B-194931, APR 10, 1980

DIGEST: MILLER ACT SURETY WHICH HAD OPPORTUNITY TO PROTECT OWN INTERESTS REGARDING EXPENDITURES ALLEGEDLY INCURRED AFTER RESPONDING TO GOVERNMENT "CLAIMS OF DEFECTIVE WORKMANSHIP" HAS NOT ESTABLISHED ENTITLEMENT TO CONTRACT RETAINAGE HELD BY GOVERNMENT.

DEPARTMENT OF THE INTERIOR - REQUEST FOR ADVANCE DECISION:

THE DEPARTMENT OF THE INTERIOR (INTERIOR) HAS REQUESTED AN ADVANCE DECISION AS TO WHETHER CONTRACT RETAINAGES UNDER A CONSTRUCTION CONTRACT NO. CX-9000-3-0087, AWARDED BY THE NATIONAL PARK SERVICE, PACIFIC NORTHWEST REGION, SHOULD BE PAID TO THE CONTRACTOR'S SURETY OR TO THE INTERNAL REVENUE SERVICE (IRS), IN SATISFACTION OF A TAX LEVY AGAINST THE CONTRACTOR. THE SURETY, NATIONAL SURETY CORPORATION, CLAIMS PRIORITY OVER IRS UNDER ITS PERFORMANCE BOND.

THE CONTRACTOR, IRVIN AND COMPANY (IRVIN) ENTERED INTO THIS CONTRACT FOR THE CONSTRUCTION OF CERTAIN FACILITIES AT MCKINLEY NATIONAL PARK ON MARCH 7, 1973. DURING THE COURSE OF THE CONSTRUCTION A DISPUTE AROSE REGARDING THE SCOPE OF THE WORK REQUIRED UNDER THE CONTRACT. IRVIN EVENTUALLY COMPLETED THE CONSTRUCTION TO THE SATISFACTION OF THE GOVERNMENT, AFTER ALLEGEDLY INCURRING ADDITIONAL EXPENSES IN AN AMOUNT IN EXCESS OF $150,000 AS THE RESULT OF PERFORMING THE DISPUTED WORK. SOME OF THIS EXPENSE RESULTED FROM CHANGES DIRECTED DURING THE COURSE OF INITIAL CONSTRUCTION, AND THE REMAINDER WAS INCURRED IN THE FALL OF 1973 WHEN THE CONTRACTOR WAS REQUIRED TO RECTIFY CERTAIN CONSTRUCTION DEFICIENCIES.

IN THIS REGARD, THE SURETY ALLEGES THAT IT WAS CONTACTED AND "REQUESTED TO RESPOND TO CLAIMS OF DEFECTIVE WORKMANSHIP IN THE FALL OF 1973," AND THAT IT "EXPENDED FUNDS IN COMPLETING WORK WHICH WAS LATER CLAIMED TO BE OUTSIDE THE SCOPE OF THE WORK." THE SURETY ADVISED THE CONTRACTING OFFICER BY LETTER DATED OCTOBER 19, 1973, OF ITS INTEREST IN THE CONTRACT RETAINAGES. FINALLY THE SURETY ASSERTS THAT NO QUESTION EXISTED IN THE MIND OF THE CONTRACTING OFFICER, NATIONAL SURETY AND THE CONTRACTOR THAT THE WORK WHICH THE GOVERNMENT WAS INSISTING BE DONE AFTER AUGUST 3, 1973 (SIC) (THE WORK WAS COMPLETED IN 1973) WAS DONE THROUGH THE FINANCIAL PARTICIPATION AND OTHER ASSISTANCE OF THE SURETY."

THE IRS SERVED THREE NOTICES OF LEVY ON THE CONTRACTING OFFICER (ON DECEMBER 3, 1973, JANUARY 29, 1974, AND NOVEMBER 11, 1974) DEMANDING PAYMENT FROM CONTRACT RETAINAGES FOR TAXES OUTSTANDING AGAINST IRVIN. THE DEPARTMENT OF THE INTERIOR PAID THE FIRST TWO SUCH LEVIES (FOR A TOTAL OF $29,576.94), BUT WITHHELD PAYMENT OF THE THIRD LEVY FOR $6,164.09 AFTER NATIONAL ASSERTED THAT IT HAD A PRIORITY CLAIM TO THE REMAINING $6,329.60 CONTRACT RETAINAGE.

THE ALLEGEDLY ADDITIONAL WORK EVENTUALLY BECAME THE SUBJECT OF AN APPEAL TO THE INTERIOR BOARD OF CONTRACT APPEALS. INCLUDED IN THE CLAIM WAS THE WORK WHICH THE SURETY ASSERTS WAS COMPLETED PURSUANT TO ITS PERFORMANCE BOND. BY SETTLEMENT AGREEMENT DATED MARCH 6, 1979, IRVIN AND THE DEPARTMENT OF THE INTERIOR AGREED TO SETTLE THE CLAIM FOR $75,000. IT WAS EXPRESSLY AGREED THAT THE $6,329.63 IN DISPUTED RETAINAGE WAS NOT PART OF THE SETTLEMENT, AND THAT FINAL DISPOSITION OF THIS SUM REMAINED AT ISSUE. THE $75,000 PAYMENT WAS SENT TO THE CONTRACTOR AT THE SURETY'S SEATTLE, WASHINGTON, OFFICE.

IT IS WELL SETTLED THAT A MILLER ACT SURETY WHICH HAS COMPLETED PERFORMANCE OF A CONTRACT AFTER DEFAULT BY A CONTRACTOR IS ENTITLED TO WITHHELD FUNDS FREE OF SETOFF. TRINITY UNIVERSAL INSURANCE COMPANY V. UNITED STATES, 382 F.2D 317 (1967); SECURITY INSURANCE COMPANY OF HARTFORD V. UNITED STATES, 428 F.2D 838 (1970); AETNA CASUALTY AND SURETY COMPANY V. UNITED STATES, 435 F.2D 1082 (1970). IT IS ALSO SETTLED LAW THAT IF SUCH A SURETY EXPENDS MONEY UNDER A PAYMENT BOND, THE GOVERNMENT MAY SET OFF AGAINST RETAINAGES DUE THE CONTRACTOR FOR DEBTS OWED TO IT BY THE CONTRACTOR EVEN AS A RESULT OF SEPARATE AND INDEPENDENT TRANSACTIONS. UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234 (1947).

THE SURETY HERE ARGUES THAT IT IS A COMPLETING SURETY AND THEREFORE HAS A PRIORITY CLAIM TO THE RETAINAGE. HOWEVER, AS A PREREQUISITE TO ENTITLEMENT TO ANY PAYMENT FROM CONTRACT RETAINAGES FOR MONEY PROVIDED UNDER EITHER THE PAYMENT OR PERFORMANCE BOND, THE SURETY MUST ESTABLISH THAT IT HAS EXPENDED MORE THAN IT HAS ALREADY RECEIVED FROM THE GOVERNMENT IN REIMBURSEMENT. SEE PEARLMAN V. RELIANCE INSURANCE CO., 371 U.S. 132 (1962); TRAVELERS INDEMNITY COMPANY - RECONSIDERATION, B-187456, MARCH 8, 1977, 77-1 CPD 169.

WE HAVE REVIEWED THE EXPENSES ALLEGEDLY INCURRED BY THE CONTRACTOR, AS BROKEN DOWN IN A LETTER AND EXHIBITS BY IRVIN TO INTERIOR, DATED DECEMBER 12, 1974, WHICH SETS FORTH THE CLAIM WHICH FORMED THE BASIS OF THE ABOVE- REFERENCED $75,000 COMPROMISE. WE NOTE THAT THE MAJORITY OF THE EXPENSES RELATE TO ALLEGEDLY "ADDITIONAL" WORK PERFORMED PRIOR TO THE DATE THE SURETY CLAIMS IT WAS CALLED UPON TO STEP IN. THE ONLY ITEMS CLAIMED WHICH SPECIFICALLY RELATE TO ANY WORK PERFORMED SUBSEQUENT TO JUNE 1973 (I.E., WORK DONE IN "FALL" OF 1973) ARE AS FOLLOWS:

1. "TRAVEL AND EXPEDITE MATERIAL AND TOOLS"

(9/23/73 - 10/17/73) $ 4,336.00

2. "RELEVELING LOBBY"

(9/24/73 - 10/18/73) $11,769.00

3. "REPAIR SHEET ROCK AND WAINSCOAT" $ 8,220.00

4. "LEVELING DESK" $ 636.00

5. "REPLACE AND REALIGN TRIM, DOORS, JAMBS" $ 5,959.00

6. "REPLACE STEPS" $ 1,000.00

7. "CLEANUP AND MOVE OUT" $ 7,450.00

TOTAL $39,370.00

THUS A TOTAL OF ONLY $39,370 IS ALLEGED TO HAVE BEEN SPENT AFTER THE DATE THE SURETY ASSERTS IT STEPPED IN TO COMPLETE THE JOB.

SINCE THE $75,000 SETTLEMENT PAYMENT WAS DIRECTED TO THE SURETY'S OFFICE, WE BELIEVE IT HAD AN AMPLE OPPORTUNITY TO PROTECT ITS OWN INTERESTS INSOFAR AS THE $39,370 IS CONCERNED, AND THERE IS NOTHING ON THE RECORD TO INDICATE WHY THE SURETY'S CLAIM HAS NOT BEEN SATISFIED. ACCORDINGLY, WE DO NOT BELIEVE THE SURETY HAS ESTABLISHED ENTITLEMENT TO THE $6,370 IN UNDISBURSED CONTRACT RETAINAGES. CONTRACT THAT WAS TO BE THE "VEHICLE" FOR USE IN SUBMITTING A BEST AND FINAL OFFER, AND WHICH CHANGED THE PROGRESS PAYMENTS PROVISION TO AUTHORIZE PAYMENT OF COSTS INCURRED AGAINST BOTH THE FIRST ARTICLE AND THE PRODUCTION UNITS UP TO 60 PERCENT OF THE TOTAL CONTRACT PRICE. THE CHANGE WAS IN RESPONSE TO REQUESTS MADE DURING NEGOTIATIONS, AND THE RECORD SHOWS THAT THE OFFERORS HAD BEEN ADVISED IN MAY THAT SUCH AUTHORIZATION WAS BEING CONSIDERED.

COMTECH, WHICH HAS NEVER PRODUCED AN/TRC-97A RADIO SETS, ARGUES THAT BY REQUIRING THE FIRST ARTICLE AND ALL PRODUCTION UNITS TO BE FURNISHED ESSENTIALLY AT THE SAME TIME WITH ONLY 60 PERCENT PROGRESS PAYMENTS, THE NAVY UNDULY NECESSITATED AN OFFEROR TO COMMIT SUBSTANTIAL PRODUCTION COSTS WITHOUT ASSURANCE THAT ITS FIRST ARTICLE WOULD BE APPROVED. COMTECH PROTESTS THAT THE RFP THUS GAVE AYDIN A DISTINCT COMPETITIVE ADVANTAGE, SINCE, AS A PRIOR PRODUCER, THAT FIRM PRESUMABLY WOULD NOT NEED FIRST ARTICLE APPROVAL IF AWARDED THE CONTRACT AND THUS COULD PREPARE A PROPOSAL WITHOUT CONSIDERATION OF THE SAME COST RISK AS A FIRST-TIME PRODUCER WOULD FACE.

HOWEVER, SECTION 20.2(B)(1) OF OUR PROCEDURES REQUIRES THAT A PROTEST ALLEGING AN IMPROPRIETY IN AN RFP BE FILED PRIOR TO THE NEXT CLOSING DATE FOR THE RECEIPT OF PROPOSALS AFTER THE ALLEGED IMPROPRIETY BECOMES APPARENT. HERE, THE BASIS FOR PROTEST - THE COMBINATION OF THE FIRST ARTICLE REQUIREMENT, THE COMPRESSED DELIVERY SCHEDULE IMPOSED BY AMENDMENT 0005, AND THE 60 PERCENT PROGRESS PAYMENT LIMITATION - WERE EVIDENT TO COMTECH AT THE LATEST WHEN THE FIRM RECEIVED THE REQUEST FOR BEST AND FINAL OFFERS, SINCE IT WAS THAT REQUEST THAT ESTABLISHED THE SUBJECT PROGRESS PAYMENT LIMITATION. IN FACT, THE NAVY ARGUES THAT UNDER SECTION 20.2(B)(1) THE PROTEST SHOULD HAVE BEEN FILED BY JULY 30 WHEN REVISED PROPOSALS IN RESPONSE TO AMENDMENT 0005 WERE DUE, SINCE PROGRESS PAYMENTS WERE AT THAT TIME CONSIDERABLY MORE LIMITED. THE NAVY POINTS OUT THAT THE AUTHORIZATION OF PROGRESS PAYMENTS UP TO 60 PERCENT OF THE TOTAL CONTRACT PRICE AGAINST BOTH FIRST ARTICLE AND PRODUCTION COSTS REPRESENTED A SIGNIFICANT INCREASE FROM THE INITIAL LIMITATION OF 10 PERCENT OF TOTAL CONTRACT PRICE AGAINST FIRST ARTICLE COSTS ONLY; WAS DONE PRECISELY TO ACCOMMODATE FIRST-TIME PRODUCERS; AND COMTECH WAS AWARE OF THE POSSIBILITY OF THAT ACTION IN LATE MAY OF 1979 BUT FAILED TO COMPLAIN THEN.

ACCORDINGLY, AND SINCE AS STATED ABOVE THE PROTEST WAS NOT FILED IN OUR OFFICE UNTIL AFTER THE TIME SET BY THE NAVY FOR THE RECEIPT OF BEST AND FINAL OFFERS, IT IS UNTIMELY UNDER SECTION 20.2(B)(1).

WE NOTE HERE THAT COMTECH SUGGESTS THAT SINCE THE PROTEST WAS FILED WITHIN 10 WORKING DAYS AFTER RECEIPT OF THE NAVY'S REQUEST FOR BEST AND FINAL OFFERS, IT IS TIMELY UNDER SECTION 20.2(B)(2) OF OUR PROCEDURES, WHICH REQUIRES THAT A PROTEST BE FILED WITHIN 10 WORKING DAYS AFTER THE BASIS THEREFOR IS KNOWN. HOWEVER, THAT PROVISION BY ITS TERMS APPLIES ONLY TO SITUATIONS NOT ADDRESSED BY SECTION 20.2(B)(1) OF OUR PROCEDURES, I.E., WHERE THE PROTEST INVOLVES SOMETHING OTHER THAN AN ALLEGED IMPROPRIETY ON THE FACE OF A SOLICITATION.

AMBIGUITY AS TO RESPONSIBILITY FOR THE COST AND DELIVERY SCHEDULE IMPACT OF REVISIONS TO GOVERNMENT-FURNISHED DRAWINGS

SECTION F OF THE RFP, THE STATEMENT OF WORK, LISTED A NUMBER OF DRAWINGS, ENGINEERING LISTS, AND MANUAL BY MILITARY SPECIFICATION NUMBER, MILITARY STANDARD NUMBER, OR AIR FORCE MANUAL NUMBER. SECTION 3.8 THEREOF PROVIDED THAT "THE CONTRACTOR SHALL DEVELOP REVISIONS AND CHANGES TO THE GOVERNMENT -FURNISHED ENGINEERING DRAWINGS AND ASSOCIATED LISTS, AND NEW DRAWINGS AND LISTS IF REQUIRED BY ENGINEERING CHANGES ***."

SECTION J OF THE RFP STATED THAT AT THE CONTRACTOR'S REQUEST THE GOVERNMENT WOULD FURNISH AN AN/TRC-97A RADIO SET ACQUIRED IN AN EARLIER PROCUREMENT AS A PRODUCTION MODEL, AND COPIES OF TECHNICAL MANUALS OR "OTHER PRINTED MATTER." THE SECTION ALSO PROVIDED THE FOLLOWING DISCLAIMER:

"*** THE GOVERNMENT DOES NOT REPRESENT THAT ANY OF THE GOVERNMENT FURNISHED PROPERTY MEETS THE REQUIREMENTS OF THE CONTRACT IN EVERY RESPECT NOR DOES IT REPRESENT THAT ANY DRAWINGS OR OTHER PRINTED MATTER FURNISHED ARE COMPLETE, ACCURATE OR LEGIBLE *** OR THAT EQUIPMENT MADE IN ACCORDANCE WITH THE GOVERNMENT FURNISHED PROPERTY *** WILL MEET THE PERFORMANCE OR OTHER REQUIREMENTS OF THIS CONTRACT ***."

AMENDMENT 0003 ADDED TO SECTION J THAT "THIS DISCLAIMER CLAUSE APPLIES ONLY TO THE AN/TRC-97A PRODUCTION MODEL LISTED ABOVE UNDER GOVERNMENT PROPERTY."

COMTECH PROTESTS THAT RFP SECTIONS F AND J IN COMBINATION ARE UNCLEAR "IN THAT THE DISCLAIMER CLAUSE NOW (AS MODIFIED BY AMENDMENT 0003) CLEARLY INDICATED THE GOVERNMENT'S LACK OF RESPONSIBILITY FOR THE PRODUCTION MODEL BUT DID NOT CLARIFY WHAT THE GOVERNMENT'S RESPONSIBILITY FOR DRAWINGS WOULD BE IN CONJUNCTION WITH PARAGRAPH 3.8 (OF THE STATEMENT OF WORK) ***." THE PROTESTER ARGUES:

"*** ALTHOUGH COMTECH HAS ASSUMED THAT THE GOVERNMENT WILL BE RESPONSIBLE FOR THE COST AND/OR SCHEDULE IMPACT ASSOCIATED WITH ANY DRAWING CHANGES AFTER CONTRACT AWARD, THIS ISSUE IS NOT ENTIRELY CLEAR. *** AS A RESULT OF THIS AMBIGUITY, THERE IS A MAJOR QUESTION AS TO WHETHER ALL OFFERORS ARE PROPOSING ON THE SAME BASIS (I.E., WHO IS RESPONSIBLE FOR THE COST OF DRAWING REVISIONS?)."

HOWEVER, THIS ALLEGED AMBIGUITY CERTAINLY WAS APPARENT FROM THE INITIAL RFP, WHICH DID NOT ADDRESS THE RESPONSIBILITY FOR THE COST OR OTHER IMPACT OF DRAWING REVISIONS AT ALL, OR AT THE LATEST FROM AMENDMENT 0003 TO THE EXTENT THAT THE ASSERTED PROBLEM AROSE BECAUSE THAT AMENDMENT ONLY PARTIALLY ADDRESSED THE ISSUE. AS STATED AT THE OUTSET, AMENDMENT 0003 WAS ISSUED BEFORE INITIAL PROPOSALS ULTIMATELY WERE DUE, WHICH DATE WAS ESTABLISHED BY AMENDMENT 0004 AS MAY 31. THUS, UNDER SECTION 20.2(B)(1) OF OUR PROCEDURES THE PROTEST ON THIS ISSUE SHOULD HAVE BEEN FILED PRIOR TO MAY 31. SINCE IT WAS NOT FILED UNTIL NOVEMBER 13, IT IS UNTIMELY AND NOT FOR CONSIDERATION ON THE MERITS.

COMTECH SUGGESTS THAT IF THE PROTEST ON EITHER ISSUE IS DETERMINED TO HAVE BEEN UNTIMELY FILED, IT SHOULD BE CONSIDERED UNDER SECTION 20.2(C) OF OUR PROCEDURES, WHICH ALLOWS THE CONSIDERATION OF UNTIMELY PROTESTS "FOR GOOD CAUSE SHOWN" OR WHERE THE PROTEST "RAISES ISSUES SIGNIFICANT TO PROCUREMENT PRACTICES OR PROCEDURES." COMTECH ARGUES THAT ITS PROTEST MEETS THAT EXCEPTION TO OUR TIMELINESS RULES IN THAT IT INVOLVES THE "UNFAIRNESS OF *** GOVERNMENT ACTIONS AND THE SUBSEQUENT UNFAIR ADVANTAGE OF FIRST-TIME PRODUCERS OVER NON-FIRST-TIME PRODUCERS."

HOWEVER, "GOOD CAUSE" GENERALLY REFERS TO SOME COMPELLING REASON BEYOND THE PROTESTER'S CONTROL WHICH PREVENTED THE FILING OF A TIMELY PROTEST. 52 COMP.GEN. 20 (1972). CLEARLY, THAT SITUATION IS NOT INVOLVED HERE.

IN ADDITION, SIGNIFICANT ISSUES CONTEMPLATED BY SECTION 20.2(C) ARE THOSE WHICH INVOLVE PROCUREMENT PRINCIPLES OF WIDESPREAD INTEREST OR WHICH AFFECT A BROAD CLASS OF PROCUREMENTS. LOUD ENGINEERING AND MANUFACTURING, INC., B-195189, DECEMBER 27, 1979, 79-2 CPD 439. IN OUR VIEW, THE ALLEGATIONS RAISED BY COMTECH AS SET OUT ABOVE DO NOT FALL WITHIN THAT EXCEPTION.

THE PROTEST IS DISMISSED.