B-180591, JAN 17, 1975

B-180591: Jan 17, 1975

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SINCE SUBCONTRACTOR'S RIGHTS ARE AGAINST THE PRIME CONTRACTOR OR INTERMEDIATE SUBCONTRACTOR WITH WHOM IT HAS CONTRACTED. CLAIM BY SUBCONTRACTOR IS DENIED. 2. SETTLEMENT OF TERMINATION CLAIMS IS SOLELY AN ADMINISTRATIVE MATTER FOR CONTRACTING AGENCY AND GAO WILL NOT INTERCEDE TO EFFECT A MORE EXPEDITIOUS ADMINISTRATIVE RESOLUTION OF CLAIM. IT IS REPORTED THAT THE REFERENCED CONTRACT CONTAINED THE CLAUSE TITLED "PROGRESS PAYMENT (1968 MAY)" UNDER WHICH THE GOVERNMENT MADE VARIOUS PROGRESS PAYMENTS TO HENRY SPEN DURING THE COURSE OF ITS PERFORMANCE. THE PRIME CONTRACTOR WAS ALSO REQUIRED TO INSERT A SIMILAR CLAUSE IN ALL SUBCONTRACTS. THE ARMY HAS ADVISED THAT WITH THE EXCEPTION OF A NUMBER OF COMPLETED WHEEL DISCS ALL THE JOHNSON TERMINATION INVENTORY WAS ORDERED SOLD.

B-180591, JAN 17, 1975

1. SUBCONTRACTOR HAS NO CONTRACTUAL RIGHTS AGAINST THE GOVERNMENT UPON TERMINATION OF PRIME CONTRACT. SINCE SUBCONTRACTOR'S RIGHTS ARE AGAINST THE PRIME CONTRACTOR OR INTERMEDIATE SUBCONTRACTOR WITH WHOM IT HAS CONTRACTED, CLAIM BY SUBCONTRACTOR IS DENIED. 2. SETTLEMENT OF TERMINATION CLAIMS IS SOLELY AN ADMINISTRATIVE MATTER FOR CONTRACTING AGENCY AND GAO WILL NOT INTERCEDE TO EFFECT A MORE EXPEDITIOUS ADMINISTRATIVE RESOLUTION OF CLAIM.

JOHNSON CORPORATION:

THIS MATTER CONCERNS A CLAIM BY THE JOHNSON CORPORATION (JOHNSON) ARISING FROM THE TERMINATION OF U.S. ARMY TANK-AUTOMATIVE COMMAND (TACOM), CONTRACT NO. DAAE07-70-C-4381, WITH HENRY SPEN AND COMPANY, INCORPORATED (HENRY SPEN), BROOKLYN, NEW YORK. IT APPEARS THAT THE CLAIM ARISES FROM WORK PERFORMED BY JOHNSON AS A FIRST AND SECOND TIER SUBCONTRACTOR UNDER THE GOVERNMENT'S PRIME CONTRACT WITH HENRY SPEN. JOHNSON FURTHER REQUESTS THAT THIS OFFICE INTERCEDE WITH THE GOVERNMENT ACTIVITY RESPONSIBLE FOR ADMINISTERING THE TERMINATION SETTLEMENT TO OBTAIN A PROMPT PAYMENT OF ITS CLAIM.

IT IS REPORTED THAT THE REFERENCED CONTRACT CONTAINED THE CLAUSE TITLED "PROGRESS PAYMENT (1968 MAY)" UNDER WHICH THE GOVERNMENT MADE VARIOUS PROGRESS PAYMENTS TO HENRY SPEN DURING THE COURSE OF ITS PERFORMANCE. UNDER THIS CLAUSE TITLE VESTED IN THE UNITED STATES, FROM THE DATE OF THE CONTRACT, TO ALL CONTRACTOR INVENTORY ALLOCABLE TO THIS CONTRACT. THE PRIME CONTRACTOR WAS ALSO REQUIRED TO INSERT A SIMILAR CLAUSE IN ALL SUBCONTRACTS.

THE ARMY HAS ADVISED THAT WITH THE EXCEPTION OF A NUMBER OF COMPLETED WHEEL DISCS ALL THE JOHNSON TERMINATION INVENTORY WAS ORDERED SOLD, APPARENTLY AS SCRAP TO THE HIGHEST OFFEROR IN ACCORDANCE WITH REGULAR TERMINATION PROCEDURES. JOHNSON SOLICITED OFFERS FOR THIS INVENTORY AND RETAINED THE PROCEEDS OF THESE SALES WHICH WERE CREDITED TO ITS CLAIM AGAINST ITS INTERMEDIATE SUBCONTRACTOR AND PRIME CONTRACTOR. THE RECORD ALSO INDICATES THAT IN CONNECTION WITH THE WHEEL DISCS THE GOVERNMENT ISSUED A PURCHASE ORDER TO JOHNSON TO PAY FOR "LABOR MATERIALS AND EQUIPMENT TO PREPARE THE PACKAGING, CRATING, HANDLING, SHIPMENT AND LOAD ON COMMON CARRIER." THE ARMY STATES THAT IT GAVE NO INDICATION OF ANY PROMISE, EXPRESS OR IMPLIED, THAT THE GOVERNMENT WOULD PAY JOHNSON DIRECTLY FOR THE WHEEL DISCS OTHER THAN PREPARATION FOR SHIPMENT, AND THAT THERE WAS NO DISCUSSION OF PAYMENT FOR THE WHEEL DISCS DURING THE NEGOTIATION OF THE PURCHASE ORDER. IN THESE CIRCUMSTANCES THE ARMY BELIEVES JOHNSON SHOULD HAVE HAD NO EXPECTATION OF PAYMENT DIRECTLY FROM THE UNITED STATES FOR THE WHEEL DISCS AND THAT IT IS NOT OBLIGATED TO DEAL WITH THE SUBCONTRACTOR IN ORDER TO DIRECTLY SETTLE JOHNSON'S CLAIMS.

THE ARMY FURTHER CONTENDS THAT UNDER THE TERMINATION CLAUSE OF THE CONTRACT THE GOVERNMENT IS ONLY ACCOUNTABLE TO THE PRIME CONTRACTOR FOR TERMINATION CLAIMS. IN THIS REGARD, ARMED SERVICES PROCUREMENT REGULATION (ASPR) 8-209.1 (1974 ED.) PROVIDES AS FOLLOWS:

"A SUBCONTRACTOR HAS NO CONTRACTUAL RIGHTS AGAINST THE GOVERNMENT UPON THE TERMINATION OF A PRIME CONTRACT. THE RIGHTS OF A SUBCONTRACTOR ARE AGAINST THE PRIME CONTRACTOR OR INTERMEDIATE SUBCONTRACTOR WITH WHOM HE HAS CONTRACTED. UPON TERMINATION OF A PRIME CONTRACT, THE PRIME CONTRACTOR AND EACH SUBCONTRACTOR ARE RESPONSIBLE FOR THE PROMPT SETTLEMENT OF THE TERMINATION CLAIMS OF IMMEDIATE SUBCONTRACTORS."

IT IS WELL SETTLED THAT PARTIES CONTRACTING WITH PRIME GOVERNMENT CONTRACTORS GENERALLY ARE LIMITED TO THEIR REMEDIES AT LAW IN ANY CONTROVERSY ARISING OUT OF THE FAILURE OF THE PRIME CONTRACTOR TO PAY THE SUBCONTRACTOR FOR SUPPLIES AND SERVICES. THIS IS SO BECAUSE THERE IS NO PRIVITY OF CONTRACT BETWEEN THE GOVERNMENT AND SUBCONTRACTORS UNDER PRIME GOVERNMENT CONTRACTS AND THEREFORE THERE IS NO LEGALLY PERMISSIBLE WAY FOR THE GOVERNMENT TO ENFORCE THE SUBCONTRACTOR'S RIGHTS AGAINST THE PRIME CONTRACTOR OR FOR THE SUBCONTRACTOR TO MAKE CLAIM DIRECTLY AGAINST THE GOVERNMENT. SEE UNITED STATES V. DRISCOLL, 96 U.S. 421 (1877); H. HERFURTH, JR., INC. V. UNITED STATES, 89 CT. CL. 122 (1939); AND JOSEPH PETRIN ET AL. V. UNITED STATES, 90 CT. CL. 670 (1940); 32 COMP. GEN. 174 (1952).

IN THIS CASE WE DO NOT VIEW THE CIRCUMSTANCES AS SO UNUSUAL AS TO TAKE THE MATTER OUT OF THE "NO PRIVITY" RULE. THE MERE FACT THAT THE GOVERNMENT MAY HAVE BEEN INSTRUMENTAL IN INDUCING A SUBCONTRACTOR TO DISPOSE OF INVENTORY, EITHER TO THE GOVERNMENT OR TO OTHERS DOES NOT EVIDENCE THE GOVERNMENT'S ASSUMPTION OF AN OBLIGATION TO PAY THE SUBCONTRACTOR. THAT OBLIGATION REMAINS SOLELY WITH THE PRIME CONTRACTOR IN THE ABSENCE OF AN EXPRESS PROMISE BY THE GOVERNMENT TO GUARANTEE PAYMENT TO THE SUBCONTRACTOR. SEE B-171255, JANUARY 5, 1972 AND 52 COMP. GEN. 377 (1972). OUR REVIEW OF THE RECORD FAILS TO ESTABLISH ANY SUCH EXPRESS PROMISE AND CONSEQUENTLY, IT IS DOUBTFUL THAT THERE IS ANY LEGAL LIABILITY FOR PAYMENT BY THE UNITED STATES OF JOHNSON'S CLAIM.

IN ADDITION, WE RECOGNIZE THAT THE SETTLEMENT OF CLAIMS FOR TERMINATION FOR CONVENIENCE IS SOLELY AN ADMINISTRATIVE MATTER FOR THE CONTRACTING AGENCY TO BE PERFORMED IN ACCORDANCE WITH SECTIONS VIII AND XXIV OF THE ASPR. THUS, THIS OFFICE CAN NOT INTERCEDE TO EFFECT A MORE EXPEDITIOUS ADMINISTRATIVE RESOLUTION OF TERMINATION CLAIMS.

ACCORDINGLY, JOHNSON'S CLAIM MUST BE DENIED.