B-144680, NOV. 7, 1961

B-144680, NOV. 7, 1961

TO PEED AND WISE:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF JULY 11, 1961, PROTESTING THE DEMAND MADE UPON YOUR CLIENT, C. H. LEAVELL AND COMPANY, BY GENERAL SERVICES ADMINISTRATION FOR REIMBURSEMENT OF $42,719.04 FOR REAL ESTATE TAXES FOR 1960 INCIDENT TO THE CONSTRUCTION OF THE FEDERAL OFFICE BUILDING AT ALBUQUERQUE, NEW MEXICO.

AS INDICATED IN YOUR LETTER THE BUILDING WAS CONSTRUCTED UNDER AUTHORITY OF THE PUBLIC BUILDINGS PURCHASE CONTRACT ACT OF 1954, AS AMENDED, 40 U.S.C. 356. THE RECORD SHOWS THAT ON FEBRUARY 6, 1958, GENERAL SERVICES ADMINISTRATION ENTERED INTO CONTRACT GS-00-B-2784 (C) WITH YOUR CLIENT IN THE AMOUNT OF $4,017,000 FOR THE CONSTRUCTION OF BUILDINGS, STRUCTURES, EQUIPMENT, FIXTURES, ROADWAYS AND OTHER IMPROVEMENTS ON THE INVOLVED SITE. SIMULTANEOUSLY WITH THE EXECUTION OF THE CONSTRUCTION CONTRACT GSA ENTERED INTO CONTRACT NO. GS-00-B-2784 (F) WITH THE BANKERS LIFE COMPANY, DES MOINES, IOWA, THE INVESTOR, TO FINANCE THE IMPROVEMENTS DESCRIBED IN THE CONSTRUCTION CONTRACT. UNDER THE FINANCING CONTRACT "BUILDER" WAS DEFINED AS MEANING THE PERSON, COPARTNERSHIP, CORPORATION OR OTHER PRIVATE OR PUBLIC ENTITY "WHO, BY SEPARATE CONTRACT," AGREES TO FURNISH ALL LABOR, EQUIPMENT AND MATERIALS AND TO PERFORM THE WORK NECESSARY FOR THE CONSTRUCTION OF THE IMPROVEMENTS. UNDER THE CONSTRUCTION CONTRACT THE "INVESTOR" IS DEFINED AS MEANING THE INDIVIDUAL FIRM, OR CORPORATION "WHO, BY A SEPARATE CONTRACT" AS PRINCIPAL, AGENT, OR TRUSTEE AGREES TO PROVIDE THE FINANCING FOR THE CONSTRUCTION OF THE IMPROVEMENTS AND THE SALE THEREOF TO THE GOVERNMENT OVER THE TERM SPECIFIED IN TITLE III THEREOF AND WHO IS CO-OBLIGEE WITH THE GOVERNMENT ON THE BID AND PERFORMANCE BOND REQUIRED THEREUNDER.

TITLE II, ARTICLE 6, OF THE CONSTRUCTION CONTRACT FIXED THE COMPLETION DATE AS APRIL 1, 1960.

PARAGRAPH 13 OF THE GENERAL PROVISIONS ATTACHED TO AND EXPRESSLY MADE A PART OF THE CONSTRUCTION CONTRACT STATES IN PART THAT:

"WITHOUT ADDITIONAL EXPENSE TO THE GOVERNMENT THE BUILDER SHALL:

"/C) PAY DIRECTLY TO THE TAXING AUTHORITIES FOR AND ON BEHALF OF THE OWNER OF RECORD ALL REAL ESTATE TAXES WHICH ARE LAWFULLY ASSESSED, LEVIED, CONFIRMED, IMPOSED, BECOME A LIEN, OR BECOME PAYABLE WHILE THIS CONTRACT REMAINS IN FORCE.'

ARTICLE 1 (A), TITLE IV OF THE GENERAL CONDITIONS OF THE CONTRACT TO FINANCE PROVIDED THAT---

"THE GOVERNMENT SHALL PAY DIRECTLY TO THE TAXING AUTHORITIES FOR AND ON BEHALF OF THE OWNER OF RECORD ALL REAL ESTATE TAXES WHICH ARE LAWFULLY ASSESSED, LEVIED, CONFIRMED, IMPOSED, BECOME A LIEN, OR BECOME PAYABLE DURING THE TERM OF THE PURCHASE CONTRACT.'

WHILE THE SITE ON WHICH THE IMPROVEMENTS WERE CONSTRUCTED WAS OWNED BY THE GOVERNMENT, SUBPARAGRAPH (A) OF ARTICLE 4, TITLE III, OF THE CONTRACT TO FINANCE PROVIDED THAT THE INVESTOR SHOULD HOLD TITLE TO THE IMPROVEMENTS DURING THE CONSTRUCTION PERIOD AND DURING THE TIME OF THE PURCHASE CONTRACT. ACCORDINGLY, THE IMPROVEMENTS THUS BECAME SUBJECT TO LOCAL TAXATION AS PROVIDED FOR BY SECTION 411 (H) OF THE STATUTE AUTHORIZING THE CONSTRUCTION.

UNDER ARTICLE 2, TITLE II OF THE CONSTRUCTION CONTRACT THE GOVERNMENT, AT ITS ELECTION, WAS AUTHORIZED TO OCCUPY THE IMPROVEMENTS PRIOR TO COMPLETION. IT IS ADMINISTRATIVELY REPORTED THAT WHILE THE GOVERNMENT OCCUPIED THE BUILDING ON APRIL 1, 1960, THE COMPLETION DATE SPECIFIED IN THE CONSTRUCTION CONTRACT, THE BUILDING WAS NOT ACCEPTED BY THE GOVERNMENT AS COMPLETE UNTIL SEPTEMBER 2, 1960.

UNDER SECTION 72-5-12 OF THE NEW MEXICO STATUTES, 1953, THE TAXES ASSESSED ON THE IMPROVEMENTS FOR 1960 BECAME A LIEN THEREON ON JANUARY 1, 1960.

IT IS ADMINISTRATIVELY REPORTED THAT BY LETTER DATED FEBRUARY 10, 1961, THE CONSTRUCTION CONTRACTOR INFORMED THE GSA DENVER REGIONAL OFFICE THAT IT HAD PAID $14,239.68 OF THE TOTAL REAL ESTATE TAX BILL OF $56,958.72 FOR 1960, THUS LEAVING A BALANCE OF $42,719.04. IT IS EXPLAINED THAT THE PAYMENT MADE BY THE CONSTRUCTION CONTRACTOR WAS PRORATED AS OF APRIL 1, 1960, WHICH WAS THE DATE THE GOVERNMENT OCCUPIED THE BUILDING AND THE DATE GSA BEGAN MAKING AMORTIZATION PAYMENTS OF THE PURCHASE PRICE TO THE INVESTOR AS PROVIDED FOR IN THE PURCHASE CONTRACT. SINCE THE ENTIRE AMOUNT OF THE TAXES FOR THE YEAR 1960 WERE ASSESSED, LEVIED AND BECAME A LIEN WHILE THE CONSTRUCTION CONTRACT WAS STILL IN EFFECT GSA TOOK THE POSITION THAT THE CONSTRUCTION CONTRACTOR IS, UNDER THE EXPRESS PROVISIONS OF PARAGRAPH 13 OF THE GENERAL PROVISIONS OF THE CONSTRUCTION CONTRACT, QUOTED ABOVE, LIABLE FOR THE FULL AMOUNT OF THE TAX BILL OF $56,958.72 FOR THAT YEAR. ACCORDINGLY, BY TELEGRAM DATED APRIL 21, 1961, THE GSA REGIONAL OFFICE IN DENVER MADE DEMAND ON THE CONSTRUCTION CONTRACTOR FOR THE BALANCE OF THE 1960 TAXES AND NOTIFIED THE MARYLAND CASUALTY COMPANY AS SURETY THAT DEMAND FOR PAYMENT OF THE BALANCE DUE HAD BEEN MADE. AVOID ANY PENALTIES FOR NONPAYMENT OF THE BALANCE OF THE 1960 TAXES THE ADMINISTRATIVE OFFICE AUTHORIZED ITS REGIONAL OFFICE AT DENVER TO EFFECT PAYMENT OF SAME IN THE AMOUNT OF $42,719.04, EFFECTIVE

AT THE CLOSE OF BUSINESS APRIL 30, 1960, IN THE EVENT OF THE FAILURE OF THE CONSTRUCTION CONTRACTOR TO COMPLY WITH THE PREVIOUS DEMAND MADE ON IT FOR SUCH PAYMENT.

IN PROTESTING THE DEMAND MADE ON THE CONSTRUCTION CONTRACTOR FOR REFUND OF THE AMOUNT OF $42,719.04 YOU REFER TO GSA FORM 1412, INFORMATION STATEMENT, ACCOMPANYING THE INVITATIONS FOR BIDS FOR FINANCING AND CONSTRUCTION WHEREIN UNDER PARAGRAPH 7 (A) (III) THE BIDDERS WERE ADVISED THAT THE BUILDER WOULD PAY DIRECTLY TO THE TAXING AUTHORITIES FOR AND ON BEHALF OF THE OWNER OF RECORD (FINANCING COMPANY) ANY APPLICABLE REAL ESTATE TAXES DURING THE CONSTRUCTION PERIOD WITHOUT ANY ADDITIONAL EXPENSE TO THE GOVERNMENT. ALSO, YOU REFER TO SECTION 7 (C) (I) OF THE SAME FORM WHEREIN IT IS STATED THAT THE GOVERNMENT UNDER THE CONTRACT WITH THE INVESTOR WOULD PAY REAL ESTATE TAXES DIRECTLY TO THE TAXING AUTHORITY DURING THE TERM OF THE PURCHASE CONTRACT. YOU STATE THAT IN TRANSPOSING THE FOREGOING INFORMATION INTO THE CONTRACTUAL FORMS GSA INSERTED THE PREVIOUSLY QUOTED CATCH-ALL CLAUSE IN PARAGRAPH 13 (C) OF THE GENERAL PROVISIONS ATTACHED TO AND MADE A PART OF THE CONSTRUCTION CONTRACT AND SPELLED OUT CLEARLY THE INTENT IN ARTICLE 1 (A) TITLE IV OF THE GENERAL CONDITIONS OF THE FINANCE CONTRACT QUOTED ABOVE.

YOU CONTEND THAT THE TWO PROVISIONS FOR PAYMENT OF THE REAL ESTATE TAXES IN THE CONSTRUCTION AND THE FINANCING CONTRACTS ARE AMBIGUOUS. YOU STATE THAT TO OVERLOOK OR DISREGARD THE INTEGRATED RELATIONSHIP BETWEEN THE TWO CONTRACTS IS INCONCEIVABLE AND YOU EXPRESS THE VIEW THAT THE TWO CONTRACTS MUST BE CONSIDERED AS THE TWO COUNTERPARTS OF ONE. IN ADDITION YOU STATE THAT THE ,PUBLIC BUILDINGS PURCHASE CONTRACT ACT OF 1954" AS WELL AS THE LEGISLATIVE HISTORY SHOWS THAT IT WAS INTENDED THAT THE GOVERNMENT SHOULD PAY TAXES DURING THE PERIOD OF THE PURCHASE CONTRACT.

SECTION 411 (D) OF THE "PUBLIC BUILDINGS PURCHASE CONTRACT ACT OF 1954," 40 U.S.C. 356 (D) PROVIDES THAT EACH PURCHASE CONTRACT SHALL INCLUDE SUCH PROVISIONS AS THE ADMINISTRATOR OF GENERAL SERVICES, IN HIS DISCRETION, SHALL DEEM TO BE IN THE BEST INTERESTS OF THE UNITED STATES AND APPROPRIATE TO SECURE PERFORMANCE OF THE OBLIGATIONS IMPOSED UPON THE PARTY OR PARTIES THAT SHALL ENTER INTO SUCH AN AGREEMENT WITH THE UNITED STATES.

THE LEGISLATIVE HISTORY OF THE ACT AS ORIGINALLY ENACTED AND AMENDED SHOWS THAT THE PROGRAM AS ORIGINALLY CONCEIVED CONTEMPLATED A "ONE PACKAGE DEAL" WITH A PRIVATE CONTRACTOR FOR CONSTRUCTION OF A BUILDING FOR GOVERNMENT USE BY THE CONTRACTOR, WITH PAYMENTS TO BE MADE TO HIM OVER A PERIOD OF YEARS AND TITLE TO REMAIN IN HIM UNTIL COMPLETION OF SUCH PAYMENTS. AS DEVELOPED DURING THE LEGISLATIVE PROCEEDINGS AND HEARINGS THE NATURE AND METHOD OF ACCOMPLISHING THE LEGISLATIVE PURPOSE WAS EVENTUALLY CHANGED BY GSA--- WITH APPARENT LEGISLATIVE SANCTION AND APPROVAL--- TO A PROCEDURE SUCH AS EMPLOYED IN THE PRESENT INSTANCE. INSTEAD OF ACCOMPLISHING A LEASE-PURCHASE PROJECT THROUGH A SINGLE CONTRACTOR AS ORIGINALLY CONTEMPLATED THE NEW PROCEDURE PROVIDED FOR THE EXECUTION OF TWO SEPARATE CONTRACTS, ONE FOR FINANCING THE PROJECT AND THE OTHER FOR CONSTRUCTION OF THE BUILDING.

IN THE PRESENT INSTANCE, FORM 1412, INFORMATION STATEMENT, FURNISHED THE PROSPECTIVE BIDDERS AND RELIED UPON BY YOU IN SUPPORT OF YOUR PROTEST, IS CLEAR IN DIFFERENTIATING THE CONSTRUCTION CONTRACT FROM THE FINANCING CONTRACT. IT CLEARLY STATES THAT THE GOVERNMENT WILL FIRST INVITE BIDS FROM RESPONSIBLE SOURCES TO FINANCE THE PROJECT, EVALUATE THE FINANCING BIDS, AND THEN GIVE NOTICE OF ACCEPTABILITY TO THE SUCCESSFUL BIDDER WITHIN 30 DAYS AFTER BID OPENING, AND THAT WHEN AND IF CONSTRUCTION FUNDS ARE AVAILABLE AS A RESULT OF ACCEPTANCE OF A FINANCING BID, THE GOVERNMENT THEN WILL ISSUE ANOTHER INVITATION FOR CONSTRUCTION OF THE IMPROVEMENTS. IT IS DIFFICULT, THEREFORE, TO UNDERSTAND HOW YOUR CLIENT COULD BE CONFUSED AS TO THE SEPARABILITY OF THE CONTRACTS.

AS INDICATED IN THE DEFINITIONS OF "BUILDER" IN THE FINANCING CONTRACT AND "INVESTOR" IN THE CONSTRUCTION CONTRACT THE TWO CONTRACTS ARE COMPLETELY SEPARATE UNDERTAKINGS INVOLVING SEPARATE RIGHTS AND OBLIGATIONS. WHILE THE ADMINISTRATIVE OFFICE HAS POINTED OUT THAT AS A PRACTICAL MATTER NEITHER CONTRACT COULD BE EXECUTED UNLESS BOTH WERE EXECUTED, IT HAS POINTED OUT FURTHER THE THE FINANCING CONTRACT WAS REQUIRED TO BE ACCEPTED BEFORE THE CONSTRUCTION CONTRACT COULD BE PUT ON THE MARKET, WITH THE PROVISO THAT THE FINANCING CONTRACT WOULD NOT BE EXECUTED IN THE EVENT THE GOVERNMENT WAS UNABLE TO CONSUMMATE A SATISFACTORY CONSTRUCTION CONTRACT WITHIN THE STATED PERIOD. THIS FACTOR, HOWEVER, DID NOT CREATE ANY PRIVITY OF CONTRACT BETWEEN THE CONSTRUCTION CONTRACTOR AND THE FINANCING CONTRACTOR. BOTH CONTRACTORS ARE IN PRIVITY ONLY WITH THE GOVERNMENT AND THE CONSTRUCTION CONTRACTOR ACQUIRED NO RIGHT TO BE RELIEVED FROM ITS TAX LIABILITY UNDER THE CONSTRUCTION CONTRACT BECAUSE OF ANY TAX LIABILITY THE GOVERNMENT MAY HAVE HAD UNDER THE FINANCING CONTRACT.

THE PROVISION IN THE FINANCING CONTRACT OBLIGATING THE GOVERNMENT TO PAY REAL ESTATE TAXES DIRECTLY TO THE TAXING AUTHORITIES IS A STANDARD PROVISION FOR THE PROTECTION OF THE INVESTOR AGAINST IMPAIRMENT OF ITS SECURITY BY THE ATTACHMENT OF LIENS FOR SUCH TAXES AS ARE LAWFULLY ASSESSED, LEVIED, CONFIRMED, IMPOSED, BECOME A LIEN, OR BECOME PAYABLE DURING THE TERM OF THE PURCHASE CONTRACT. THE INVESTOR IS NOT INTERESTED IN WHETHER THE GOVERNMENT OR SOMEONE ELSE PAYS THE TAXES, AND WE BELIEVE THAT THE WORD "DIRECTLY" IN CONNECTION WITH THE PAYMENT WAS INTENDED ONLY TO MAKE IT CLEAR THAT THE INVESTOR WOULD TAKE NO PART IN THE ACTUAL TRANSMITTAL OF THE MONEY TO THE TAX COLLECTING AUTHORITY.

SO FAR AS CONCERNS TAXES ARISING DURING THE CONSTRUCTION PERIOD, THE GOVERNMENT VERY CLEARLY PROVIDED IN THE CONSTRUCTION CONTRACT THAT THE BUILDER WOULD PAY ALL OF SUCH TAXES "WHICH ARE LAWFULLY ASSESSED, LEVIED, CONFIRMED, IMPOSED, BECOME A LIEN, OR BECOME PAYABLE" WHILE THE CONSTRUCTION CONTRACT REMAINED IN EFFECT. THIS PROVISION CLEARLY WAS AUTHORIZED UNDER THE BROAD AUTHORITY GRANTED UNDER SECTION 411 (D) OF THE ACT, AND WE DO NOT SEE HOW THE ALL-INCLUSIVE NATURE OF THE BUILDER'S OBLIGATION COULD HAVE BEEN MORE CLEARLY EXPRESSED.

WE FIND NO INCONSISTENCY BETWEEN THE PROVISION IN THE CONSTRUCTION CONTRACT OBLIGATING THE BUILDER TO ASSUME ALL REAL ESTATE TAXES DURING THE CONSTRUCTION PERIOD, AND THE PROVISION IN THE FINANCING CONTRACT OBLIGATING THE GOVERNMENT TO PAY SUCH TAXES DIRECTLY TO THE TAXING AUTHORITIES DURING THE TERM OF THE PURCHASE CONTRACT. WHILE UNDER THE TERMS OF THE FINANCING CONTRACT THE GOVERNMENT WAS OBLIGATED TO PAY TAXES DURING THE TERM OF THE PURCHASE CONTRACT, UNDER THE TERMS OF THE CONSTRUCTION CONTRACT SUCH OBLIGATION WAS PLACED ON THE CONSTRUCTION CONTRACTOR WHILE SUCH CONTRACT REMAINED IN FORCE AND EFFECT, WHICH IT DID IN THIS INSTANCE UNTIL SEPTEMBER 2, 1960, WHEN THE BUILDING WAS ACCEPTED BY THE GOVERNMENT. THERE IS FOR NOTING IN THIS CONNECTION THAT ,COMPLETE," "COMPLETED," "COMPLETION" OR "FINAL COMPLETION" WAS DEFINED IN THE CONSTRUCTION CONTRACT AS MEANING THAT THE IMPROVEMENTS AS A WHOLE, INCLUDING CHANGES AND ADDITIONAL WORK AUTHORIZED BY THE GOVERNMENT, ARE 100 PERCENT PHYSICALLY COMPLETED AND THAT ALL DEFECTS AND OMISSIONS HAVE BEEN ADJUSTED TO THE SATISFACTION OF THE GOVERNMENT.

THERE IS NO PROVISION IN THE CONSTRUCTION CONTRACT FOR PRORATING TAXES DURING THE CONSTRUCTION PERIOD OR UPON THE BASIS OF OCCUPANCY OF THE IMPROVEMENTS BY THE GOVERNMENT PRIOR TO FINAL COMPLETION OF SAME AS AUTHORIZED BY THE CONTRACT. IN THE CIRCUMSTANCES, SINCE THE REAL ESTATE TAXES BECAME A LIEN ON THE IMPROVEMENT ON JANUARY 1, 1960, THE BUILDER UNDER THE EXPRESS TERMS OF THE CONSTRUCTION CONTRACT, BECAME LIABLE FOR THE ENTIRE AMOUNT OF $56,958.72 LEVIED AND ASSESSED FOR THAT YEAR. EVEN IF PROVISION HAD BEEN MADE FOR PRORATING THE TAXES, SINCE IT IS ADMINISTRATIVELY REPORTED THAT THE BUILDING WAS NOT ACCEPTED BY THE GOVERNMENT AS COMPLETE UNTIL SEPTEMBER 2, 1960, AND SINCE THE CONSTRUCTION CONTRACT REMAINED IN FORCE UNTIL THAT DATE, THE BUILDER'S OBLIGATION FOR PAYMENT OF TAXES ON AN APPORTIONMENT BASIS WOULD EXTEND UP TO THAT DATE INSTEAD OF APRIL 1, 1960, THE COMPLETION DATE FIXED IN THE CONTRACT. FOR THE FOREGOING REASONS WE CONCLUDE THAT THE C. H. LEAVELL COMPANY IS LIABLE FOR THE ENTIRE AMOUNT OF THE REAL ESTATE TAXES FOR 1960 AND THAT THERE IS NO LEGAL BASIS FOR REQUIRING PAYMENT OF ANY PART OF SUCH TAXES BY THE GOVERNMENT.