B-173494, NOV 11, 1971

B-173494, NOV 11, 1971

CONTRACTOR - WALSH-HEALEY ACT VIOLATIONS DENIAL OF REQUEST BY THE BETHLEHEM STEEL CORPORATION THAT A CONTRACT AWARDED TO THE R. H. PINES CORPORATION BY THE U.S. ARMY ENGINEER DISTRICT, NEW YORK, BE DECLARED VOID AB INITIO SINCE IT HAS BEEN DETERMINED THAT R. H. PINES WAS NOT A "REGULAR DEALER" AS REQUIRED BY THE WALSH-HEALEY PUBLIC CONTRACTS ACT. SINCE PERFORMANCE UNDER THIS CONTRACT HAS BEEN COMPLETED AND THE CONTRACTOR PAID, THIS IS PROPERLY A MATTER FOR THE ATTORNEY GENERAL, NOT GAO.

TO CRAVATH, SWAINE & MOORE:

REFERENCE IS MADE TO YOUR LETTER OF JULY 19, 1971, AND PRIOR CORRESPONDENCE FROM THE BETHLEHEM STEEL CORPORATION, REGARDING THE AWARD OF CONTRACT NO. DACW51-71-C-0044 TO THE R. H. PINES CORPORATION UNDER INVITATION FOR BIDS NO. DACW51-71-B-0029, ISSUED BY THE U.S. ARMY ENGINEER DISTRICT, NEW YORK.

THE CONTRACT IN QUESTION IS SUBJECT TO THE WALSH-HEALEY PUBLIC CONTRACTS ACT, 41 U.S.C. 35, ET SEQ., WHICH PROVIDES THAT EVERY CONTRACT EXCEEDING $10,000 IN AMOUNT ENTERED INTO BY A GOVERNMENT AGENCY FOR THE PROCUREMENT OF SUPPLIES SHALL CONTAIN A STIPULATION THAT THE CONTRACTOR IS A MANUFACTURER OR REGULAR DEALER IN SUCH SUPPLIES.

BEFORE AN AWARD WAS MADE TO THE R. H. PINES CORPORATION, BETHLEHEM PROTESTED TO THE CONTRACTING OFFICER THE STATUS OF PINES AS A MANUFACTURER OR REGULAR DEALER OF THE REINFORCING STEEL BARS TO BE FURNISHED UNDER THE CONTRACT. HOWEVER, THE CONTRACTING OFFICER MADE A DETERMINATION THAT R. H. PINES QUALIFIED AS A REGULAR DEALER FOR REINFORCING BARS. FURTHER, THE CONTRACTING OFFICER MADE A DETERMINATION AS PROVIDED FOR IN PARAGRAPH 12- 604(A)(5) OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) THAT AN AWARD SHOULD BE MADE TO R. H. PINES WITHOUT WAITING FOR A DETERMINATION FROM THE DEPARTMENT OF LABOR AS TO R. H. PINES' STATUS. SUBSEQUENTLY, THE CONTRACTING OFFICER SUBMITTED THE MATTER TO THE DEPARTMENT OF LABOR WHICH CONCLUDED, ON THE BASIS OF THE EVIDENCE SUBMITTED BY ALL INTERESTED PARTIES, THAT R. H. PINES COULD NOT BE CONSIDERED A REGULAR DEALER WITHIN THE MEANING OF THE WALSH-HEALEY ACT. THE CONTRACTING OFFICER THEREAFTER REQUESTED THE DEPARTMENT OF LABOR TO RECONSIDER THE MATTER. THE DEPARTMENT OF LABOR SUSTAINED ITS DETERMINATION. IN THE MEANTIME, THE CONTRACTOR HAS COMPLETED THE CONTRACT AND HAS BEEN PAID THEREUNDER.

BETHLEHEM HAD PREVIOUSLY SUGGESTED THAT THE BASIS FOR THE CONTRACTING OFFICER'S DETERMINATION TO MAKE AN AWARD WHILE THE PROTEST WAS PENDING WAS QUESTIONABLE AND THAT SINCE THE DEPARTMENT OF LABOR HAD SUSTAINED THE PROTEST THAT R. H. PINES WAS NOT A REGULAR DEALER, THE CONTRACT AWARDED TO R. H. PINES WAS IN VIOLATION OF THE WALSH-HEALEY ACT AND VOID AB INITIO. IT IS THEREFORE CONCLUDED THAT THE CONTRACTOR SHOULD BE PAID ON A QUANTUM MERUIT BASIS FOR THE COST OF THE MATERIAL, EXCLUSIVE OF PROFIT AND OVERHEAD.

THE STIPULATION THAT A CONTRACTOR IS A REGULAR DEALER IS ONE OF SEVERAL STIPULATIONS PROVIDED BY THE WALSH-HEALEY ACT FOR INCLUSION IN CONTRACTS FOR SUPPLIES. FURTHER, THE ACT PROVIDES LIABILITY FOR BREACH OF CERTAIN STIPULATIONS AND A RIGHT BY THE AGENCY ENTERING INTO THE CONTRACT TO CANCELLATION OF THE CONTRACT FOR WALSH-HEALEY BREACHES. ALTHOUGH THE ACT PROVIDES A "RIGHT TO CANCEL" THE CONTRACT, IT DOES NOT REQUIRE CANCELLATION OF THE CONTRACT IN ANY EVENT. IN VIEW THEREOF, IT DOES NOT APPEAR THAT IT WAS CONTEMPLATED THAT AN AWARD TO A FIRM THAT IS NOT A REGULAR DEALER WOULD RENDER THE CONTRACT VOID AB INITIO. ADDITIONALLY, WE NOTE THAT IT HAS BEEN HELD THAT THE PURPOSE OF SECTION 35(A) OF THE WALSH- HEALEY ACT, THE SECTION CONTAINING THE REGULAR DEALER STIPULATION, IS SPENT WHEN THE CONTRACT IS AWARDED. UNITED STATES V RUSSELL ELECTRIC CO., 250 F. SUPP. 2, 22 (1965). MOREOVER, WHERE THE CONTRACTOR HAS BEEN PAID, THE RECOVERY FOR BREACH OF THE WALSH-HEALEY ACT IS A MATTER FOR THE ATTORNEY GENERAL. 41 U.S.C. 36.

ACCORDINGLY, THERE IS NO ACTION THAT OUR OFFICE MAY PROPERLY TAKE TO COMPLY WITH YOUR REQUEST.