B-145566, APRIL 20, 1961, 40 COMP. GEN. 590

B-145566, APRIL 20, 1961, 40 COMP. GEN. 590

CONTRACTS - DEFAULT - CAPEHART HOUSING - STATUTORY MAXIMUM COST LIMITATION - EXCESS COSTS ALTHOUGH EXCESS COSTS RECOVERED FROM A DEFAULTING CONTRACTOR OR HIS SURETY UNDER A CAPEHART HOUSING CONSTRUCTION CONTRACT, WHICH IS SUBJECT TO THE MAXIMUM COST LIMITATION IN SECTION 505 OF THE ACT OF SEPTEMBER 28, 1951, 12 U.S.C. 1748I, MAY NOT BE USED TO REIMBURSE THE APPROPRIATION OBLIGATED FOR THE PROJECT, SUCH EXCESS COSTS NEED NOT BE CONSIDERED IN THE COMPUTATION OF THE STATUTORY MAXIMUM COST LIMITATION AND WHEN AN ADMINISTRATIVE DETERMINATION IS MADE THAT THE SURETY IS LIABLE ON ACCOUNT OF THE CONTRACTOR'S FAILURE TO PERFORM FOR AT LEAST ALL THE COSTS IN EXCESS OF THE LIMITATION, THERE WOULD BE NO OBJECTION TO THE CONTRACTING AGENCY EXERCISING AN OPTION FOR COMPLETION OF THE SECOND PHASE OF THE WORK UNDER THE REPROCUREMENT CONTRACT.

TO THE SECRETARY OF THE AIR FORCE, APRIL 20, 1961:

BY LETTER OF APRIL 10, 1961, ASSISTANT SECRETARY OF THE AIR FORCE, LYLE S. GARLOCK, REQUESTS OUR DECISION WHETHER, UNDER THE CIRCUMSTANCES RELATED THEREIN, APPROPRIATED FUNDS MAY BE USED TO COMPLETE THE INSTALLATION OF OUTSIDE UTILITIES AND SITE PREPARATION AT A CAPEHART HOUSING PROJECT AT TOPSHAM AIR FORCE STATION, MAINE.

IT IS POINTED OUT THAT THE PROJECT CONSISTS OF 177 UNITS AND THAT QUESTION IN THE MATTER ARISES BY REASON OF THE PROVISIONS OF SECTION 505 OF THE ACT OF SEPTEMBER 28, 1951, PUBLIC LAW 155, 82D CONGRESS, 65 STAT. 365, 12 U.S.C. 1748I, WHICH READS AS FOLLOWS:

THERE ARE AUTHORIZED TO BE APPROPRIATED FUNDS FOR ACQUISITION OF LAND, INSTALLATION OF OUTSIDE UTILITIES, AND SITE PREPARATION FOR HOUSING PROJECTS TO BE CONSTRUCTED UNDER THIS SUBCHAPTER. SUCH FUNDS MAY BE EXPENDED BY THE RESPECTIVE MILITARY DEPARTMENTS FOR HOUSING PROJECTS WHEN THE SECRETARY OF DEFENSE, AFTER CONSULTATION WITH THE FEDERAL HOUSING COMMISSIONER, DETERMINES THAT SUCH HOUSING PROJECTS SHOULD BE CONSTRUCTED AND THAT SUCH EXPENDITURES ARE ESSENTIAL TO THE CONSTRUCTION OF SATISFACTORY HOUSING. SUCH EXPENDITURES MAY NOT EXCEED AN AVERAGE OF $1,500 PER HOUSING UNIT IN RESPECT OF ANY HOUSING PROJECT, AND SHALL NOT EXCEED AN AVERAGE OF $1,000 PER HOUSING UNIT IN RESPECT OF ALL HOUSING PROJECTS FOR WHICH EXPENDITURES ARE APPROVED UNDER THE PROVISIONS OF THIS SECTION.

THE FACTS GIVING RISE TO THE QUESTION IN THE MATTER ARE AS FOLLOWS:

ON OCTOBER 13, 1959, THE AIR FORCE ENTERED INTO A CONTRACT WITH GUY R. ALLEN TO PERFORM THE WORK CONTEMPLATED BY SECTION 505 FOR THE PRICE OF $216,653. SUBSEQUENTLY THIS AMOUNT WAS RAISED TO $254,922.58 BY AN AMENDMENT PROVIDING FOR ADDITIONAL WORK UNDER THE CONTRACT. THE FINAL CONTRACT PRICE, THEREFORE, WAS $10,577.42 LESS THAN THE $265,500 MAXIMUM COST LIMITATION PROVIDED IN SECTION 505.

APPROXIMATELY ONE YEAR AFTER THE CONTRACT WAS ENTERED INTO AND THE CONTRACTOR HAD BEEN PAID THE SUM OF $175,561.36, THE CONTRACTOR WAS DECLARED TO BE IN DEFAULT. THESE ACTIONS LEAVE $79,361.22 UNDER THE ORIGINAL CONTRACT AVAILABLE FOR REPROCUREMENT AND $89,938.64 AVAILABLE FOR THIS PURPOSE BEFORE REACHING THE STATUTORY MAXIMUM OF $265,500.

THE LETTER FROM THE ASSISTANT SECRETARY FURTHER STATES THAT---

* * * ON 25 JANUARY 1961 THE AIR FORCE APPROVED A REPROCUREMENT CONTRACT (1NO. AF 17 (612/-6) WITH KIBLER AND STORER, INC. IN THE TOTAL AMOUNT OF $122,120. THIS ACTION WAS TAKEN WITH ALLEN'S SURETY, THE GLOBE INDEMNITY COMPANY, DECLINED TO COMPLETE THE WORK AFTER THE CONTRACT WITH ALLEN WAS TERMINATED BY THE AIR FORCE FOR DEFAULT.

SINCE IT WAS APPARENT THAT THE AMOUNT OF THE CONTRACT WITH KIBLER AND STORER TO COMPLETE ALL THE WORK, WHEN ADDED TO THE AMOUNT ALREADY PAID TO ALLEN, WOULD EXCEED THE STATUTORY MAXIMUM BY SOME $32,181.36, THE CONTRACT WITH KIBLER AND STORER WAS BROKEN OUT INTO PHASE I AND PHASE II. IT WAS IMPERATIVE THAT THE COMPLETION OF THE ON-SITE WORK COVERED BY PHASE I IN THE AMOUNT OF $81,220.00 BE UNDERTAKEN AS SOON AS POSSIBLE AND ACCOMPLISHED QUICKLY SO THAT THE CAPEHART CONTRACTOR COULD PROCEED WITH THE CONSTRUCTION OF THE HOUSING, AND MEET HIS OBLIGATIONS UNDER THE CAPEHART CONTRACT. ON PHASE II, THE AIR FORCE OBTAINED AN OPTION TO COMPLETE THE OFF-SITE WORK FOR $40,900, THE OPTION TO BE EXERCISED BY 1 APRIL 1961, LATER EXTENDED TO 20 APRIL 1961. IT WAS HOPED THAT PHASE II OF THE CONTRACT COULD BE FUNDED FROM MONEYS OBTAINED FROM THE SURETY. DEMAND WAS MADE UPON THE SURETY ON 8 MARCH 1961, AND IN REPLY THERETO ON MARCH 24, 1961, THE SURETY INSISTED THAT ALL BALANCES REMAINING UNDER THE DEFAULTED CONTRACT BE USED BEFORE A DEMAND FOR ANY DEFICIENCY IS MADE BY THE AIR FORCE UPON IT.

SECTION 505 LIMITS THE EXPENDITURE OF FUNDS IN EXCESS OF $265,500 FOR THIS WORK. IF IT IS CONSIDERED THAT ANY SUMS OBLIGATED IN EXCESS OF SUCH STATUTORY MAXIMUM WOULD NOT BE IMPROPER PROVIDED THAT APPROPRIATE ACTION IS UNDERTAKEN BY THE AIR FORCE TO RECOVER FROM THE DEFAULTING CONTRACTOR AND/OR HIS SURETY THE EXCESS AMOUNTS EXPENDED BY THE AIR FORCE UNDER THE REPROCUREMENT, SUCH EXCESS WOULD THEN BE CREDITED TO THE APPROPRIATION FROM WHICH FUNDS COULD BE MADE AVAILABLE FOR PHASE II. IN THE FINAL ANALYSIS, THIS WOULD RESULT IN AN EXPENDITURE NOT IN EXCESS OF THE STATUTORY MAXIMUM. UNLESS THE OPTION IS EXERCISED, THE AIR FORCE IS CONFRONTED WITH THE SITUATION WHERE A $3,000,000 CAPEHART HOUSING PROJECT CANNOT BE MADE AVAILABLE FOR OCCUPANCY BECAUSE OF THE WORK COVERED BY PHASE II CANNOT BE ACCOMPLISHED. IN ADDITION, UPON COMPLETION OF THE HOUSING PROJECT, THE AIR FORCE WILL BE FACED WITH THE COSTS OF AMORTIZING THE MORTGAGE, AND THE PAYMENT OF QUARTERS ALLOWANCES TO MILITARY PERSONNEL WHO OTHERWISE WOULD BE ASSIGNED TO OCCUPY THESE UNITS. * * *

WHERE A REPLACEMENT CONTRACT IS MADE NECESSARY BECAUSE OF DEFAULT BY THE ORIGINAL CONTRACTOR, THIS OFFICE GENERALLY HAS VIEWED THE NEW CONTRACT AS CONSTITUTING, IN EFFECT, A PURCHASE AGAINST THE DEFAULTING CONTRACTOR AND AS BEING PROPERLY CHARGEABLE TO THE APPROPRIATION OBLIGATED BY THE DEFAULTED CONTRACT. ON THE BASIS OF THE PRESENT RECORD, WE FIND NO AUTHORITY WHEREBY ANY EXCESS COSTS RECOVERED FROM THE DEFAULTING CONTRACTOR OR HIS SURETY MAY BE USED TO REIMBURSE THE APPROPRIATION INVOLVED. SEE IN THIS CONNECTION 27 COMP. GEN. 117 WHEREIN IS DISCUSSED THE GENERAL RULE THAT AMOUNTS RECOVERED FROM DEFAULTING CONTRACTORS ARE REQUIRED TO BE DEPOSITED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS. SEE ALSO 34 COMP. GEN. 577. IT IS OUR VIEW, HOWEVER, THAT SUCH EXCESS COSTS WHICH ARE RECOVERED FROM THE DEFAULTING CONTRACTOR OR HIS SURETY PROPERLY NEED NOT BE CONSIDERED IN COMPUTING THE MAXIMUM COSTS WHICH MAY BE INCURRED UNDER THE LIMITATION PRESCRIBED IN SECTION 505.

IN THE INSTANT CASE THE COMMAND JUDGE ADVOCATE, HEADQUARTERS, AIR DEFENSE COMMAND, IN A MEMORANDUM DATED DECEMBER 2, 1960, HAS DETERMINED THAT THE DEFAULTING CONTRACTOR AND THE SURETY ARE LIABLE FOR DAMAGES SUSTAINED BY THE GOVERNMENT AS A RESULT OF THE CONTRACTOR'S FAILURE TO SATISFACTORILY PERFORM IN ACCORDANCE WITH HIS CONTRACT AND THAT THE TOTAL AMOUNT WHICH THE GOVERNMENT MAY LOOK TO THE SURETY FOR IS 50 PERCENT OF THE REPROCUREMENT OR APPROXIMATELY $127,000. THIS AMOUNT EXCEEDS THE PORTION OF THE TOTAL COST WHICH WOULD BE IN EXCESS OF THE STATUTORY LIMITATION. THE FILES ENCLOSED WITH THE ASSISTANT SECRETARY'S LETTER, HOWEVER, INDICATE THAT THE DEFAULTING CONTRACTOR BY LETTERS OF FEBRUARY 28, 1961, HAS APPEALED THE DEFAULT DETERMINATION TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS. WHILE THE RECORD TRANSMITTED HERE CLEARLY INDICATES THAT THE CONTRACTOR WAS IN DEFAULT, HIS LETTERS OF FEBRUARY 28, 1961, WERE NOT ENCLOSED. IF UPON A REVIEW OF ALL OF THE FACTS IN THE MATTER IT IS YOUR BEST JUDGMENT THAT THERE IS NO DOUBT BUT THAT THE SURETY IS LIABLE FOR AT LEAST ALL COSTS IN EXCESS OF THE LIMITATION, WE WOULD HAVE NO OBJECTION TO YOUR EXERCISING THE OPTION UNDER PHASE II. ..END :