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B-217698 May 16, 1985

B-217698 May 16, 1985
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Brown: This is in response to your letter dated January 28. Dan Sharp against the Army Corps of Engineers for certain expenses he and his family incurred when they were forced to relocate their ranch because the Army condemned and acquired their property in Colorado. Fitzeimmons indicates that there are several potential legal issues involved in Mr. We conclude that the Prompt Payment Act is not applicable in the instant case. Sharp and his family are not due compensation pursuant to the interest penalty provisions of that Act. We contacted that office informally and were advised that a decision on Mr. Sharp's appeal is pending. This is because the Act specifically provides for resolution of claims for unpaid interest in accordance with the Contract Disputes Act of 1910.

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B-217698 May 16, 1985

The Honorable Hank Brown House of Representatives

Dear Mr. Brown:

This is in response to your letter dated January 28, 1985, recent inquiries by Mr. Michael Fitzsimmons of your staff regarding the claim of Mr. Dan Sharp against the Army Corps of Engineers for certain expenses he and his family incurred when they were forced to relocate their ranch because the Army condemned and acquired their property in Colorado. Our review of the materials submitted to us by Mr. Fitzeimmons indicates that there are several potential legal issues involved in Mr. Sharp's case. However, Mr. Fitzaimmons has asked us to review only the question of whether the Sharp family may be due compensation, under the Prompt Payment Act, 31 U.S.C. Secs. 3901-3906 (1982), for the interest expense they incurred as a consequence of the Army's delay in making the condemnation proceeds available to them. As set forth below, we conclude that the Prompt Payment Act is not applicable in the instant case, and that Mr. Sharp and his family are not due compensation pursuant to the interest penalty provisions of that Act.

Mr. Sharp has appealed the Army's calculation of his reimbursable relocation expenses to the Office of the Chief of Engineers of the Department of the Army in Washington. We contacted that office informally and were advised that a decision on Mr. Sharp's appeal is pending. Of course, the General Accounting Office takes no position on the merits of Mr. Sharp's appeal.

We note that the General Accounting Office cannot formally resolve a dispute concerning unpaid interest under the Prompt Payment Act. This is because the Act specifically provides for resolution of claims for unpaid interest in accordance with the Contract Disputes Act of 1910. See 31 U.S.C. Sec. 9906 (1982). However, in accordance with the request of your staff, the following analysis is provided as a service to you.

FACTS

In 1982 the Army Corps of Engineers began the process of acquiring the Sharp family ranch in Colorado for use as part of an Army training area. In contemplation of the Government taking their Colorado ranch, the Sharp family in February of 1983 obtained options to purchase three ranches in Oklahoma with a combined acreage roughly the same as their Colorado property. These purchase options were due to expire on May 1, 1983.

On April 28, 1983, Gary D. Blair, Chief of the Real state Division of the Omaha, Nebraska, District Office of the Corps of Engineers, met with Clifton Sharp, and possibly other members of the Sharp family, to discuss the process by which the Government would acquire the Sharp ranch. Mr. Blair explained to the Sharps that he was unable at that time to make a definite proposal for purchase of their land because he had not yet received the necessary appraisers' reports. Mr. Blair explained that he expected that the last necessary appraisal would be mailed to him on May 6, 1983, after which the appraisals would be approved by the Corps of Engineers District and Washington offices. Upon approval of the appraisals, Mr. Blair anticipated making an offer to the Sharps at the highest approved appraisal figure, which he predicted would be no less than $120 per acre, or a total of S1,206,480. Mr. Blair further explained that if the Sharps did not accept this offer a condemnation action would be filed in Federal district court No later than June 1, 1983." Concurrently with the filing of the condemnation suit, the Army would deposit with the court funds representing the "estimated compensation,. not expected to be less than $1,206,480, which would then become available to the Sharps on approval of the court. See generally 42 U.S.C. Sec. 4651 (1982) (uniform policy on Federal real property acquisition practices). Mr. Blair recorded his predictions in a hand-written statement.

At the April 28 meeting, according to the statement of Clifton Sharp, "Gary Blair wrote out a statement of time schedule and advised me to exercise our option or we would be looking for another ranch. We borrowed money and exercised our option." In order to exercise their option, the Sharps borrowed $1,179,000 at 13 percent interest on a short term basis.

Unfortunately, Gary Blair's April 28 prediction that either the Sharps and the Army would agree on a purchase price or the Army's "estimated compensation" would be deposited with the court and thus become available to the Sharps by June 1, 1983, did not prove to be accurate. There was a delay in delivery of the necessary appraisals from the Army's contract appraisers, and the Sharps and the Army apparently failed to agree on a negotiated purchase price. Accordingly, on or about June 30, 1983, a condemnation action was filed by the Army and shortly thereafter the Army's "estimated compensations" deposit of $1,360,000 became available to the-Sharps. The Sharps thereupon paid their short term loan. (After a jury trial, the Sharps were awarded $2,000,000 compensation for their Colorado property.)

The total interest cost of the Sharp's $1,179,000 loan at 13 percent interest for 61 days was $25,614.00. The Sharps contend that they should be compensated for this interest expense because it was incurred "due to the Army not meeting their time schedule." The Army, however, contends that the "decision to buy a replacement ranch in Oklahoma was entirely a personal one by the Sharp family," and that under the applicable relocation law, "there is simply no provision for paying interest on a loan." Your staff has asked us to consider the question of whether the Sharp family could be compensated pursuant to the Prompt Payment Act for the interest expense caused them by the Army's delay. We conclude that the Prompt Payment Act is not applicable in the instant case, and that the Sharps are not eligible for compensation under that Act.

PROMPT PAYMENT ACT

The Prompt Payment Act, 31 U.S.C. Secs. 3901-3906 (1982), requires Government agencies to pay an interest penalty to a Government contractor who is not paid within 15 days of the contractual payment due date, or, if the contract does not include a payment due date, within 45 days of the Government's receipt of a proper invoice. Interest is computed at the rate set by the Secretary of the Treasury for interest payments under the Contract Disputes Act. If the agency refuses to pay interest, an aggrieved contractor may file a claim for interest under procedures established by the Contract Disputes Act. Under the Prompt Payment Act, the Office of Management and Budget has issued regulations containing policies and procedures to assist Federal agencies in implementing the Act. OMB Circular No. A-125, August 19, 1982. The Prompt Payment Act is a waiver of sovereign immunity add, accordingly, must be narrowly construed. 64 Comp.Gen. 32, 33-34 (1984).

PAYMENT OF PROMPT PAYMENT ACT INTEREST PENALTY

We conclude that no interest penalty, in any amount, would be payable to the Sharp family under the Prompt Payment Act procedures in these circumstances, because that Act is applicable only to situations involving a Government contractor awaiting the payment of amounts due under a contract. The Act, on its face, clearly applies only when an agency is "acquiring property or service from a business concern". 31 U.S.C. Sec. 3902(a). Further the legislative history of the Act clearly indicates that the intent of the Act was to curtail late payments to businesses supplying goods and services to the Government under contract. The debates and the committee reports are replete with examples of the abuses which the Act was intended to remedy. Each specific example is that of a business which supplied goods or services to the Government under a contract, and received payment unreasonably late. See, e.q., H.R. Rep. No. 461, 97th Cong., 2d Sess. 4-7-(1982); 128 Cong. Rec. H1027-36 (daily ed. March 23, 1982).

OMB Circular No. A-125, issued under the Act, also makes it clear that prompt payment provisions apply only to Government contracts. It specifically applies only to payment "for property and services acquired under Federal contract." Paragraph 1. The Circular defines a contract as an "enforceable agreement * * * between an agency and a business concern for the acquisition of property or services." Paragraph 4.d. The circular specifies that interest shall be paid when certain conditions are met, including a contract or purchase order with a business concern, and the acceptance by the Federal Government of property or services. Paragraph 8.

Additionally, the procedural mechanism set up by the Prompt Payment Act and OMB Circular No. A-125 is clearly inappropriate in situations, such as the case at hand, not involving a Government contractor awaiting the payment of contract proceeds. For example, the Act requires prompt- payment "for each complete delivered item of property." 31 U.S.C. Sec. 3902(a) (1982). The Act assumes that there willl be a "required payment date" established either in the contract or by the delivery of a "proper" invoice, and assumes that there will be a fixed amount due. Id. Claims for the interest penalty if the agency fails to pay are made pursuant to the Contract Disputes Act. 31 U.S.C. Sec. 3906 (1982).

In the particular situation here under review, no contract for the acquisition of property existed between the Sharps and the Government. Gary Blair's handwritten statement setting forth his predictions regarding timing of the negotiation and condemnation process does not amount to an enforceable contract, even assuming that Mr. Blair was empowered to bind the Government. There was no required payment date or fixed amount due. No invoice was delivered to the Army by the Sharps. Further, until the filing of the condemnation action by the Government, nothing had been transferred from the Sharps to the Government for which the Government could be expected to pay. In short, payment of an interest penalty in any amount to the Blair family in the circumstances here under review is not within the contemplation of the Prompt Payment Act.

Accordingly, we conclude that neither the $25,614.99 interest expense incurred by the Sharp family nor an interest penalty in any other amount is payable to the Sharp family under the Prompt Payment Act. Unless released earlier by your office, this letter will be available for release to the public 30 days from today.

Sincerely yours,

Milton J. Socolar Comptroller General of the United States

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