B-156271, JUN. 9, 1965

B-156271, JUN. 9, 1965

TO ARNOLD M. SCHWARTZ, ESQUIRE:

REFERENCE IS MADE TO YOUR LETTER DATED APRIL 23, 1965, REQUESTING RECONSIDERATION OF OUR DECISION TO YOUR OF APRIL 20, 1965, CONCERNING A CLAIM FOR $30,783.17 WHICH WAS SUBMITTED IN BEHALF OF THE TRUSTEE IN BANKRUPTCY OF FACILITIES MAINTENANCE CORPORATION, COVERING SERVICES RENDERED BY THAT COMPANY UNDER ARMY CONTRACT NO. DA-04-197-AMC-16 (M), PRIOR TO TERMINATION OF THAT CONTRACT FOR DEFAULT.

THE CONTRACT WAS AWARDED TO THE FACILITIES MAINTENANCE CORPORATION ON NOVEMBER 26, 1962, FOR THE FURNISHING OF JANITORIAL SERVICES DURING A PERIOD OF ONE YEAR COMMENCING ON DECEMBER 1, 1962, AT THE OAKLAND ARMY TERMINAL AND AT FORT MASON, CALIFORNIA. THE REQUIRED SERVICES APPARENTLY WERE PERFORMED DURING THE MONTHS OF DECEMBER 1962 AND JANUARY 1963, BUT THE CONTRACT WAS TERMINATED, EFFECTIVE AS OF JANUARY 31, 1963, BECAUSE THE CONTRACTOR FAILED TO FURNISH PERFORMANCE AND PAYMENT BONDS AS REQUIRED BY THE CONTRACT TERMS. IT WAS ESTIMATED THAT THE EXCESS COST OF REPROCUREMENT OF SIMILAR SERVICES DURING THE BALANCE OF THE CONTRACT PERIOD WOULD BE $30,772.97, WHICH APPROXIMATES THE AMOUNT OF THE TRUSTEE IN BANKRUPTCY'S CLAIM FOR $30,783.17, REPRESENTING THE AMOUNT ALLEGED TO BE DUE FROM THE GOVERNMENT FOR THE SERVICES RENDERED BY THE CONTRACTOR DURING DECEMBER 1962 AND JANUARY 1963.

AN APPEAL FROM THE DEFAULT TERMINATION ACTION WAS FILED WITH THE ARMED SERVICES BOARD OF CONTRACT APPEALS WHICH, BY DECISION OF DECEMBER 31, 1964, DENIED THE APPEAL. UPON CONSIDERATION OF THE FACTS OF THE CASE AS OUTLINED IN THE BOARD'S DECISION, WE FOUND NO LEGAL BASIS FOR TAKING EXCEPTION TO THE BOARD'S CONCLUSIONS THAT THE GOVERNMENT DID NOT WAIVE THE BOND FURNISHING REQUIREMENT AND THAT THE CONTRACTOR'S FAILURE TO FURNISH THE PERFORMANCE AND PAYMENT BONDS COULD NOT BE EXCUSED SO AS TO PERMIT THE DEFAULT TERMINATION TO BE CONVERTED INTO A TERMINATION OF THE CONTRACT FOR THE CONVENIENCE OF THE GOVERNMENT.

THE BOARD ALSO REJECTED A CONTENTION THAT THE CONTRACT WAS VOID BECAUSE THE CONTRACTOR'S BID BOND, EXECUTED ON STANDARD FORM 24, WITH INDIVIDUAL SURETIES, WAS NOT ACCOMPANIED WITH AN EXECUTED STANDARD FORM 28 IN JUSTIFICATION OF THE FINANCIAL RESPONSIBILITY OF THE TWO INDIVIDUAL SURETIES WHO SIGNED THE BID BOND. THE BOARD DETERMINED THAT THE ABSENCE OF AN EXECUTED STANDARD FORM 28 WAS PROPERLY WAIVED AS A MINOR IRREGULARITY IN BID. WE HAD CERTAIN RESERVATIONS RESPECTING SUCH DETERMINATION IN VIEW OF OUR DECISION OF FEBRUARY 5, 1959, 38 COMP. GEN. 532, ON THE SUBJECT OF BID BOND REQUIREMENTS UNDER FORMALLY ADVERTISED PROCUREMENTS. HOWEVER, YOU WERE ADVISED THAT NEITHER THE RULE SET FORTH IN THAT DECISION NOR ANY ADMINISTRATIVE REGULATION CONCERNING A REQUIREMENT FOR THE SUBMISSION OF AN EXECUTED STANDARD FORM 28 WITH A BID BOND SIGNED BY INDIVIDUAL SURETIES WOULD PROVIDE A SUFFICIENT LEGAL BASIS FOR HOLDING THAT THE CONTRACT WAS NOT BINDING UPON THE FACILITIES MAINTENANCE CORPORATION.

IN REQUESTING RECONSIDERATION OF THE MATTER, YOU SUBMITTED PERTINENT PARTS OF BRIEFS FILED WITH THE ARMED SERVICES BOARD OF CONTRACT APPEALS CONCERNING THE CONTENTION THAT THE CONTRACT IS VOID AND THAT PAYMENT FOR THE SERVICES RENDERED DURING DECEMBER 1962 AND JANUARY 1963 SHOULD BE MADE ON A QUANTUM MERUIT BASIS. THE BRIEFS APPEAR TO PRESENT REASONABLE ARGUMENTS IN SUPPORT OF THE VIEW THAT THE BID OF THE FACILITIES MAINTENANCE CORPORATION SHOULD NOT HAVE BEEN ACCEPTED BY THE CONTRACTING OFFICER, BUT WE REMAIN OF THE OPINION THAT THE CONTRACT ONCE AWARDED ON THE BASIS OF THAT BID MUST BE CONSIDERED AS HAVING BEEN LEGALLY ENFORCEABLE AGAINST THE FACILITIES MAINTENANCE CORPORATION. SEE THE DECISIONS CITED IN THE SECOND TO THE LAST PARAGRAPH OF OUR DECISION DATED APRIL 20, 1965.

ALTHOUGH YOUR LETTER REFERRED TO THE POSSIBILITY THAT CERTAIN TESTIMONY MIGHT BE OBTAINED FROM ONE OF THE INDIVIDUAL SURETIES AT A CREDITORS' MEETING SCHEDULED ON APRIL 27, 1965, BEFORE THE REFEREE IN BANKRUPTCY, WE HAVE NOT BEEN FURNISHED ADDITIONAL INFORMATION IN THAT REGARD AND IT DOES NOT APPEAR THAT ANY SUCH TESTIMONY WOULD AFFECT OUR FINAL CONCLUSION RESPECTING THE VALIDITY OF THE CONTRACT.

YOU STATE THAT THE DECISION OF THE ARMED SERVICES BOARD OF CONTRACT APPEARS, AS WELL AS THE DECISION OF OUR OFFICE, SIMPLY PUNISHES THE CREDITORS OF THE BANKRUPT BY GIVING THE GOVERNMENT A WINDFALL AT THEIR EXPENSE. HOWEVER, THE EQUITIES OF THE CASE DO NOT APPEAR TO BE MATERIALLY DIFFERENT FROM THOSE OF THE USUAL CASE WHERE A GOVERNMENT CONTRACT HAS BEEN TERMINATED FOR DEFAULT, THE CONTRACTOR BECOMES INVOLVED IN A BANKRUPTCY PROCEEDING AND THE GOVERNMENT EXERCISES ITS RIGHT TO APPLY THE AMOUNT EARNED BY THE CONTRACTOR AGAINST THE EXCESS COST OF PROCUREMENT OF THE BALANCE OF THE CONTRACT SUPPLIES OR SERVICES FROM OTHER SOURCES. ANY EVENT, WE WOULD BE REQUIRED TO FOLLOW IN THIS CASE THE ESTABLISHED RULE THAT, WITHOUT A COMPENSATING BENEFIT TO THE GOVERNMENT, ITS AGENTS AND OFFICERS HAVE NO AUTHORITY TO DISPOSE OF THE MONEY OR PROPERTY OF THE UNITED STATES, TO MODIFY EXISTING CONTRACTS OR TO SURRENDER OR WAIVE CONTRACT RIGHTS THAT HAVE VESTED IN THE UNITED STATES. SIMPSON V. UNITED STATES, 172 U.S. 372; UNITED STATES V. AMERICAN SALES CORP., 27 F.2D 389, AFFIRMED, 32 F.2D 141, CERTIORARI DENIED, 280 U.S. 574; PACIFIC HARDWARE CO. V. UNITED STATES, 49 CT.CL. 327; BAUSCH AND LOMB OPTICAL CO. V. UNITED STATES, 78 CT.CL. 584.

ACCORDINGLY, OUR DECISION OF APRIL 20, 1965, INDICATING THAT THE CONTRACTOR'S ACTUAL EXCESS COST LIABILITY SHOULD BE DETERMINED BY THE DEPARTMENT OF THE ARMY, AND THAT THE DEPARTMENT SHOULD TAKE APPROPRIATE ACTION WITH RESPECT TO THE DIFFERENCE BETWEEN THE AMOUNT OF SUCH LIABILITY AND THE SUM WITHHELD FROM PAYMENT TO THE CONTRACTOR FOR SERVICES RENDERED PRIOR TO THE DEFAULT, IS HEREBY AFFIRMED.