B-167635, NOV 18, 1975

B-167635: Nov 18, 1975

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PURPOSE OF PROVISION IN 41 U.S.C. 255 (1970) AUTHORIZING ADVANCE PAYMENTS UNDER GOVERNMENT CONTRACTS IS TO SECURE CONTRACT PERFORMANCE. WHETHER AGENCY MAY ACCEPT REPAYMENT BOND FROM CONTRACTOR AS GUARANTEE FOR PAYMENT OF COUNTERCLAIM BY AGENCY IN CONNECTION WITH CONTRACT DISPUTE CURRENTLY PENDING BEFORE BOARD OF CONTRACT APPEALS IS MATTER WITHIN DISCRETION OF HEAD OF AGENCY SINCE. AGENCY IS ADVISED TO REQUIRE PAYMENT OF INTEREST BY CONTRACTOR FOR ANY USE OF FUNDS NOT SET OFF. THIS BOND WOULD BE RECEIVED IN EXCHANGE FOR THE RELEASE OF FUNDS RETAINED AS A GUARANTEE OF PAYMENT OF USIA COUNTERCLAIMS WHICH ARE CURRENTLY PENDING BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS. HAS CLAIMED $3 MILLION BASED ON AN ALLEGED CONSTRUCTIVE CHANGE IN PROCEDURES TO ERECT HIGH FREQUENCY ANTENNA RADIO TOWERS CAUSED BY A SPECIFIED STEEL THAT PURPORTEDLY WAS UNSUITABLE FOR ITS INTENDED USE.

B-167635, NOV 18, 1975

1. PURPOSE OF PROVISION IN 41 U.S.C. 255 (1970) AUTHORIZING ADVANCE PAYMENTS UNDER GOVERNMENT CONTRACTS IS TO SECURE CONTRACT PERFORMANCE. PROVISION DOES NOT AUTHORIZE ACCEPTANCE OF REPAYMENT BOND FOR RELEASE OF CONTRACT FUNDS, CLAIMED IN LITIGATION BY CONTRACTOR, UNDER COMPLETED GOVERNMENT CONTRACT. 2. WHETHER AGENCY MAY ACCEPT REPAYMENT BOND FROM CONTRACTOR AS GUARANTEE FOR PAYMENT OF COUNTERCLAIM BY AGENCY IN CONNECTION WITH CONTRACT DISPUTE CURRENTLY PENDING BEFORE BOARD OF CONTRACT APPEALS IS MATTER WITHIN DISCRETION OF HEAD OF AGENCY SINCE, CONSISTENT WITH CLAIMS COLLECTION ACT OF 1966 AND IMPLEMNTING REGULATIONS, HEAD OF AGENCY HAS AUTHORITY TO DETERMINE APPROPRIATE MEANS OF DEBT COLLECTION. HOWEVER, AGENCY IS ADVISED TO REQUIRE PAYMENT OF INTEREST BY CONTRACTOR FOR ANY USE OF FUNDS NOT SET OFF.

UNITED STATES INFORMATION AGENCY:

BY LETTER OF APRIL 18, 1975, THE UNITED STATES INFORMATION AGENCY (USIA) REQUESTS AN ADVANCE DECISION AS TO WHETHER IT HAS THE DISCRETIONARY AUTHORITY TO ACCEPT A REPAYMENT BOND. THIS BOND WOULD BE RECEIVED IN EXCHANGE FOR THE RELEASE OF FUNDS RETAINED AS A GUARANTEE OF PAYMENT OF USIA COUNTERCLAIMS WHICH ARE CURRENTLY PENDING BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS. IN THAT LITIGATION PAGE COMMUNICATIONS ENGINEERS, INC. HAS CLAIMED $3 MILLION BASED ON AN ALLEGED CONSTRUCTIVE CHANGE IN PROCEDURES TO ERECT HIGH FREQUENCY ANTENNA RADIO TOWERS CAUSED BY A SPECIFIED STEEL THAT PURPORTEDLY WAS UNSUITABLE FOR ITS INTENDED USE. THE GOVERNMENT'S COUNTERCLAIM IS BASED ON (1) RECOVERY OF THE COST OF USIA'S INVESTIGATION TO DEMONSTRATE THE ADEQUACY OF THE DESIGN FOR THE TOWERS; (2) THE REDUCTION IN CONTRACT PRICE FOR THE ACCEPTANCE OF NONCONFORMING WELDS; AND (3) LIQUIDATED DAMAGES FOR LATE DELIVERY.

TO GUARANTEE PAYMENT FOR ITS COUNTERCLAIM, THE GOVERNMENT HAS RETAINED $685,000 FROM PAYMENTS OTHERWISE DUE PAGE COMMUNICATIONS UNDER THE CONTRACT. PAGE COMMUNICATIONS HAS OFFERED A REPAYMENT BOND WITH PAYMENT GUARANTEED BY A SURETY ON THE TREASURY DEPARTMENT'S APPROVED LIST IN EXCHANGE FOR THE RELEASE OF THE FUNDS WITHHELD. IN ADDITION, COUNSEL FOR PAGE COMMUNICATIONS HAS INFORMED THIS OFFICE THAT A BOND COULD BE DRAWN TO INCLUDE SUCH CONDITIONS AS THIS OFFICE MAY DETERMINE ARE REQUIRED.

IN B-71886, JANUARY 28, 1948, A REQUEST TO SUBSTITUTE A BOND FOR FUNDS WITHHELD FROM A COMPANY WAS DENIED ON THE BASIS THAT THERE WAS NO SPECIFIC AUTHORITY OF LAW TO ACCEPT A BOND OF INDEMNITY AS SECURITY FOR THE PAYMENT OF AMOUNTS CLAIMED BY THE GOVERNMENT. IN ADDITION, OTHER CONSIDERATIONS WERE CITED FOR DENYING THE REQUEST: (1) THE UNITED STATES WOULD BE DEPRIVED OF THE USE OF THE AMOUNT INVOLVED FOR AN INDEFINITE PERIOD OF TIME IN ORDER TO CONFER AN EQUAL BENEFIT UPON THE CONTRACTOR; AND (2) THE UNITED STATES MIGHT BE REQUIRED TO INITIATE LEGAL PROCEEDINGS TO SECURE PAYMENT UNDER THE BOND. IT WAS CONCLUDED THAT SETOFF WAS NECESSARY TO PROTECT THE INTERESTS OF THE UNITED STATES, ESPECIALLY IN CASES OF DISPUTED LIABILITY.

USIA HAS ASKED WHETHER THE RIGHT TO EXERCISE AGENCY DISCRETION IN ACCEPTING THE PROPOSED REPAYMENT BOND HAS BEEN EXTINGUISHED BY THE ABOVE DECISION OR WHETHER COMPELLING REASONS COULD JUSTIFY ACCEPTANCE OF THE BOND.

IN THIS CONNECTION, COUNSEL FOR THE CONTRACTOR ARGUES THAT RELEASE OF THE CONTRACT FUNDS WITHHELD IS AUTHORIZED UNDER 41 U.S.C. 255 (1970), AS AN ADVANCE PAYMENT IN THE CASE OF CONTRACTS FOR PROPERTY OR SERVICES. SECTION 1-30.104 OF THE FEDERAL PROCUREMENT REGULATIONS (1963 ED.), HOWEVER, DEFINES ADVANCE PAYMENTS AS "ADVANCES OF MONEY, MADE BY THE GOVERNMENT TO A CONTRACTOR PRIOR TO, IN ANTICIPATION OF, AND FOR THE PURPOSE OF COMPLETE PERFORMANCE UNDER A CONTRACT OR CONTRACTS." SINCE PERFORMANCE OF THE SUBJECT CONTRACT HAS BEEN COMPLETED, RELEASE OF THE FUNDS CANNOT BE CONSIDERED AS AN ADVANCE PAYMENT. THUS WE DO NOT AGREE WITH COUNSEL THAT 41 U.S.C. 255 (1970) AUTHORIZES RELEASE OF THE DISPUTED FUNDS.

HOWEVER, WE NOTE THAT THE FEDERAL CLAIMS COLLECTION ACT OF 1966, PUB. L. 89-805, 31 U.S.C. 952 (1970), WHICH WAS ENACTED "TO AVOID UNNECESSARY LITIGATION OF THE UNITED STATES," PROVIDES THAT THE HEAD OF AN AGENCY, PURSUANT TO REGULATIONS PRESCRIBED JOINTLY BY THE ATTORNEY GENERAL AND THE COMPTROLLER GENERAL, SHALL ATTEMPT TO COLLECT ALL CLAIMS OF THE UNITED STATES ARISING OUT OF THE ACTIVITIES OF, OR REFERRED TO, HIS AGENCY. C.F.R. SEC. 102.3 (1974) PRESCRIBES THE STANDARD UNDER THE ACT FOR THE ADMINISTRATIVE COLLECTION OF CLAIMS.

"COLLECTION BY OFFSET WILL BE UNDERTAKEN ADMINISTRATIVELY ON CLAIMS WHICH ARE LIQUIDATED OR CERTAIN IN AMOUNT IN EVERY INSTANCE IN WHICH THIS IS FEASIBLE."

UNDER THIS STANDARD THE HEAD OF AN AGENCY SHOULD DETERMINE IN EACH INSTANCE WHETHER THE CLAIM IS LIQUIDATED OR CERTAIN IN AMOUNT AND WHETHER COLLECTION BY SETOFF IS FEASIBLE. IN DETERMINING WHETHER SETOFF IS FEASIBLE, THE AGENCY SHOULD CONSIDER NOT ONLY WHETHER SETOFF CAN BE ACCOMPLISHED BUT ALSO WHETHER IT WOULD BE BEST SUITED TO PROTECT THE GOVERNMENT'S INTERESTS. IF THE DETERMINATION IS MADE THAT SETOFF IS NOT FEASIBLE, THE AGENCY SHOULD CONSIDER OTHER MEANS OF COLLECTION TO PROTECT THE GOVERNMENT'S INTERESTS. AS STATED ABOVE, THE CLAIMS COLLECTION ACT PROVIDES THAT THE HEAD OF THE AGENCY MAY PRESCRIBE REGULATIONS, IN CONFORMITY WITH THE STANDARDS PROMULGATED BY THE ATTORNEY GENERAL AND OUR OFFICE, PERTAINING TO THE COLLECTION OF CLAIMS BY HIS AGENCY. SEE, FOR EXAMPLE, ARMED SERVICES PROCUREMENT REGULATION, APPENDIX E, SECTIONS E-610 ET SEQ.

IN VIEW OF THE 1966 ACT AND IMPLEMENTING REGULATIONS, IT IS CLEAR THAT THE HEAD OF AN AGENCY HAS AUTHORITY TO DETERMINE WHETHER COLLECTION BY SETOFF IS FEASIBLE OR WHETHER OTHER MEANS OF COLLECTION ARE APPROPRIATE. THEREFORE, WE BELIEVE THAT OUR EARLIER DECISION, B 71886, IS NOT APPLICABLE TO THIS SITUATION AND THE HEAD OF AN AGENCY SHOULD DETERMINE THE MEANS OF COLLECTION WHICH IS APPROPRIATE, AFTER GIVING DUE CONSIDERATION TO THE FACTORS NOTED IN OUR PRIOR DECISION.

THEREFORE, WE CONCLUDE THAT THE USIA HAS THE DISCRETIONARY AUTHORITY TO ACCEPT A REPAYMENT BOND IN THE INSTANT SITUATION IF COLLECTION BY SETOFF IS DEEMED NOT TO BE FEASIBLE. IF A BOND IS ACCEPTED, HOWEVER, THE CONTRACTOR SHOULD BE REQUIRED TO PAY INTEREST FOR USE OF THE FUNDS WHICH ARE NOT WITHHELD OR SET OFF.

WHILE THE ISSUE HAS NOT BEEN PRESENTED TO US FORMALLY, A QUESTION MAY ARISE AS TO THE PROPER DISPOSITION OF POSSIBLE RECOVERIES UNDER THE BOND ACCEPTED IN LIEU OF SETOFF. WE DO NOT HAVE ENOUGH INFORMATION TO DECIDE WHETHER SUCH AMOUNTS SHOULD BE DEPOSITED IN MISCELLANEOUS RECEIPTS OR CREDITED TO THE APPROPRIATION AVAILABLE FOR PAYMENTS UNDER THE CONTRACT. HOWEVER, THE RESULT WOULD BE THE SAME WHETHER FUNDS ARE COLLECTED BY SETOFF OR UNDER THE BOND.

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