B-66936, AUGUST 13, 1947, 27 COMP. GEN. 81

CONTRACTS - BREACH OF CONDITIONS AS TO SUBLETTING CONTRACT A CONSTRUCTION CONTRACT PROVIDING THAT NOT LESS THAN 25 PERCENT OF THE WORK BE PERFORMED BY THE CONTRACTOR'S OWN ORGANIZATION--- BUT NOT PRESCRIBING ANY PENALTY FOR FAILURE TO ABIDE BY SUCH PROVISION--- IS TO BE REGARDED AS HAVING BEEN WILFULLY BREACHED WHEN THE CONTRACTOR SUBLET THE ENTIRE CONTRACT AND, AFTER BEING WARNED THAT THE PROVISION MUST BE COMPLIED WITH, ALLOWED THE SUBCONTRACTOR TO CONTINUE THE WORK TO COMPLETION, SO THAT PAYMENT MAY BE MADE ON A QUANTUM MERUIT BASIS, ONLY, FOR THE REASONABLE VALUE OF THE WORK PERFORMED AND MATERIALS FURNISHED, WHICH MAY NOT EXCEED THE CHARGE MADE BY THE SUBCONTRACTOR.

COMPTROLLER GENERAL WARREN TO THE ADMINISTRATOR, FEDERAL WORKS AGENCY, AUGUST 13, 1947:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 6, 1947, AS FOLLOWS:

THIS IS WITH REFERENCE TO A CONTRACT ENTERED INTO BY THE PUBLIC BUILDINGS ADMINISTRATION OF THIS AGENCY WITH M. T. GREEN FOR THE INSTALLATION OF A NEW SIDEWALK ADJACENT TO THE UNITED STATES POST OFFICE, VERNON, TEXAS.

THE SPECIFICATIONS FOR THIS WORK, WHICH WERE PREPARED DURING THE FALL OF 1946, CONTAINED CERTAIN REQUIREMENTS WITH REGARD TO SAND AND GRAVEL AND TO THE MIXTURE OF CONCRETE.

THESE REQUIREMENTS NECESSITATE THE USE OF STANDARD MATERIAL, WHICH IS NOMINALLY CARRIED IN STOCK BY LUMBER YARDS AND CAN USUALLY BE FOUND WITHOUT A GREAT AMOUNT OF DIFFICULTY. THE SPECIFICATIONS, HOWEVER, DID NOT PERMIT THE USE OF PIT-RUN OR BANK SAND AND GRAVEL, AS SUCH MATERIALS USUALLY CONTAIN EXCESSIVE CLAY AND OTHER DELETERIOUS SUBSTANCES.

THE SPECIFICATIONS AND INVITATIONS WERE ISSUED ON JANUARY 27, 1947, WITH FEBRUARY 10, 1947, INDICATED AS THE TIME SET FOR THE OPENING OF BIDS. INVITATIONS WERE MAILED TO 18 PROSPECTIVE BIDDERS, INCLUDINGA NUMBER IN THE VICINITY OF VERNON POST OFFICE. A COPY WAS MAILED TO THE " TEXAS CONTRACTOR," A STATE PUBLICATION, AND A COPY DISPLAYED ON THE BULLETIN BOARD IN THE VERNON POST OFFICE.

ON THE DAY OF OPENING, FOUR BIDS WERE RECEIVED, INCLUDING A QUALIFIED BID FROM ROBERT SCHLETZE, OF VERNON, TEXAS, IN THE SUM OF $194. THE OTHER BIDS RECEIVED WERE FROM M. T. GREEN, OF DALLAS, TEXAS; THE GROHNE COMPANY, OF DECATUR, ILLINOIS; AND I. W. HAVARD, OF CANTON, MISSISSIPPI, IN AMOUNTS OF $981.00, $1017.00, AND $1480.00, RESPECTIVELY.

ON FEBRUARY 13, 1947, A LETTER WAS ADDRESSED TO MR. SCHLETZE ADVISING HIM THAT HIS QUALIFIED BID COULD NOT BE CONSIDERED. HE WAS REQUESTED TO REMOVE THE QUALIFICATIONS OR TO SUBMIT AN UNQUALIFIED BID BASED ON THE SPECIFICATION REQUIREMENTS. MR. SCHLETZE'S ATTENTION WAS CALLED TO THE FACT THAT HIS BID WAS CONSIDERABLY LOWER THAN THE OTHER BIDS RECEIVED, AND HE WAS REQUESTED TO ADVISE WHETHER HE FULLY UNDERSTOOD ALL THE REQUIREMENTS OF THE SPECIFICATIONS. IN REPLY, MR. SCHLETZE STATED THAT THE MATERIALS WHICH WERE SPECIFIED WERE NOT OBTAINABLE IN VERNON EXCEPT IN CARLOAD LOTS. HE REFUSED TO REMOVE THE QUALIFICATION OR TO SUBMIT AN UNQUALIFIED BID, AND INSTRUCTED THE PUBLIC BUILDINGS ADMINISTRATION TO DISREGARD HIS BID IN AWARDING THE WORK.

AFTER RECEIPT OF MR. SCHLETZE'S REFUSAL, THE AWARD WAS MADE TO M. T. GREEN THE LOWEST BONA FIDE BIDDER, WHOSE BID WAS ONLY $31.00 IN EXCESS OF THE ESTIMATE OF COSTS MADE BY THE DIVISION OFFICE OF PUBLIC BUILDINGS ADMINISTRATION. A LETTER OF AWARD WAS FORWARDED TO MR. GREEN UNDER THE DATE OF FEBRUARY 19, 1947. BY LETTER DATED FEBRUARY 24, 1947, WHICH WAS RECEIVED IN PUBLIC BUILDINGS ADMINISTRATION ON FEBRUARY 26, 1947, THE POST OFFICE CUSTODIAN ADVISED THAT MR. GREEN HAD SUBLET THE CONTRACT TO MR. TOM BROOM, OF VERNON, TEXAS, WHO HAS STARTED WORK ON THE CONTRACT ON THE MORNING OF FEBRUARY 24, 1947. EFFORTS WERE MADE IMMEDIATELY TO CONTACT MR. GREEN BY TELEPHONE, BUT HE COULD NOT BE REACHED UNTIL FEBRUARY 28, 1947, WHEN HE WAS ADVISED THAT NO SUBSTITUTION OF MATERIAL WOULD BE TOLERATED, AND HIS ATTENTION WAS FURTHER DIRECTED TO THE FACT THAT PARAGRAPH 37 OF THE GENERAL CONDITIONS REQUIRED HIS OWN ORGANIZATION TO PERFORM NOT LESS THAN 25 PERCENT OF THE WORK. ON MARCH 5, 1947, THE POST OFFICE CUSTODIAN FORWARDED TO PUBLIC BUILDINGS ADMINISTRATION SAMPLES OF CRUSHED ROCK AND SAND USED IN THE WORK, AND THESE SAMPLES WERE FOUND TO BE ENTIRELY IN ACCORDANCE WITH THE REQUIREMENTS OF THE SPECIFICATIONS. MARCH 14, 1947, THE WORK WAS COMPLETED, AND ON MARCH 25, 1947, INSPECTED BY AN OFFICIAL OF PUBLIC BUILDINGS ADMINISTRATION, WHO FOUND THE SIDEWALK TO HAVE BEEN INSTALLED SATISFACTORILY.

BY THE TIME PUBLIC BUILDINGS ADMINISTRATION BECAME AWARE OF THE FACT THAT THE CONTRACTOR WAS PERFORMING NO PART OF THE CONTRACT, THE WORK WAS WELL UNDER WAY, AND TO TERMINATE THIS SUBSTANTIALLY COMPLETED PROJECT WOULD ONLY HAVE WORKED A HARDSHIP ON THE SUB-CONTRACTOR, WHO WAS IN NO WAY TO BLAME.

ALTHOUGH PARAGRAPH 37 OF THE GENERAL CONDITIONS REQUIRED THAT THE CONTRACTOR SHOULD PERFORM AT LEAST 25 PERCENT OF THE WORK, THERE IS NO PROVISION FOR DAMAGES FOR FAILURE TO SO PERFORM. IT DOES, APPEAR, HOWEVER, THAT SOME ACTION SHOULD BE TAKEN TO PENALIZE THIS CONTRACTOR FOR HIS FLAGRANT DISREGARD FOR THE CONTRACT PROVISION, AND YOUR ADVICE IN THIS MATTER WILL BE APPRECIATED.

THE SETTLEMENT OF THIS CONTRACT WITH MR. GREEN WILL BE WITHHELD PENDING YOUR REPLY.

COPIES OF THE CONTRACT AND SPECIFICATIONS ARE ENCLOSED FOR YOUR INFORMATION.

IN ADDITION TO THE FACTS SET FORTH IN YOUR ABOVE-QUOTED LETTER, THIS OFFICE IS IN RECEIPT OF INFORMATION TO THE EFFECT THAT THE CONTRACTOR TO WHOM M. T. GREEN SUBLET THE ENTIRE WORK FOR $200 PERFORMED THE SAME SATISFACTORILY AND MADE A REASONABLE PROFIT THEREON.

IT APPEARS THAT THE CONTRACT WAS AWARDED TO THE LOWEST BIDDER COMPLYING WITH THE CONDITIONS OF THE INVITATION FOR BIDS AFTER ADVERTISING, AS REQUIRED BY SECTION 3709, REVISED STATUTES, AS AMENDED. THE SOLE QUESTION PRESENTED IN YOUR LETTER IS WHAT ACTION, IF ANY,"SHOULD BE TAKEN TO PENALIZE THIS CONTRACTOR" FOR SUBLETTING THE ENTIRE CONTRACT WORK IN COMPLETE DISREGARD OF THE PROVISIONS OF PARAGRAPH 37 OF THE GENERAL CONDITIONS OF THE CONTRACT UNDER WHICH THE CONTRACTOR WAS OBLIGATED TO "EXECUTE ON THE SITE, AND WITH HIS OWN ORGANIZATION, WORK EQUIVALENT TO AT LEAST 25 PERCENT OF THE TOTAL AMOUNT OF THE CONTRACT PRICE," THERE BEING NOTHING IN THE CONTRACT PRESCRIBING ANY SPECIFIC PENALTY FOR THE FAILURE OF THE CONTRACTOR TO ABIDE BY SAID PROVISIONS.

IT HAS BEEN HELD THAT AN INTENTIONAL DEPARTURE OR WILFUL DEFAULT IN THE PERFORMANCE OF A SUBSTANTIAL STIPULATION OF A CONSTRUCTION OR BUILDING CONTRACT CONSTITUTES SUCH BAD FAITH AS WILL BAR RECOVERY UNDER THE CONTRACT REGARDLESS OF THE PRESENCE OR ABSENCE OF AN INTENT TO GAIN OR OBTAIN SOME ADVANTAGE THEREBY. SMEDLEY V. WALDEN, 246 MASS. 393, 141 N.E. 281. ALSO, SEE WILLISTON ON CONTRACTS, REVISED EDITION, VOL. 3, SECTION 805, NOTE 10, AND SECTION 842, NOTE 4. THIS RULE HAS BEEN APPLIED EVEN IN CASES WHERE THE DEFAULT IN PERFORMANCE INVOLVES A STIPULATION WHICH DOES NOT GO TO THE ESSENCE OF THE CONTRACT. SIPLEY V. STICKNEY, 190 MASS. 43, 76 N.E. 226, 5 L.R.A. ( N.S.) 469. HOWEVER, WHILE A CONTRACTOR MAY NOT RECOVER ON THE CONTRACT BECAUSE OF WILFUL DEFAULT IN THE PERFORMANCE OF A SUBSTANTIAL STIPULATION THEREOF, THERE WOULD APPEAR TO BE NO LEGAL OBJECTION TO PAYMENT TO SUCH A CONTRACTOR ON A QUANTUM MERUIT BASIS FOR THE REASONABLE VALUE OF THE WORK PERFORMED AND MATERIALS FURNISHED. THE SMEDLEY CASE, SUPRA, WHERE THERE WAS INVOLVED A CONTRACT PROVISION--- SOMEWHAT SIMILAR TO THE PROVISION CONTAINED IN THE INSTANT CONTRACT--- THAT NO PORTION OF THE CONTRACT WORK SHOULD BE SUBLET EXCEPT BY PERMISSION OF THE OWNER AND WHERE THE QUESTION AROSE AS TO WHETHER SUBLETTING A PORTION OF THE WORK WITHOUT THE OWNER'S PERMISSION SHOULD BE CONSIDERED SUCH A DEFAULT AS TO BAR RECOVERY, THE COURT, AT PAGE 284, STATED:

(2) THE PROVISION OF THE CONTRACT THAT THERE SHALL BE NO ASSIGNMENT OR SUBLETTING OF ANY PORTION OF THE WORK EXCEPT BY PERMISSION OF THE OWNER IN WRITING MANIFESTLY IS AN IMPORTANT AND SUBSTANTIAL MATTER WHICH, AT THE LEAST, WAS INTENDED TO INSURE THE PERSONAL RESPONSIBILITY AND THE PERSONAL SUPERVISION OF THE CONTRACTOR FOR AND OVER EVERY PORTION OF THE WORK FROM ITS INCEPTION TO ITS COMPLETION. * * *

IN THE INSTANT CASE THE CONTRACTOR WAS WARNED WHEN THE CONTRACT WORK WAS IN PROGRESS THAT HE MUST COMPLY WITH THE CONTRACT PROVISION REQUIRING HIM TO PERFORM WITH HIS OWN FORCES AT LEAST 25 PERCENT OF THE WORK, BUT NEVERTHELESS HE FLAGRANTLY DISREGARDED THE WARNING AND ALLOWED THE SUBCONTRACTOR TO COMPLETE THE ENTIRE WORK. UNDER SUCH CIRCUMSTANCES, IT MUST BE CONCLUDED THAT THE CONTRACTOR WILFULLY BREACHED HIS CONTRACT AND, THEREFORE, IS ENTITLED TO PAYMENT ON A QUANTUM MERUIT BASIS, ONLY, RATHER THAN TO PAYMENT OF THE PRICE FIXED IN THE CONTRACT. IT DOES NOT APPEAR THAT THE FAIR AND REASONABLE VALUE OF THE WORK PERFORMED PROPERLY MAY BE SAID TO EXCEED THE CHARGE MADE THEREFOR BY THE SUBCONTRACTOR. ACCORDINGLY, THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT TO OTHERWISE PROPER PAYMENT TO THE CONTRACTOR OF AN AMOUNT NOT EXCEEDING SUCH CHARGE.