B-149922, FEB. 11, 1963

B-149922, FEB. 11, 1963

TO UNITED STATES FIDELITY AND GUARANTY COMPANY:

REFERENCE IS MADE TO YOUR LETTER DATED JANUARY 17, 1963, WITH ENCLOSURES, WHEREIN, FOR THE REASONS SET FORTH, YOU ALLEGE THAT A BALANCE OF $2,566.44 IS DUE AND PAYABLE UNDER CONTRACT NO. DA-19-016- ENG-5677, ENTERED INTO UNDER DATE OF JANUARY 17, 1958, BETWEEN THE CORPS OF ENGINEERS AND THE MERCURY AUTOMATIC FIRE ALARM COMPANY, INC., FOR THE MODIFICATION OF ELECTRICAL DISTRIBUTION SYSTEM, BUILDING NO. 35, WATERTOWN ARSENAL, WATERTOWN, MASSACHUSETTS.

YOU TAKE THE POSITION THAT AN ESTIMATE SHOULD HAVE BEEN PREPARED AS OF THE TERMINATION DATE REFLECTING THE VALUE OF MATERIALS DELIVERED TO THE JOB SITE SUBSEQUENT TO THE AUGUST 8, 1958, PROGRESS ESTIMATE. ALSO, REFERENCE WAS MADE TO PARAGRAPH 5 OF THE GENERAL PROVISIONS OF THE CONTRACT RELATING TO THE RIGHT OF THE GOVERNMENT TO TERMINATE THE CONTRACTOR'S RIGHT TO PROCEED WITH THE WORK, AND TO PARAGRAPH 7 (D) OF THE GENERAL PROVISIONS, PROVIDING THAT---

"UPON COMPLETION AND ACCEPTANCE OF ALL WORK REQUIRED HEREUNDER, THE AMOUNT DUE THE CONTRACTOR UNDER THIS CONTRACT WILL BE PAID UPON THE PRESENTATION OF A PROPERLY EXECUTED AND DULY CERTIFIED VOUCHER THEREFOR, *

IT WAS THEN STATED IN YOUR LETTER THAT THE CONTRACT IN THIS CASE WAS NOT TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT BUT MERELY TERMINATED THE CONTRACTOR'S RIGHT TO PROCEED WITH THE WORK, THUS LEAVING UNCHANGED THE GOVERNMENT'S OBLIGATION TO PAY THE FULL AMOUNT OF THE CONTRACT PRICE.

IT IS NOT CLEAR WHAT BEARING THE CITED PARAGRAPHS OF THE GENERAL PROVISIONS HAVE ON THE MATTERS SET FORTH IN YOUR LETTER. FOR EXAMPLE, THE CITED PARAGRAPH 7 (D) SETS FORTH THE PROCEDURE TO BE FOLLOWED IN MAKING PAYMENT UPON COMPLETION AND ACCEPTANCE OF ALL WORK REQUIRED BY THE CONTRACT, MEANING, OF COURSE, COMPLETION BY THE ORIGINAL CONTRACTOR. FOR OBVIOUS REASONS THE PROVISIONS OF THAT PARAGRAPH HAVE NO APPLICATION IN THIS CASE. FURTHERMORE, WE ARE UNABLE TO AGREE WITH YOUR STATEMENT THAT UPON TERMINATION OF THE CONTRACT (FOR DEFAULT) THERE REMAINS UNCHANGED THE GOVERNMENT'S OBLIGATION TO PAY THE FULL CONTRACT PRICE. FOR THE REASONS HEREINAFTER SET FORTH, IT IS OUR VIEW THAT A DEFAULTING CONTRACTOR IS ENTITLED TO BE PAID ONLY SUCH AMOUNTS AS WERE EARNED BY HIM PRIOR TO DEFAULT.

RESPECTING THE AMOUNT EARNED BY THE MERCURY COMPANY PRIOR TO THE TERMINATION OF THE CONTRACT, THE CONTRACTING OFFICER MADE THE FOLLOWING FINDINGS:

"10. THE TOTAL VALUE OF THE WORK PERFORMED BY THE CONTRACTOR UP TO THE TIME OF TERMINATION OF ITS RIGHT TO PROCEED WITH THE WORK WAS $10,058.70 AS INDICATED BY THREE PARTIAL PAY ESTIMATES. THE AMOUNT ACTUALLY PAID TO THE CONTRACTOR FOR SUCH WORK WAS $9,052.83, LEAVING AS A RETAINAGE 10 PERCENT OF THE VALUE OF THE WORK, NAMELY, $1,005.87, WHICH IS BEING HELD BY THE GOVERNMENT FOR SET-OFF PURPOSES IN THE MATTER OF EXCESS COSTS.'

THERE WERE NO EXCESS COSTS DUE TO THE CONTRACTOR'S DEFAULT SINCE THE UNCOMPLETED PORTION OF THE CONTRACT WORK WAS COMPLETED BY ANOTHER CONTRACTOR FOR LESS THAN THE BALANCE OF THE CONTRACT PRICE. THE CORPS OF ENGINEERS, DEPARTMENT OF THE ARMY, FORWARDED HERE A VOUCHER FOR $1,005.87, IN FAVOR OF THE HILLSIDE NATIONAL BANK, HILLSIDE, NEW JERSEY, AS ASSIGNEE OF THE MERCURY COMPANY, COVERING THE PERIOD FROM AUGUST 17 TO NOVEMBER 18, 1958. UNDER DATE OF SEPTEMBER 5, 1962, OUR CLAIMS DIVISION CERTIFIED THE AMOUNT FOR PAYMENT TO THE ASSIGNEE. IT HAS BEEN NOTED THAT IN YOUR COMPUTATION NO CONSIDERATION WAS GIVEN TO THE PAYMENT OF THE INDICATED AMOUNT OF $1,005.87.

WE ARE UNABLE TO AGREE WITH YOUR POSITION THAT THE STATED AMOUNT OF $2,566.44 SHOULD BE PAID TO YOUR COMPANY OR, IN THE ALTERNATIVE, APPLIED AS AN OFFSET AGAINST OTHER CLAIMS BEING ASSERTED AGAINST YOUR COMPANY UNDER OTHER CONTRACTS WITH THE MERCURY COMPANY. WE FIND NOTHING IN THE RECORD, INCLUDING THE QUOTED PARAGRAPH 7 (D) OF THE GENERAL PROVISIONS OF THE CONTRACT, TO SUPPORT YOUR CLAIM, IT BEING ENTIRELY CLEAR THAT THE OBLIGATIONS IMPOSED THEREIN WERE TO COME INTO OPERATION ONLY IN THE EVENT OF THE COMPLETION OF THE WORK BY THE ORIGINAL CONTRACTOR AND ITS ACCEPTANCE BY THE GOVERNMENT--- A FACT NOT PRESENT HERE. IT IS THE VIEW OF OUR OFFICE THAT IN CASES WHERE CONTRACTS ARE TERMINATED FOR DEFAULT ONLY SUCH AMOUNTS AS WERE EARNED PRIOR TO DEFAULT ARE PROPERLY PAYABLE TO THE CONTRACTOR. ACCORDINGLY, YOUR CLAIM FOR THE AMOUNT OF $2,566.44 IS HEREBY DENIED.

WITH YOUR LETTER THERE WERE ENCLOSED COPIES OF THREE INVOICES SUBMITTED TO THE CONTRACTOR BY THE GRAYBAR ELECTRIC COMPANY, INC., UNDER DATES OF JULY 23, AUGUST 27, AND SEPTEMBER 8, 1958, IN THE AMOUNTS OF $6,212.70, $3,000 AND $2,370, RESPECTIVELY, COVERING MATERIALS FURNISHED BY THE LATTER COMPANY. IT WAS POINTED OUT IN YOUR LETTER THAT THE PROGRESS ESTIMATE DATED AUGUST 8, 1958 (COVERED BY VOUCHER NO. 664, PAID AUGUST 27, 1958), INCLUDED THE ABOVE ITEM OF $6,212.70, BUT THAT, HOWEVER, NO ESTIMATE OF EARNINGS WAS EVER MADE FOR THE PERIOD FROM AUGUST 8, 1958, TO THE DATE OF TERMINATION (DECEMBER 17, 1958), DURING WHICH ADDITIONAL MATERIALS WERE FURNISHED BY THE GRAYBAR COMPANY HAVING A VALUE OF $5,370. YOU THEN STATED THAT YOUR COMPANY MADE PAYMENT OF THESE THREE INVOICES AGGREGATING $10,582.70--- APPARENTLY SHOULD BE $11,582.70--- AS AN OBLIGATION UNDER YOUR PAYMENT BOND, AND YOU EXPRESSED THE VIEW THAT THERE IS A SUBSTANTIAL BALANCE DUE AND PAYABLE UNDER THE CONTRACT.

THE RECORD SHOWS THAT A REPLACEMENT CONTRACT WAS MADE BY A NEGOTIATED BID PURSUANT TO 10 U.S.C. 2304 (A) (2) BY ADVERTISING IN CIRCULAR LETTERS SENT TO FIVE PROSPECTIVE BIDDERS. UNDER DATE OF JANUARY 5, 1959, CONTRACT NO. DA-19-016-ENG-6208 WAS AWARDED TO KENWORTHY AND TAYLOR, INC., FOR COMPLETING THE BALANCE OF THE CONTRACT FOR THE SUM OF $26,549. CERTAIN MODIFICATIONS OF THE CONTRACT DECREASED THE CONTRACT PRICE TO $26,334.36. WE ENCLOSE FOR READY REFERENCE A COPY OF ,CHANGES TO THE SPECIFICATIONS" TO THE CONTRACT WHICH SHOWS THAT THE GOVERNMENT AGREED TO FURNISH FOR THE USE OF THE COMPLETING CONTRACTOR THE SAME ITEMS OF PROPERTY AS WERE COVERED BY THE INDICATED THREE INVOICES. IT SEEMS CLEAR THAT IN SUBMITTING AN OFFER TO PERFORM THE WORK IN QUESTION KENWORTHY AND TAYLOR, INC., TOOK INTO CONSIDERATION THE VALUE OF THE PROPERTY TO BE FURNISHED BY THE GOVERNMENT, THAT IS TO SAY, IF THERE HAD BEEN NO GOVERNMENT-FURNISHED PROPERTY THE CONTRACTOR WOULD NECESSARILY HAVE INCREASED ITS BID IN AN AMOUNT EQUIVALENT TO THE VALUE OF SUCH PROPERTY. UNDER THESE CIRCUMSTANCES IT SEEMS REASONABLE TO ASSUME THAT KENWORTHY AND TAYLOR WOULD HAVE INCREASED THEIR OFFER BY $11,582.70, OR TO A TOTAL OF $37,917.06. IT WILL BE SEEN THAT THAT AMOUNT TOGETHER WITH THE AMOUNT OF $10,058.70, PAID UNDER THE MERCURY COMPANY CONTRACT, WOULD RESULT IN A TOTAL COST TO THE UNITED STATES OF $47,975.76, OR AN EXCESS COST OF $9,271.61, FOR WHICH IT APPEARS YOUR COMPANY WOULD HAVE BEEN LIABLE UNDER YOUR PERFORMANCE BOND.

IN ADDITION TO WHAT HAS BEEN SAID HEREINBEFORE, IT SEEMS APPROPRIATE TO BRING TO YOUR ATTENTION THE VIEWS OF THE CONTRACTING OFFICER CONCERNING YOUR CLAIM FOR REIMBURSEMENT IN THIS CASE. WE QUOTE A PARAGRAPH FROM HIS REPORT DATED AUGUST 31, 1960, AS FOLLOWS:

"5. IN REGARD TO THE SURETY'S STATEMENT THAT IT HAS PAID OUT $10,582.70 PURSUANT TO ITS PAYMENT BOND, IT IS THE POSITION OF THIS OFFICE THAT THE SURETY HAS THE FULL AND CLEAR OBLIGATION UNDER THE PAYMENT BOND TO PAY ANY CLAIMS BY THOSE PROVIDING LABOR OR MATERIALS SHOULD THE CONTRACTOR FAIL TO DO SO. THE MILLER ACT SETS UP THE PROCEDURE FOR ANYONE AGGRIEVED IN THIS RESPECT. THE GOVERNMENT HAS NO RESPONSIBILITY TO REIMBURSE THE SURETY FOR PAYMENTS UNDER ITS PAYMENT BOND; TO DO OTHERWISE WOULD BE TO DEFEAT THE PURPOSE OF REQUIRING A CONTRACTOR TO PROVIDE A PAYMENT BOND.'

FOR THE REASONS SET FORTH ABOVE WE CONCLUDE THAT THERE IS NO LEGAL BASIS FOR ALLOWING YOUR COMPANY ANY AMOUNT UNDER THE CONTRACT OF JANUARY 17, 1958.