOT REQUIRED WHERE THE WORK IS PERFORMED IN ACCORDANCE WITH CONTRACT TERMS AND THE REDELIVERED SHIP ACCEPTED BY THE GOVERNMENT. THE EXPRESS WARRANTY CLAUSES IN THE CONTRACT NEITHER EXCUSE NOR SUSPEND THE OBLIGATION TO MAKE PAYMENT AFTER THE CONTRACTOR COMPLETES WORK UNDER EACH JOB ORDER, NOR DOES THE PAYMENT CLAUSE REQUIRE THE EXPIRATION OF THE WARRANTY PERIOD BEFORE PAYMENT IS MADE; AND NEITHER OF THE CLAUSES PRESCRIBE ADDITIONAL WORK, BUT RATHER AFFIX LIABILITY IN MONETARY TERMS OR THROUGH CORRECTIVE ACTION BY THE CONTRACTOR FOR PRIOR ACTS OR OMISSIONS FOR 60 DAYS AFTER COMPLETION OF THE WORK COVERED BY A JOB ORDER.

TO THE SECRETARY OF THE NAVY, OCTOBER 8, 1970:

REFERENCE IS MADE TO A LETTER OF SEPTEMBER 14, 1970, CONCERNING THE REQUEST BY SUN SHIPBUILDING AND DRY DOCK COMPANY AS TO THE LEGALITY OF THE FOURTH NAVAL DISTRICT'S ACTION IN WITHHOLDING 10 PERCENT OF EACH JOB ORDER PRICE UNTIL THE EXPIRATION OF THE GUARANTEE PERIOD PROVIDED FOR IN THEIR MASTER CONTRACT FOR REPAIR AND ALTERATION OF VESSELS (MSR CONTRACT) NO. N62787-70-C-0004.

THE MSR CONTRACT WITH SUN IS A STANDARD, UNIFORM DEPARTMENT OF DEFENSE (DOD) CONTRACT PUBLISHED IN APPENDIX F-200.731 OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) AND IS MANDATORY FOR USE BY DOD FOR SHIP REPAIR WORK. THE FOURTH NAVAL DISTRICT IS RESPONSIBLE FOR ADMINISTERING THE WORK DONE PURSUANT TO JOB ORDERS ISSUED UNDER SUN'S MSR CONTRACT. UNDER THE PAYMENTS CLAUSE OF THE CONTRACT, CLAUSE 8, THE FOURTH NAVAL DISTRICT HAS BEEN WITHHOLDING 10 PERCENT OF THE JOB ORDER PRICE UNDER RECENT JOB ORDERS UNTIL THE EXPIRATION OF THE 60-DAY PERIOD ESTABLISHED IN CLAUSE 10, LIABILITY AND INSURANCE, AND CLAUSE 11, GUARANTEES. SUN QUESTIONS THE LEGALITY OF THIS ACTION WHEN THE REPAIR WORK HAS BEEN PERFORMED IN ACCORDANCE WITH THE OTHER CONTRACT PROVISIONS AND THE SHIP HAS BEEN REDELIVERED TO THE GOVERNMENT.

THE PAYMENTS CLAUSE, CLAUSE 8, AND CLAUSES 10 AND 11 OF THE CONTRACT PROVIDE IN RELEVANT PART:

CLAUSE 8 PAYMENTS

(A) PROGRESS PAYMENTS (WHICH ARE HEREBY DEFINED AS PAYMENTS PRIOR TO COMPLETION OF WORK IN PROGRESS UNDER ANY JOB ORDER) SHALL BE MADE AS THE WORK PROGRESSES UPON THE SUBMISSION BY THE CONTRACTOR OF INVOICES THEREFORE IN SUCH FORM AND WITH SUCH COPIES AS THE CONTRACTING OFFICER MAY PRESCRIBE. SUCH INVOICES MAY BE SUBMITTED SEMI-MONTHLY OR MORE FREQUENTLY IF EXPENDITURES BY THE CONTRACTOR WARRANT. NO PROGRESS PAYMENT WILL BE REQUIRED UNDER THIS CLAUSE UPON INVOICES AGGREGATING LESS THAN $5,000. SUCH PROGRESS PAYMENTS SHALL BE MADE UPON THE BASIS OF THE VALUE, COMPUTED ON THE PRICE OF THE JOB ORDER, OF LABOR AND MATERIALS INCORPORATED IN THE WORK, MATERIALS SUITABLY STORED AT THE SITE OF THE WORK, AND PREPARATORY WORK ALREADY COMPLETED, ALL AS ESTIMATED OR APPROVED BY THE CONTRACTING OFFICER, LESS THE AGGREGATE OF ANY PREVIOUS PAYMENTS. FOR THE PURPOSE OF ENABLING THE CONTRACTING OFFICER TO MAKE SUCH ESTIMATES OR GIVE SUCH APPROVAL, THE CONTRACTOR WILL FURNISH TO THE CONTRACTING OFFICER, UPON REQUEST, SUCH REPORTS CONCERNING EXPENDITURES ON THE WORK TO DATE AS MAY BE REQUESTED.

(B) IN MAKING SUCH PROGRESS PAYMENTS, THERE SHALL BE RETAINED TEN PER CENT OF THE AMOUNT ESTIMATED OR APPROVED BY THE CONTRACTING OFFICER PURSUANT TO PARAGRAPH (A) ABOVE UNTIL FINAL COMPLETION AND ACCEPTANCE OF ALL THE WORK COVERED BY THE JOB ORDER.

(C) ***

(D) UPON COMPLETION OF THE WORK UNDER A JOB ORDER AND FINAL INSPECTION AND ACCEPTANCE THEREOF AND UPON SUBMISSION OF INVOICES THEREFORE IN SUCH FORM AND WITH SUCH COPIES AS THE CONTRACTING OFFICER MAY PRESCRIBE THE CONTRACTOR SHALL BE PAID FOR THE PRICE OF THE JOB ORDER, AS ADJUSTED PURSUANT TO CLAUSE 6 HEREOF, LESS THE AMOUNT OF ALL PREVIOUS PAYMENTS.

(E) *** ;

CLAUSE 10. LIABILITY AND INSURANCE

(A) ***

(B) THE CONTRACTOR SHALL BE RESPONSIBLE FOR AND MAKE GOOD AT HIS OWN COST AND EXPENSE ANY AND ALL LOSS OF OR DAMAGE OF WHATSOEVER NATURE TO THE VESSEL (OR PART THEREOF), ITS EQUIPMENT, MOVABLE STORES AND CARGO, AND GOVERNMENT-OWNED MATERIALS AND EQUIPMENT FOR THE REPAIR, COMPLETION, ALTERATION OF OR ADDITION TO THE VESSEL IN THE POSSESSION OF THE CONTRACTOR, WHETHER AT THE PLANT OR ELSEWHERE, ARISING OR GROWING OUT OF THE PERFORMANCE OF THE WORK, EXCEPT WHERE THE CONTRACTOR CAN AFFIRMATIVELY SHOW THAT SUCH LOSS OR DAMAGE WAS DUE TO CAUSE BEYOND THE CONTRACTOR'S CONTROL, WAS PROXIMATELY CAUSED BY THE FAULT OR NEGLIGENCE OF AGENTS OR EMPLOYEES OF THE GOVERNMENT, OR WHICH LOSS OR DAMAGE THE CONTRACTOR BY EXERCISE OF REASONABLE CARE WAS UNABLE TO PREVENT; PROVIDED, THAT THE CONTRACTOR SHALL NOT BE RESPONSIBLE FOR ANY SUCH LOSS OR DAMAGE DISCOVERED AFTER REDELIVERY OF THE VESSEL UNLESS (I) SUCH LOSS OR DAMAGE IS DISCOVERED WITHIN SIXTY (60) DAYS AFTER REDELIVERY OF THE VESSEL AND (II) SUCH LOSS OR DAMAGE IS AFFIRMATIVELY SHOWN TO HAVE BEEN THE RESULT OF THE FAULT OR NEGLIGENCE OF THE CONTRACTOR.

(C) THE CONTRACTOR INDEMNIFIES AND HOLDS HARMLESS THE GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, THE VESSEL AND ITS OWNERS, AGAINST ALL SUITS, ACTIONS, CLAIMS, COSTS OR DEMANDS (INCLUDING, WITHOUT LIMITATION, SUITS, ACTIONS, CLAIMS, COSTS OR DEMANDS RESULTING FROM DEATH, PERSONAL INJURY AND PROPERTY DAMAGE) TO WHICH THE GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, THE VESSEL OR ITS OWNER MAY BE SUBJECT OR PUT BY REASON OF DAMAGE OR INJURY (INCLUDING DEATH) TO THE PROPERTY OR PERSON OF ANY ONE OTHER THAN THE GOVERNMENT, ITS AGENCIES, INSTRUMENTALITIES AND PERSONNEL, THE VESSEL OR ITS OWNER, ARISING OR RESULTING IN WHOLE OR IN PART FROM THE FAULT, NEGLIGENCE, OR WRONGFUL ACT OR WRONGFUL OMISSION OF THE CONTRACTOR, OR ANY SUBCONTRACTOR, HIS OR THEIR SERVANTS, AGENTS OR EMPLOYEES; PROVIDED, THAT THE CONTRACTOR'S OBLIGATION TO INDEMNIFY UNDER THIS PARAGRAPH (C) SHALL NOT EXCEED THE SUM OF $300,000 ON ACCOUNT OF ANY ONE ACCIDENT OR OCCURRENCE IN RESPECT OF ANY ONE VESSEL. SUCH INDEMNITY SHALL INCLUDE, WITHOUT LIMITATION, SUITS, ACTIONS, CLAIMS, COSTS OR DEMANDS OF ANY KIND WHATSOEVER, RESULTING FROM DEATH, PERSONAL INJURY OR PROPERTY DAMAGE OCCURRING DURING THE PERIOD OF PERFORMANCE OF WORK ON THE VESSEL OR WITHIN 60 DAYS AFTER REDELIVERY OF THE VESSEL; ***

(D) ***

(E) ***

(F) *** ;

CLAUSE 11. GUARANTEES

IN CASE ANY WORK DOES OR MATERIALS FURNISHED BY THE CONTRACTOR UNDER THIS CONTRACT ON OR FOR ANY VESSEL OR THE EQUIPMENT THEREOF SHALL, WITHIN 60 DAYS FROM THE DATE OF REDELIVERY OF THE VESSEL BY THE CONTRACTOR, PROVE DEFECTIVE OR DEFICIENT, SUCH DEFECTS OR DEFICIENCIES SHALL, AS REQUIRED BY THE GOVERNMENT, BE CORRECTED AND REPAIRED BY THE CONTRACTOR OR AT HIS EXPENSE TO THE SATISFACTION OF THE CONTRACTING OFFICER; PROVIDED, HOWEVER, THAT WITH RESPECT TO ANY INDIVIDUAL WORK ITEM INCOMPLETE AT THE REDELIVERY OF THE VESSEL THE GUARANTEE PERIOD SHALL RUN FROM THE DATE OF COMPLETION OF SUCH ITEM. THE GOVERNMENT SHALL, IF AND WHEN PRACTICABLE AFFORD THE CONTRACTOR AN OPPORTUNITY TO EFFECT SUCH CORRECTIONS AND REPAIRS HIMSELF, BUT WHEN, BECAUSE OF THE CONDITION OR LOCATION OF THE VESSEL OR FOR ANY OTHER REASON, IT IS IMPRACTICABLE OR UNDESIRABLE TO RETURN IT TO THE CONTRACTOR, OR THE CONTRACTOR FAILS TO PROCEED PROMPTLY WITH ANY SUCH REPAIRS AS DIRECTED BY THE CONTRACTING OFFICER, SUCH CORRECTIONS AND REPAIRS SHALL BE EFFECTED AT THE CONTRACTOR'S EXPENSE AT SUCH OTHER LOCATIONS AS THE GOVERNMENT MAY DETERMINE. WHERE CORRECTIONS AND REPAIRS ARE TO BE EFFECTED BY OTHER THAN THE CONTRACTOR, DUE TO NONRETURN OF THE VESSEL TO HIM, THE CONTRACTOR'S LIABILITY MAY BE DISCHARGED BY AN EQUITABLE DEDUCTION IN THE PRICE OF THE JOB. THE CONTRACTOR'S LIABILITY UNDER THIS CLAUSE SHALL, HOWEVER, IN NO EVENT EXTEND BEYOND THE CORRECTION OF SUCH DEFECT OR DEFICIENCY OR PAYMENT FOR THE COST THEREOF; PROVIDED, HOWEVER, THAT NOTHING IN THIS CLAUSE SHALL BE DEEMED TO LIMIT THE RESPONSIBILITY OF THE CONTRACTOR UNDER CLAUSE 10 HEREOF OR RELIEVE HIM OF HIS LIABILITY UNDER THAT CLAUSE. AT THE OPTION OF THE CONTRACTING OFFICER, DEFECTS AND DEFICIENCIES MAY BE LEFT IN THEIR THEN CONDITION, AND AN EQUITABLE DEDUCTION FROM THE JOB ORDER PRICE, AS AGREED BY THE CONTRACTOR AND THE CONTRACTING OFFICER, SHALL BE MADE THEREFOR. IF THE CONTRACTOR AND THE CONTRACTING OFFICER FAIL TO AGREE UPON THE EQUITABLE DEDUCTION FROM THE JOB ORDER PRICE TO BE MADE, THE DISPUTE SHALL BE DETERMINED AS PROVIDED IN CLAUSE 17 HEREOF.

CLAUSE 10 IS ESSENTIALLY AN EXPRESS WARRANTY BY THE CONTRACTOR AGAINST DAMAGES TO PERSONS OR PROPERTY FOR A PERIOD EXTENDING 60 DAYS AFTER REDELIVERY OF THE VESSEL. CLAUSE 11 SIMILARLY IS AN EXPRESS WARRANTY AGAINST DEFECTS IN THE WORK FOR THE SAME PERIOD OF TIME. THE USUAL EFFECT OF SUCH EXPRESS WARRANTY CLAUSES IS TO SUSPEND THE FINALITY OF PAYMENT UNTIL THE EXPIRATION OF THE WARRANTY PERIOD. CF. MARKET EQUIPMENT, LTD., ASBCA#9639, 65-1BCA#4608, AND OXYGEN EQUIPMENT & SERVICE COMPANY, ASBCA#10137, 65-2BCA#4870. HOWEVER, WE ARE UNAWARE OF ANY GENERAL BASIS FOR RULING THAT AN EXPRESS WARRANTY IN A CONTRACT EXCUSES OR SUSPENDS THE OBLIGATION TO MAKE PAYMENT AFTER A CONTRACTOR HAS COMPLETED PERFORMANCE. CLAUSE 8, PAYMENTS, OF THE SUN'S CONTRACT PROVIDES FOR FULL PAYMENT AFTER COMPLETION OF THE WORK AND FINAL INSPECTION AND ACCEPTANCE BY THE GOVERNMENT. THE PAYMENTS CLAUSE DOES NOT EXPRESSLY STATE THAT THE WARRANTY PERIODS UNDER CLAUSES 10 AND 11 MUST ALSO HAVE EXPIRED. NOR DO EITHER OF THOSE CLAUSES PRESCRIBING ADDITIONAL CONTRACT WORK TO BE PERFORMED BY SUN. RATHER THEY AFFIX LIABILITY EITHER IN MONETARY TERMS OR THROUGH CORRECTIVE ACTION FOR PRIOR ACTS OR OMISSIONS BY SUN.

WHILE THE GOVERNMENT'S RIGHTS UNDER THE INSPECTION CLAUSE AND UNDER EXPRESS WARRANTY CLAUSES ARE NORMALLY HELD TO BE CUMULATIVE, SEE GENERAL ELECTRIC COMPANY, IBCA#442-6-64, 65-2 BCA#4974, WE CAN PERCEIVE NO RESERVATION IN THE INSPECTION CLAUSE, CLAUSE 5 OF THE CONTRACT, WHICH PROVIDES THAT INSPECTION SHALL NOT BE EFFECTIVE UNTIL THE WARRANTY PERIODS HAVE EXPIRED. PARAGRAPH (E) OF CLAUSE 5 PROVIDES THAT IN ADDITION TO RIGHTS UNDER CLAUSE 11 THE GOVERNMENT SHALL HAVE THE RIGHT TO INSPECT THE WORK AT ALL TIMES DURING PERFORMANCE AND REJECT, REQUIRE CORRECTION OR CORRECT AT THE CONTRACTOR'S EXPENSE ANY DEFECTS DISCOVERED PRIOR TO REDELIVERY OF THE VESSEL. IN SHORT, WHEN THE GOVERNMENT ACCEPTS REDELIVERY OF THE VESSEL WITHOUT RESERVATION, IT IS ACCEPTING THE CONTRACTOR'S WORK UNDER THE INSPECTION CLAUSE AND IS PRESUMED TO HAVE EXERCISED ITS RIGHT TO INSPECT THAT WORK. CLAUSES 10 AND 11 NEITHER PROVIDE FOR INSPECTION NOR REQUIRE THAT IF THE GOVERNMENT DOES IN FACT INSPECT THE WORK THAT SUCH INSPECTION WILL BE BINDING AND FINAL ON THE GOVERNMENT. THOSE CLAUSES SIMPLY EXTEND THE CONTRACTOR'S LIABILITY FOR CERTAIN MATTERS FOR 60 DAYS AFTER COMPLETION OF THE CONTRACT WORK. THEREFORE, WE BELIEVE THE FINAL INSPECTION AND ACCEPTANCE REFERRED TO BY THE PAYMENTS CLAUSE IS THAT REQUIRED UNDER THE INSPECTION CLAUSE OF THE CONTRACT.

WE RECOGNIZE THAT THE WITHHOLDING OF 10 PERCENT OF SUN'S CONTRACT PRICE FOR 60 DAYS MIGHT NOT BE INEQUITABLE. HOWEVER, WHILE EACH CONTRACT MUST BE INTERPRETED ACCORDING TO ITS PARTICULAR TERMS AND CLAUSES, WE BELIEVE THE CONCLUSION THAT EXPRESS WARRANTIES IN A CONTRACT SUSPEND THE CONTRACTOR'S RIGHT TO PAYMENT, IN THE ABSENCE OF EXPRESS LANGUAGE TO THAT EFFECT, WOULD BE APPLICABLE TO OTHER CONTRACTS CONTAINING SIMILAR WARRANTY PROVISIONS. CLEARLY, WHERE A WARRANTY PERIOD EXTENDS FOR 1 YEAR OR MORE, WITHHOLDING A PORTION OF THE CONTRACT FUNDS FOR SUCH TIME IS A SIGNIFICANT AND FINANCIALLY IMPORTANT MATTER TO CONTRACTORS.

ACCORDINGLY, WE DO NOT BELIEVE 10 PERCENT OF THE CONTRACT FUNDS MAY LEGALLY BE WITHHELD UNDER SUN'S MSR CONTRACT UNTIL THE EXPIRATION OF THE 60 DAY PERIOD PROVIDED IN CLAUSES 10 AND 11 OF THE CONTRACT.