Propriety of Paying Costs Resulting From Termination of Contract for Convenience of Government

B-201290: May 8, 1981

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An advance decision was requested concerning the propriety of payment of a settlement between the Air Force and a contractor. The contractor was the awardee of an Air Force contract that did not contain a Service Contract Act wage determination because the Air Force felt that the provisions of the Act did not apply to that particular contract. In performance of the contract, the contractor paid his employees less than the minimum wage. Based on an employee complaint, the Department of Labor ruled that the Act applied and that the contractor should have been paying his employees at the local wage rate. They also determined that the contractor must pay his employees at the new rate for the remainder of the contract and must pay backpay for work already performed to make up the difference between the rate paid and the rate that should have been paid. The contractor notified the Air Force that he could not pay the higher rate. He asked the Air Force to pay the backpay and the difference between the rates for the remainder of the contract. He also asked for an extension of time, claiming that the work had been delayed by the labor action. The Air Force terminated the contract for the convenience of the Government, removed the material that the contractor had salvaged, and hauled it to a landfill. The contractor submitted a claim for the difference in wages, the salvage value of the material removed by the Air Force, and punitive damages. The Air Force and the contractor settled the claim. Subsequently, the contractor claimed an additional amount and requested return of his performance deposit. An accounting officer asked whether the settlement should be paid. The contract did not include a termination for convenience clause. However, the authority of a contracting agency to terminate a contract for the Government's interest and to settle claims arising from the termination is recognized by the courts and GAO. Any disagreement concerning such costs should be handled in accordance with the Contract Disputes Act. GAO will not question a final settlement where the contracting agency and the contractor agree on both liability and amount, as here. The settlement should be paid, and the additional amounts claimed should be settled or handled under the provisions of the Contract Disputes Act.

B-201290, MAY 8, 1981

DIGEST: GAO WILL NOT REVIEW PROPRIETY OF PAYING COSTS RESULTING FROM TERMINATION OF CONTRACT FOR CONVENIENCE OF GOVERNMENT WHERE CONTRACTING OFFICER AND CONTRACTOR HAVE ENTERED INTO SETTLEMENT OF COSTS. ANY ADDITIONAL COSTS CLAIMED SHOULD BE HANDLED IN SAME MANNER. IF SETTLEMENT CANNOT BE REACHED, MATTER SHOULD BE RESOLVED UNDER PROCEDURES OF CONTRACT DISPUTES ACT OF 1978, 41 U.S.C. SEC. 601, ET SEQ. (SUPP. III 1979).

[REDACTED]:

AN ACCOUNTING AND FINANCING OFFICER OF THE DEPARTMENT OF THE AIR FORCE (AIR FORCE) HAS REQUESTED AN ADVANCE DECISION UNDER THE AUTHORITY OF 31 U.S.C. SEC. 74 (1976) CONCERNING THE PROPRIETY OF PAYMENT OF A SETTLEMENT BETWEEN THE AIR FORCE AND MR. [REDACTED].

FOR THE FOLLOWING REASONS, WE WILL NOT REVIEW THE SETTLEMENT AND, THEREFORE, IT MAY BE PAID.

THE AIR FORCE ISSUED AN INVITATION FOR BIDS FOR THE SALE AND REMOVAL OF A BUILDING AT WHITEMAN AIR FORCE BASE, MISSOURI. THE SOLICITATION DID NOT CONTAIN A SERVICE CONTRACT ACT WAGE DETERMINATION, APPARENTLY BECAUSE THE AIR FORCE FELT THAT THE WAGE DETERMINATION PROVISIONS OF THE ACT DID NOT APPLY TO THIS CONTRACT. IN PERFORMING THE DEMOLITION AND REMOVAL, MR. [REDACTED] PAID HIS EMPLOYEES LESS THAN THE MINIMUM WAGE. BASED ON A COMPLAINT BY TWO FORMER EMPLOYEES, THE DEPARTMENT OF LABOR RULED THAT THE ACT APPLIED AND THAT MR. [REDACTED] SHOULD HAVE BEEN PAYING HIS EMPLOYEES AT THE KANSAS CITY LABOR RATE, A SUBSTANTIALLY HIGHER RATE THAN THE MINIMUM WAGE. THE DEPARTMENT OF LABOR DETERMINED THAT MR. [REDACTED] MUST PAY HIS EMPLOYEES THE NEW RATE FOR THE REMAINDER OF THE CONTRACT AND ALSO MUST PAY BACK PAY FOR THE PORTION ALREADY PERFORMED TO MAKE UP THE DIFFERENCE BETWEEN THE RATE PAID AND THE RATE THAT SHOULD HAVE BEEN PAID.

MR. [REDACTED] NOTIFIED THE AIR FORCE THAT HE COULD NOT PAY THE HIGHER RATE. HE ASKED THE AIR FORCE TO PAY THE BACK PAY AND THE DIFFERENCE BETWEEN THE RATES FOR THE REMAINDER OF THE CONTRACT. HE ALSO ASKED FOR AN EXTENSION OF TIME TO COMPLETE THE CONTRACT, CLAIMING THAT WORK HAD BEEN DELAYED WHILE THE DEPARTMENT OF LABOR RULED ON THE QUESTION OF WAGE RATES.

BASED ON THE PROBLEM OF THE DIFFERING WAGE RATES AND MR.[REDACTED] INABILITY TO PAY THE HIGHER RATE, THE AIR FORCE TERMINATED THE CONTRACT FOR THE CONVENIENCE OF THE GOVERNMENT. IMMEDIATELY FOLLOWING THE TERMINATION, THE AIR FORCE REMOVED THE MATERIAL THAT MR. [REDACTED] HAD SALVAGED AND HAULED IT TO A LANDFILL.

MR. [REDACTED] THEN SUBMITTED A CLAIM TO THE BASE REAL PROPERTY OFFICER, WHO HAD BEEN DELEGATED THE AUTHORITY TO ACT AS THE CONTRACTING OFFICER FOR THE SALE OF REAL PROPERTY. THE CLAIM WAS FOR $20,159.62 FOR THE DIFFERENCE IN WAGES AND BENEFITS, $75,000 FOR THE SALVAGE VALUE OF THE MATERIAL REMOVED BY THE AIR FORCE, AND $75,000 IN PUNITIVE DAMAGES. AFTER NEGOTIATIONS, THE AIR FORCE AND MR. [REDACTED] SETTLED THE CLAIM FOR $35,400.20. SUBSEQUENTLY, MR. [REDACTED] CLAIMED AN ADDITIONAL $10,000 AND REQUESTED RETURN OF HIS PERFORMANCE DEPOSIT.

THE ACCOUNTING AND FINANCING OFFICER HAS ASKED A NUMBER OF SPECIFIC QUESTIONS, BUT THE ESSENTIAL ISSUE IS WHETHER THE SETTLEMENT SHOULD BE PAID.

THE CONTRACT DID NOT INCLUDE A TERMINATION FOR CONVENIENCE CLAUSE. HOWEVER, THE AUTHORITY OF A CONTRACTING AGENCY TO TERMINATE A CONTRACT FOR THE GOVERNMENT'S INTEREST AND TO ENTER INTO AN AGREEMENT WITH THE CONTRACTOR FOR THE SETTLEMENT OF CLAIMS ARISING FROM THE TERMINATION HAS LONG BEEN RECOGNIZED BY THE COURTS AND BY OUR OFFICE. UNITED STATES V. CORLISS STEAM-ENGINE COMPANY, 91 U.S. 321 (1875); DEPARTMENT OF AGRICULTURE (REQUEST FOR ADVANCE DECISION, B-183570, NOVEMBER 11, 1975, 75-2 CPD 290; 44 COMP.GEN. 466 (1965). ANY DISAGREEMENT CONCERNING SUCH COSTS SHOULD BE HANDLED IN ACCORDANCE WITH THE CONTRACT DISPUTES ACT OF 1978, 41 U.S.C. SEC. 601, ET SEQ. (SUPP. III 1979). ID. ADDITIONALLY, WE HAVE HELD THAT WE WILL NOT QUESTION A FINAL SETTLEMENT WHERE THE CONTRACTING AGENCY AND THE CONTRACTOR AGREE ON BOTH LIABILITY AND AMOUNT, AS HERE. SEE AUGUST PERRY & ASSOCIATES, INC., ET AL., 56 COMP.GEN. 289 (1977), 77-1 CPD 48.

THE SETTLEMENT SHOULD BE PAID, AND THE ADDITIONAL AMOUNTS CLAIMED SHOULD BE SETTLED OR HANDLED UNDER THE PROVISIONS OF THE DISPUTES ACT.

 

 

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