B-158458, JAN 12, 1972
Highlights
SECTION E-615 OF THE ARMED SERVICES PROCUREMENT REGULATIONS PROVIDES THAT DEFERMENTS MAY BE ALLOWED WHERE NO APPEAL IS PENDING BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS IF THE COLLECTION WOULD SERIOUSLY IMPAIR THE CONTRACTOR'S ABILITY TO CONTINUE OPERATIONS OR TO PERFORM IN THE INTERESTS OF THE NATIONAL DEFENSE. THE POWER OF DEFERMENT IS CLEARLY AT THE DISCRETION OF THE CONTRACTING AGENCY AND CLAIMANT'S ACTIVITIES PROVIDE NO EVIDENCE FOR DEFERRING COLLECTION OR CANCELLING THE SET-OFF UNDER THIS PROVISION. THERE IS NO AUTHORITY FOR PLACING FUNDS WHICH ARE THE PROPERTY OF THE UNITED STATES IN AN ESCROW ACCOUNT. ALTHOUGH THE ARMED SERVICES BOARD OF CONTRACT APPEALS AGREED WITH YOUR CLIENT THAT THE SALES TAX IN QUESTION WAS NOT INCLUDED IN THE CONTRACT PRICE.
B-158458, JAN 12, 1972
CONTRACTS - SET-OFF OF DISPUTED FUNDS - DEFERMENT - ESCROW ACCOUNT DECISION ON A CLAIM BY THE JOHN C. GRIMBERG COMPANY, INC., AGAINST THE CORPS OF ENGINEERS AS TO WHETHER DISPUTED FUNDS SET-OFF AGAINST FUNDS DUE THE CONTRACTOR UNDER A SUBSEQUENT CONTRACT MAY BE DEFERRED OR, ALTERNATIVELY, PLACED IN AN INTEREST EARNING ESCROW ACCOUNT. SECTION E-615 OF THE ARMED SERVICES PROCUREMENT REGULATIONS PROVIDES THAT DEFERMENTS MAY BE ALLOWED WHERE NO APPEAL IS PENDING BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS IF THE COLLECTION WOULD SERIOUSLY IMPAIR THE CONTRACTOR'S ABILITY TO CONTINUE OPERATIONS OR TO PERFORM IN THE INTERESTS OF THE NATIONAL DEFENSE. THE POWER OF DEFERMENT IS CLEARLY AT THE DISCRETION OF THE CONTRACTING AGENCY AND CLAIMANT'S ACTIVITIES PROVIDE NO EVIDENCE FOR DEFERRING COLLECTION OR CANCELLING THE SET-OFF UNDER THIS PROVISION. FURTHERMORE, THERE IS NO AUTHORITY FOR PLACING FUNDS WHICH ARE THE PROPERTY OF THE UNITED STATES IN AN ESCROW ACCOUNT. ACCORDINGLY, NO BASIS EXISTS FOR DISTURBING THE ACTION TAKEN, AND THE PROTEST MUST BE DENIED.
TO SADUR, PELLAND & BRAUDE:
WE REFER TO YOUR LETTER OF OCTOBER 18, 1971, REGARDING THE CLAIM OF THE JOHN C. GRIMBERG COMPANY, INCORPORATED, AGAINST THE ARMY CORPS OF ENGINEERS. YOU REQUEST OUR DECISION WHETHER COLLECTION FROM A CONTRACTOR OF A DISPUTED AMOUNT SET OFF AGAINST OTHER FUNDS OWED THE CONTRACTOR MAY BE DEFERRED OR, ALTERNATIVELY, WHETHER THE DISPUTED AMOUNT MAY BE PLACED IN AN INTEREST EARNING ESCROW ACCOUNT.
THE DISPUTED SUM, $13,926.30, REPRESENTS A PORTION OF A CONTRACT PRICE FOR SALES TAX NOT PAID TO THE STATE OF MARYLAND. ALTHOUGH THE ARMED SERVICES BOARD OF CONTRACT APPEALS AGREED WITH YOUR CLIENT THAT THE SALES TAX IN QUESTION WAS NOT INCLUDED IN THE CONTRACT PRICE, ASBCA NO. 12783, JANUARY 22, 1970, THE FINANCE AND ACCOUNTING OFFICER DETERMINED THAT OUR DECISION IN B-158458, MARCH 26, 1966, WAS IN DIRECT CONFLICT WITH THE ASBCA DECISION AND SUBMITTED THE MATTER TO US. WE ADVISED HIM THAT THE AMOUNT SHOULD NOT BE PAID. 49 COMP. GEN. 782 (1970).
SINCE THE AMOUNT LEFT UNPAID ON THE CONTRACT AT ISSUE WAS INSUFFICIENT TO COVER THE OVERPAYMENT, THE FINANCE AND ACCOUNTING OFFICER ASSERTED A SET- OFF AGAINST FUNDS DUE THE CONTRACTOR UNDER ANOTHER CONTRACT. YOU THEN REQUESTED THAT COLLECTION OF THE DISPUTED AMOUNT BE DEFERRED PENDING JUDICIAL RESOLUTION OF THE CONTROVERSY, AND THAT THE BALANCE DUE UNDER THE SUBSEQUENT CONTRACT BE PAID OVER TO THE CONTRACTOR. ALTERNATIVELY, YOU REQUESTED THAT THE $13,926.30 BE PLACED IN ESCROW SO THAT INTEREST COULD BE EARNED DURING THE LITIGATION PERIOD. THE CORPS REFUSED BOTH REQUESTS "ABSENT AN APPROPRIATE MODIFICATION OF THE COMPTROLLER GENERAL'S DECISION."
ASPR E-608.1 PROVIDES THAT WHEN A DISBURSING OFFICER HAS ON HAND FOR PAYMENT BILLS PAYABLE TO THE CONTRACTOR AND AVAILABLE FOR OFFSET AGAINST THE AMOUNT DUE FROM THE CONTRACTOR, HE "SHOULD MAKE APPROPRIATE OFFSET." ASPR E-614, WHILE STATING THAT "APPEALS BY CONTRACTORS WILL NOT SUSPEND OR DELAY COLLECTION ACTION," DOES ALLOW FOR "DEFERMENTS PENDING THE OUTCOME OF APPEALS." HOWEVER, "APPEAL" AS USED IN THAT SECTION REFERS TO AN APPEAL TAKEN TO THE ARMED SERVICES BOARD OF CONTRACT APPEALS PURSUANT TO THE STANDARD CONTRACTS DISPUTE CLAUSE, AND THERE IS NO SUCH APPEAL PENDING AT THIS TIME. ASPR E-615 ALLOWS FOR DEFERRAL OF PAYMENTS IF NO APPEAL IS PENDING "WHEN THE CONTRACTOR CANNOT PAY AT ONCE IN FULL, OR WHEN FULL IMMEDIATE COLLECTION WOULD SERIOUSLY IMPAIR THE CONTRACTOR'S ABILITY TO CONTINUE OPERATIONS OR TO PERFORM CONTRACTS OR SUBCONTRACTS FOR THE NATIONAL DEFENSE." WHILE A DEFERMENT MAY BE GRANTED IN THESE CIRCUMSTANCES, SUCH ACTION IS CLEARLY NOT MANDATORY, BUT LIES WITHIN THE DISCRETIONARY AUTHORITY OF THE CONTRACTING AGENCY. THERE IS NOTHING TO INDICATE THAT FAILURE TO GRANT THE DEFERMENT WILL RESULT IN ANY IMPAIRMENT OF YOUR CLIENT'S ABILITY TO CONTINUE OPERATIONS OR TO PERFORM NATIONAL DEFENSE CONTRACTS. IN FACT, THE CORPS HAS STATED THAT SUCH A SHOWING "IS HIGHLY IMPROBABLE IN VIEW OF THE ALLEGATIONS CONTAINED IN PAGE 2 OF YOUR LETTER WHERE THE CONTRACTOR'S FINANCIAL ABILITY TO PAY THE INDEBTEDNESS IS AFFIRMATIVELY REPRESENTED." IN THE ABSENCE OF SUCH A SHOWING AND IN VIEW OF THE PROVISIONS OF ASPR E-608.1, SUPRA, THERE IS NO BASIS FOR DEFERRING COLLECTION OR CANCELLING THE SET-OFF.
WITH RESPECT TO YOUR ALTERNATE REQUEST, WE FIND NO AUTHORITY TO SUPPORT PLACING THE DISPUTED FUNDS IN ESCROW. SUCH FUNDS ARE THE PROPERTY OF THE UNITED STATES, AND CANNOT BE PLACED UNDER THE CONTROL OF ANOTHER PARTY. ANY AGREEMENT BY A GOVERNMENT OFFICER TO DO SO WOULD BE INVALID. BAUSCH AND LOMB OPTICAL CO. V UNITED STATES, 78 CT. CL. 584, 607 (1934), CERTIORARI DENIED 292 U.S. 645. IN ADDITION, ANY INTEREST EARNED ON FUNDS WHICH ARE THE PROPERTY OF THE GOVERNMENT WOULD ACCRUE TO THE BENEFIT OF THE GOVERNMENT AND NOT TO YOUR CLIENT, REGARDLESS OF THE FINAL OUTCOME OF THE DISPUTE. 40 COMP. GEN. 81 (1960).
A COPY OF THIS LETTER IS BEING SENT TO THE OFFICE OF THE CHIEF OF ENGINEERS.