B-171263, JAN 15, 1971

B-171263: Jan 15, 1971

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SECRETARY: REFERENCE IS MADE TO LETTER DATED OCTOBER 27. PROVIDES THAT THE INTEREST ON THE SECURITIES WILL BE PAID TO THE CONTRACTOR SO LONG AS DEFAULT DOES NOT OCCUR. (THE DETAILS OF THIS ARRANGEMENT ARE SET FORTH IN THE ENCLOSED MATERIAL.). THE THEORY BEHIND THIS NEW PLAN IS TO ELIMINATE INTEREST CHARGES FROM BID PRICES ON CONSTRUCTION CONTRACTS BY PERMITTING INTEREST ON THE POSTED SECURITIES TO BE PAID TO THE CONTRACTOR. WE ARE ADVISED THAT YOUR DEPARTMENT HAS NO DATA AT THIS POINT IN TIME TO SHOW WHAT SAVINGS OR ADDITIONAL COSTS MAY RESULT FROM THE PLAN. DURING WHICH TIME RECORDS ARE TO BE KEPT AS TO THE TOTAL AMOUNT OF RETAINAGE CHANNELED INTO THE PROGRAM. THE VARIOUS BUREAUS AND OFFICES IMPLEMENTING THIS PLAN ARE INSTRUCTED TO REPORT TO YOUR DEPARTMENT ON THE MERITS OF THE NEW PROCEDURE.

B-171263, JAN 15, 1971

CONSTRUCTION CONTRACTS - POSTING SECURITIES IN LIEU OF RETAINED PERCENTAGES LETTER REQUESTING THE OPPORTUNITY TO REVIEW RECORDS AND EVALUATIONS OF THE PLAN WHICH GIVES CONSTRUCTION CONTRACTORS THE OPTION OF POSTING APPROVED SECURITIES IN LIEU OF THE GOVERNMENT RETAINING A PERCENTAGE OF THE PROGRESS PAYMENTS NOW IN EFFECT ON A ONE-YEAR TRIAL BASIS.

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTER DATED OCTOBER 27, 1970, FROM MR. H. STEWART MCDONALD ENCLOSING A PLAN WHICH YOUR DEPARTMENT HAS PUT INTO EFFECT ON A ONE-YEAR TRIAL BASIS FOR POSTING SECURITIES IN LIEU OF RETAINED PERCENTAGES ON CONSTRUCTION CONTRACTS.

THE PLAN GIVES CONSTRUCTION CONTRACTORS THE OPTION OF POSTING APPROVED SECURITIES IN LIEU OF THE GOVERNMENT RETAINING A PERCENTAGE OF PROGRESS PAYMENTS, AND PROVIDES THAT THE INTEREST ON THE SECURITIES WILL BE PAID TO THE CONTRACTOR SO LONG AS DEFAULT DOES NOT OCCUR. THE SECURITIES COULD BE STATE OR FEDERALLY ISSUED (INCLUDING BANK CERTIFICATES OF DEPOSIT) AND WOULD BE HELD IN ESCROW BY AN ESCROW AGENT. (THE DETAILS OF THIS ARRANGEMENT ARE SET FORTH IN THE ENCLOSED MATERIAL.) THE THEORY BEHIND THIS NEW PLAN IS TO ELIMINATE INTEREST CHARGES FROM BID PRICES ON CONSTRUCTION CONTRACTS BY PERMITTING INTEREST ON THE POSTED SECURITIES TO BE PAID TO THE CONTRACTOR. CONTRACTORS DO NOT RECEIVE INTEREST ON THE AMOUNTS RETAINED BY THE GOVERNMENT UNDER THE PRESENT PROCEDURE.

WE ARE ADVISED THAT YOUR DEPARTMENT HAS NO DATA AT THIS POINT IN TIME TO SHOW WHAT SAVINGS OR ADDITIONAL COSTS MAY RESULT FROM THE PLAN. YOUR OFFICIALS ALSO ADVISE US THAT THE GENERAL SERVICES ADMINISTRATION APPROVED THE PLAN FOR A TRIAL PERIOD OF ONE YEAR, DURING WHICH TIME RECORDS ARE TO BE KEPT AS TO THE TOTAL AMOUNT OF RETAINAGE CHANNELED INTO THE PROGRAM, THE APPROXIMATE AMOUNT OF INTEREST PAYMENTS RECEIVED BY CONTRACTORS, AND THE NUMBER OF CONTRACTORS INVOLVED. BY JULY 31, 1971, THE VARIOUS BUREAUS AND OFFICES IMPLEMENTING THIS PLAN ARE INSTRUCTED TO REPORT TO YOUR DEPARTMENT ON THE MERITS OF THE NEW PROCEDURE.

WE BELIEVE IT IS IMPORTANT TO MAINTAIN GOOD RECORDS DURING THIS TRIAL PERIOD AND WOULD APPRECIATE THE OPPORTUNITY TO REVIEW THESE RECORDS AND YOUR DEPARTMENT'S EVALUATION OF THE RESULTS OBTAINED.