B-68670, AUGUST 25, 1947, 27 COMP. GEN. 117

B-68670, AUGUST 25, 1947, 27 COMP. GEN. 117

CONTRACTS - DAMAGES - DEFAULT UNDER CONTRACT FOR EXCHANGE - DISPOSITION OF AMOUNTS RECOVERED IF A CONTRACT FOR THE EXCHANGE OF SILK CARTRIDGE-BAG CLOTH FOR GOVERNMENT -OWNED SILK PARACHUTE CLOTH BE TERMINATED FOR NONDELIVERY AFTER THE GOVERNMENT HAD DELIVERED THE ENTIRE QUANTITY OF PARACHUTE SILK AS AN ADVANCE PAYMENT OF THE ENTIRE CONTRACT CONSIDERATION, MONEYS RECEIVED FROM SURETIES IN THE AMOUNT OF THE PERFORMANCE BOND, REPRESENTING THE VALUE OF THE PARACHUTE SILK DELIVERED, MAY BE REGARDED AS IN RECOUPMENT OF THE ADVANCE PAYMENT AND MAY BE USED FOR REPLACEMENT PURCHASE; HOWEVER, MONEYS RECOVERABLE IN EXCESS OF THE AMOUNT OF THE BOND CONSTITUTE COMPENSATION FOR LOSS AND DAMAGE AND WOULD BE FOR DEPOSITING AS MISCELLANEOUS RECEIPTS PURSUANT TO SECTION 3617, REVISED STATUTES.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, AUGUST 25, 1947:

THERE HAS BEEN RECEIVED YOUR LETTER OF AUGUST 7, 1947, REQUESTING A DECISION AS TO WHETHER CERTAIN MONEYS WHICH MAY BE RECEIVED BY THE WAR DEPARTMENT AS A RESULT OF THE DEFAULT OF THE GRANT AND SHENDELL MERCANTILE CORPORATION UNDER CONTRACT NO. W-28-017-ORD-1163 ARE REQUIRED TO BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, OR WHETHER SUCH MONEYS PROPERLY MAY BE USED BY THE WAR DEPARTMENT TO PURCHASE ELSEWHERE THE SUPPLIES CALLED FOR BY SAID CONTRACT.

THE FACTS, AS STATED IN YOUR LETTER, ARE AS FOLLOWS: CONTRACT NO. W 28- 017-ORD-1163 WAS ENTERED INTO WITH THE GRANT AND SHENDELL MERCANTILE CORPORATION ON APRIL 2, 1946, AS THE RESULT OF FORMAL ADVERTISING, AND BY THE TERMS THEREOF THE CONTRACTOR AGREED TO DELIVER TO THE GOVERNMENT 3,532,812.5 SQUARE YARDS OF SILK CARTRIDGE-BAG CLOTH AT THE RATE OF 250,000 SQUARE YARDS A MONTH BEGINNING NOVEMBER 1, 1946, AND ENDING JANUARY 1, 1948, IN EXCHANGE FOR 1,900,000 SQUARE YARDS OF SILK PARACHUTE CLOTH. ARTICLE 30 OF THE CONTRACT PROVIDES FOR TERMINATION OF THE CONTRACT IN THE EVENT OF DEFAULT BY THE CONTRACTOR, FOR THE ASSESSMENT OF EXCESS COSTS IF PURCHASE BE MADE ELSEWHERE, AND FOR LIQUIDATED DAMAGES AT THE RATE OF $100 A DAY FOR DELAY IN MAKING DELIVERY. A SURETY BOND IN THE AMOUNT OF $2,000,000 FOR THE FAITHFUL PERFORMANCE OF THE CONTRACT WAS REQUIRED BY THE INVITATION FOR BIDS, AND HAS BEEN FURNISHED. DELIVERY OF THE PARACHUTE CLOTH TO THE CONTRACTOR HAS BEEN MADE BY THE GOVERNMENT, BUT THE CONTRACTOR HAS FAILED TO MAKE DELIVERY OF ANY CARTRIDGE-BAG CLOTH, IN VIEW OF WHICH IT IS CONTEMPLATED THAT THE CONTRACT WILL BE TERMINATED FOR DEFAULT. IN THE EVENT OF TERMINATION IT IS ANTICIPATED THAT THE SURETIES ON THE BOND WILL NOT UNDERTAKE TO COMPLETE THE CONTRACT, BUT WILL PAY OVER TO THE WAR DEPARTMENT THE FULL AMOUNT OF THE BOND.

YOU STATE THAT THE WAR DEPARTMENT HAS NEED FOR THE SILK CARTRIDGE BAG, BUT THAT IT DOES NOT HAVE FUNDS PRESENTLY AVAILABLE TO PURCHASE SUCH CLOTH, UNLESS THE AMOUNT WHICH MAY BE PAID BY THE SURETIES MAY BE SO UTILIZED. IN VIEW THEREOF, YOU REQUEST A DECISION ON THE TWO FOLLOWING QUESTIONS:

1. IF THE WAR DEPARTMENT RECOVERS $2,000,000 FROM THE SURETY, ARE SUCH FUNDS AVAILABLE FOR USE BY THE WAR DEPARTMENT FOR THE PURCHASE OF SILK CARTRIDGE-BAG CLOTH ELSEWHERE?

2. IF THE LIABILITY OF THE CONTRACTOR, APART FROM LIQUIDATED DAMAGES, IS DETERMINED TO BE IN EXCESS OF $2,000,000 AND SUCH EXCESS IS RECOVERED, ARE SUCH MONIES AVAILABLE FOR USE BY THE WAR DEPARTMENT FOR THE PURCHASE OF SILK CARTRIDGE-BAG CLOTH ELSEWHERE?

AS SUGGESTED IN YOUR LETTER, THE LONG ESTABLISHED GENERAL RULE HAS BEEN AND IS THAT AMOUNTS RECOVERED FROM DEFAULTING CONTRACTORS FOR LOSSES OR DAMAGES RESULTING FROM THE FAILURE OF SAID CONTRACTORS TO PERFORM THEIR CONTRACTS MUST BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, AS REQUIRED BY SECTION 3617, REVISED STATUTES. 23 COMP. DEC. 352; 8 COMP. GEN. 284; 10 ED. 510. ALSO, IT IS REQUIRED BY SECTION 3618, REVISED STATUTES, THAT ALL PROCEEDS OF SALES OF PUBLIC PROPERTY SHALL BE SIMILARLY DEPOSITED AND NOT WITHDRAWN WITHOUT A SUBSEQUENT APPROPRIATION. BY REASON OF SAID SECTIONS 3617 AND 3618, REVISED STATUTES, AS WELL AS SECTIONS 3679 AND 3732, REVISED STATUTES, PROVIDING RESPECTIVELY THAT NO DEPARTMENT OF THE GOVERNMENT SHALL EXPEND IN ANY ONE FISCAL YEAR ANY SUM IN EXCESS OF APPROPRIATIONS MADE BY CONGRESS FOR THAT FISCAL YEAR AND THAT NO CONTRACT OR PURCHASE ON BEHALF OF THE UNITED STATES SHALL BE MADE UNLESS THE SAME IS AUTHORIZED BY LAW OR IS UNDER AN APPROPRIATION ADEQUATE TO ITS FULFILLMENT, IT HAS BEEN HELD THAT, IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORITY OTHERWISE, ANY AMOUNTS RECEIVED FOR GOVERNMENT PROPERTY DISPOSED OF EITHER BY DIRECT SALE OR IN WHOLE OR PARTIAL PAYMENT FOR NEW PROPERTY MUST BE COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS. 3 COMP. GEN. 304; 5 ID. 798; 15 ID. 811; 16 ID. 241. AS WAS STATED IN THE DECISION 16 COMP. GEN. 241, 243:

THE EXCHANGE OF OLD PROPERTY IN PARTIAL PAYMENT FOR NEW PROPERTY IS IN EFFECT THE SALE OF OLD PROPERTY AND THE APPLICATION OF ITS SALE PRICE TO THE PURCHASE PRICE OF THE NEW PROPERTY AND AS IT IS OBVIOUS THAT SUCH PROCEDURE DIRECTLY AUGMENTS THE APPROPRIATIONS OTHERWISE MADE AVAILABLE BY THE CONGRESS FOR THE PURPOSES OF THE SPENDING AGENCY AND THUS CLEARLY CONTRAVENES THE STATUTORY PROVISIONS CITED, SUCH PROCEDURE MAY NOT BE VIEWED AS LAWFUL EXCEPT WHERE IT IS EXPRESSLY AUTHORIZED BY STATUTE. * *

YOU STATE IN YOUR LETTER THAT THE INSTANT CONTRACT WAS ENTERED INTO UNDER AUTHORITY OF PUBLIC LAW 703, 76TH CONGRESS, 51 U.S.C. APP. 1171. SAID ACT, APPROVED JULY 2, 1940, 54 STAT. 712, WAS EXTENDED BY SECTION 13 OF THE ACT OF JUNE 5, 1942, 56 STAT. 317, AND PROVIDES, IN PERTINENT PART, AS FOLLOWS:

THAT (A) IN ORDER TO EXPEDITE THE BUILDING UP OF THE NATIONAL DEFENSE, THE SECRETARY OF WAR IS AUTHORIZED * * * WITH OR WITHOUT ADVERTISING * * * (3) TO ENTER INTO SUCH CONTRACTS (INCLUDING CONTRACTS * * * FOR THE EXCHANGE OF * * * SURPLUS MILITARY EQUIPMENT, MUNITIONS, AND SUPPLIES, FOR OTHER MILITARY EQUIPMENT, MUNITIONS, AND SUPPLIES OF WHICH THERE IS A SHORTAGE), AND TO AMEND OR SUPPLEMENT SUCH EXISTING CONTRACTS, AS HE MAY DEEM NECESSARY TO CARRY OUT THE PURPOSES SPECIFIED IN THIS SECTION * * *. THUS, THERE EXISTED STATUTORY AUTHORITY FOR THE MAKING OF THE CONTRACT IN QUESTION WITHOUT REGARD TO THE USUAL ADVERTISING REQUIREMENTS, EITHER AS TO THE NEW PROPERTY SOUGHT TO BE ACQUIRED OR AS TO THE OLD PROPERTY OFFERED IN EXCHANGE, AND IN THIS RESPECT THE STATUTE DIFFERS FROM THOSE WHICH AUTHORIZE THE EXCHANGE OF GOVERNMENT PROPERTY IN WHOLE OR PARTIAL PAYMENT FOR NEW PROPERTY OF THE SAME TYPE, BUT WHICH CONTAIN NO EXEMPTION FROM THE ADVERTISING REQUIREMENTS OF SECTION 3709, REVISED STATUTES, AS, FOR EXAMPLE, THE ACT OF MAY 11, 1939, 53 STAT. 739, CONSIDERED IN DECISION 19 COMP. GEN. 313 TO THE THEN SECRETARY OF WAR.

CLEARLY, THE INSTANT CONTRACT MIGHT HAVE PROVIDED FOR THE RELEASE OF THE PARACHUTE SILK PRO TANTO AS CARTRIDGE-BAG SILK WAS RECEIVED, OR FOR THE PASSAGE OF ONLY CONDITIONAL TITLE THERETO TO THE CONTRACTOR UNTIL EQUIVALENT DELIVERIES OF CARTRIDGE-BAG SILK HAD BEEN MADE, IN EITHER OF WHICH EVENTS THE PARACHUTE SILK WOULD HAVE REMAINED AVAILABLE TO THE WAR DEPARTMENT FOR FURTHER EXCHANGE IN THE EVENT OF TERMINATION OF THE CONTRACT FOR DEFAULT. DESPITE THE APPARENT DESIRABILITY OF SUCH OR SIMILAR CONDITIONS IN THE CONTRACT, COMPLETE AND UNCONDITIONAL DELIVERY OF THE PARACHUTE SILK APPEARS TO HAVE BEEN MADE TO THE CONTRACTOR, CONSTITUTING, IN EFFECT, AN ADVANCE PAYMENT OF THE ENTIRE CONTRACT CONSIDERATION. CONSEQUENTLY, ANY MONEYS RECEIVED BY THE WAR DEPARTMENT AS A RESULT OF THE CONTRACTOR'S DEFAULT--- TO THE EXTENT THAT THEY REPRESENT THE VALUE OF THE PARACHUTE SILK AT THE TIME OF THE EXECUTION OF THE CONTRACT FOR ITS EXCHANGE--- MAY BE VIEWED AS CONSTITUTING A RECOUPMENT OF SUCH ADVANCE PAYMENT. SUCH RECEIPTS, THEREFORE, PROPERLY SHOULD NOT BE CONSIDERED AS LIQUIDATION OF THE LOSS OR DAMAGE SUFFERED BY THE GOVERNMENT BY REASON OF THE CONTRACTOR'S DEFAULT, BUT RATHER AS A RESTORATION TO THE WAR DEPARTMENT OF THE CONSIDERATION WHICH ORIGINALLY WAS AVAILABLE TO IT FOR USE IN EXCHANGE FOR OTHER SUPPLIES. ACCORDINGLY, NO LEGAL OBJECTION IS PERCEIVED TO THE USE OF SUCH MONEYS FOR THE PURCHASE OF CARTRIDGE-BAG SILK FROM ANOTHER SOURCE IN THE EVENT THE CONTRACT WITH THE GRANT AND SHENDELL MERCANTILE CORPORATION IS TERMINATED FOR DEFAULT.

HOWEVER, SINCE THE INVITATION TO BID STATED THAT THE SUCCESSFUL BIDDER WOULD BE REQUIRED TO FURNISH A $2,000,000 PERFORMANCE BOND, AND IN VIEW OF THE FACT THAT THE PARACHUTE SILK WAS DELIVERED UNCONDITIONALLY TO THE ULTIMATE CONTRACTOR BEFORE ANY DELIVERIES WERE RECEIVED FROM HIM--- REQUIRING THE CONCLUSION THAT THE MONETARY EQUIVALENT OF THE CONSIDERATION ORIGINALLY AVAILABLE TO THE WAR DEPARTMENT FOR EXCHANGE WAS CONSIDERED TO BE NO MORE THAN $2,000,000--- ANY AMOUNTS IN ADDITION THERETO WHICH MAY BE RECOVERED AS A RESULT OF THE CONTRACTOR'S DEFAULT NECESSARILY MUST BE VIEWED AS COMPENSATION FOR LOSS OR DAMAGE OCCASIONED THE GOVERNMENT BY SUCH DEFAULT, AND ARE REQUIRED TO BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS IN ACCORDANCE WITH SECTION 3617, REVISED STATUTES.

ACCORDINGLY, YOUR FIRST QUESTION IS ANSWERED IN THE AFFIRMATIVE, AND YOUR SECOND QUESTION IN THE NEGATIVE.