B-83260, FEBRUARY 18, 1949, 28 COMP. GEN. 468

B-83260, FEBRUARY 18, 1949, 28 COMP. GEN. 468

CONTRACTS - PAYMENTS - IN ADVANCE OF COMPLETION OF EQUIPMENT NOTWITHSTANDING THE ADVANCE PAYMENT PROHIBITION OF SECTION 3648, REVISED STATUTES, A DEVELOPMENT AND CONSTRUCTION CONTRACT CONTAINING A RECAPTURE PROVISION PERMITTING THE GOVERNMENT, AT ITS OPTION, TO PURCHASE A MACHINE DEVELOPED IN CONNECTION WITH THE CONSTRUCTION WORK MAY BE MODIFIED SO AS TO PERMIT IMMEDIATE PARTIAL PAYMENT FOR THE UNCOMPLETED MACHINE UPON THE CONTRACTOR'S RELINQUISHING TITLE TO THE GOVERNMENT FREE OF ALL ENCUMBRANCES, WHERE SURETY'S CONSENT WILL BE SECURED UNDER A SUFFICIENT BOND, PROVIDED THE MODIFYING INSTRUMENT REQUIRES THE CONTRACTOR TO BE RESPONSIBLE ABSOLUTELY--- NOT AS A MERE BAILEE--- WHILE THE EQUIPMENT REMAINS IN HIS POSSESSION.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE ARMY, FEBRUARY 18, 1949:

I HAVE YOUR LETTER OF JANUARY 28, 1949, WITH ENCLOSURES, REQUESTING A DECISION AS TO WHETHER THERE WOULD BE ANY OBJECTION TO THE PROPOSED MODIFICATION OF CONTRACT NO. W-40-041-ENG-547, ENTERED INTO WITH KERR CONSTRUCTION COMPANY, TO PROVIDE A LUMP-SUM PAYMENT TO THE CONTRACTOR FOR THE DEVELOPMENT OF A TRENCHING MACHINE AND A REDUCED UNIT PRICE PAYMENT FOR THE CONSTRUCTION OF A CUTOFF WALL.

IT APPEARS FROM REFERENCE TO PARAGRAPH 1-O1 (B) OF THE SPECIFICATIONS THAT THE PRIMARY PURPOSE OF THE CONTRACT IS THE DEVELOPMENT OF THE NECESSARY EQUIPMENT AND PROCEDURES FOR THE CONSTRUCTION OF APPROXIMATELY 6,900 LINEAR FEET OF CUTOFF WALL TO DEPTHS GREATER THAN 40 FEET. ALSO, THE SPECIFICATIONS EMPHASIZE THE DEVELOPMENT OF A SPECIAL DITCHING OR EXCAVATING MACHINE IS ONE OF THE ,MAJOR REQUIREMENTS" OF THE CONTRACT AND IS THE ENTIRE RESPONSIBILITY OF THE CONTRACTOR. THE CONTRACTOR UNDERTOOK TO CONSTRUCT AN EXTENSION SECTION FOR THE DIGGING LADDER OF A TRENCHING MACHINE TO PERMIT THE DIGGING OF A TRENCH 50 FEET DEEP AND TO FURNISH SUFFICIENT BUCKET LINE FOR USE WITH SUCH EXTENSION SECTION. PAYMENT FOR THE CONTRACT WORK IS TO BE MADE AT THE RATE OF $26.50 PER LINEAR FOOT FOR THE CUTOFF WALL--- APPROXIMATELY 6,900 FEET--- AND AT THE RATE OF $0.37 PER CUBIC YARD FOR THE ESTIMATED 31,000 CUBIC YARDS OF TIE-IN BERM. THE CONTRACT CONTAINS A RECAPTURE PROVISION PERMITTING THE GOVERNMENT, AT ITS OPTION, TO PURCHASE THE COMPLETED TRENCHING MACHINE FOR $17,000. PROVISION IS MADE FOR SEPARATE PAYMENTS BY THE GOVERNMENT FOR THE DEVELOPMENT WORK UNDERTAKEN BY THE CONTRACTOR. THE CONTRACT IS SUPPORTED BY A PERFORMANCE BOND IN THE PENAL SUM OF $100,955.

IT IS STATED THAT THE CONTRACTOR HAS PROCEEDED DILIGENTLY WITH THE DEVELOPMENT AND CONSTRUCTION OF THE TRENCHING MACHINE BUT HAS BEEN UNABLE, AS YET, TO COMPLETE SAID MACHINE AND TO COMMENCE OPERATION ON THE CUTOFF WALL. AS A CONSEQUENCE, HE HAS NOT RECEIVED ANY PAYMENT UNDER THE CONTRACT AND, BECAUSE OF THE UNANTICIPATED HEAVY EXPENSES OF DEVELOPING THE MACHINE, HE FINDS HIMSELF WITHOUT FUNDS WITH WHICH TO COMPLETE THE DEVELOPMENT WORK AND TO PROCEED WITH THE CONSTRUCTION OF THE CUTOFF WALL. IT IS STATED FURTHER THAT THE GOVERNMENT HAS RECEIVED CONCRETE BENEFITS BY WAY OF EXPERIENCE FROM THE CONTRACTOR'S PERFORMANCE TO DATE; THAT THE DEVELOPMENT OF THE MACHINE IS ESTIMATED TO BE 85 PERCENT COMPLETE; THAT IF THE CONTRACTOR WERE TO BE COMPELLED TO ABANDON THE CONTRACT, THE INTERESTS OF THE GOVERNMENT WOULD BE SEVERELY PREJUDICED SINCE THERE IS NO OTHER KNOWN CONTRACTOR NOW ABLE OR WILLING TO PERFORM THE WORK REQUIRED BY THE CONTRACT; AND THAT IT IS DESIRED THAT THE WORK BE CONTINUED SO THAT THE GOVERNMENT MAY OBTAIN THE BENEFITS OF THE CONTRACTOR'S KNOWLEDGE OF THE MACHINE AND THE PROBLEMS STILL TO BE SOLVED.

IT IS PROPOSED TO MODIFY THE CONTRACT TO PROVIDE A DIFFERENT METHOD OF PAYMENT THEREUNDER. UNDER THE CONTRACT AS EXECUTED, THE APPROXIMATE TOTAL CONTRACT PRICE IS $201,910, OF WHICH $11,470 IS FOR CONSTRUCTION OF TIE-IN BERM AND THE BALANCE OF $190,440 IS FOR DEVELOPMENT OF THE TRENCHING MACHINE AND THE CONSTRUCTION OF THE CUTOFF WALL. IT IS ESTIMATED BY YOUR OFFICE THAT 40 PERCENT OF THE LATTER AMOUNT, OR $76,176 IS ALLOCABLE TO THE DEVELOPMENT PORTION OF THE CONTRACT AND 60 PERCENT, OR $114,267 ($114,264), IS ALLOCABLE TO THE ACTUAL CONSTRUCTION OF THE CUTOFF WALL. THE PROPOSED MODIFICATION WOULD PERMIT IMMEDIATE PAYMENT TO THE CONTRACTOR --- BASED UPON THE EXTENT TO WHICH THE MACHINE HAS BEEN COMPLETED--- OF 85 PERCENT OF $76,176, OR $64,749.60, LESS 10 PERCENT TO BE RETAINED UNDER ARTICLE 16 OF THE CONTRACT. ALSO, UNDER THE PROPOSED MODIFICATION, THE CONTRACTOR WOULD BE REQUIRED TO BELIEVE THE MACHINE OF ALL EXISTING ENCUMBRANCES AND LIENS, AND TITLE TO THE MACHINE AND ALL FUTURE IMPROVEMENTS WOULD BE TRANSFERRED TO THE GOVERNMENT. THE PROPOSED MODIFICATION WOULD PROVIDE, FURTHER, FOR THE REDUCTION OF THE UNIT PRICE PER LINEAR FOOT OF COMPLETED CUTOFF WALL FROM $27.60 TO $15.06, THUS REDUCING THE CONTRACT CONSIDERATION BY $10,350.

THE PRIMARY QUESTION FOR CONSIDERATION HERE IS WHETHER PAYMENTS TO BE MADE UNDER THE PROPOSED MODIFICATION WOULD BE INHIBITED BY THE PROVISIONS OF SECTION 3648, REVISED STATUTES, AS AMENDED, 31 U.S.C. 529, IN PERTINENT PART AS FOLLOWS:

NO ADVANCE OF PUBLIC MONEY SHALL BE MADE IN ANY CASE UNLESS AUTHORIZED BY THE APPROPRIATION CONCERNED OR OTHER LAW. AND IN ALL CASES OF CONTRACTS FOR THE PERFORMANCE OF ANY SERVICE, OR THE DELIVERY OF ARTICLES OF ANY DESCRIPTION, FOR THE USE OF THE UNITED STATES, PAYMENT SHALL NOT EXCEED THE VALUE OF THE SERVICE RENDERED OR OF THE ARTICLES DELIVERED PREVIOUSLY TO SUCH PAYMENT. * * *

A QUESTION SIMILAR TO THAT PRESENTED IN YOUR LETTER WAS CONSIDERED IN 20 COMP. GEN. 917, WHEREIN IT WAS STATED:

WHILE, UNDER THE PROHIBITION OF THE STATUTE, PAYMENT MAY NOT BE MADE FOR ARTICLES IN WHICH THE UNITED STATES HAS ACQUIRED NO RIGHT OR INTEREST AND FROM WHICH IT DERIVES NO BENEFIT, PAYMENT MAY BE MADE FOR ARTICLES IN ADVANCE OF THEIR DELIVERY INTO THE ACTUAL POSSESSION OF THE UNITED STATES IF TITLE THEREIN HAS VESTED IN THE GOVERNMENT AT THE TIME OF SUCH PAYMENT, OR IF THE ARTICLES ARE IMPRESSED WITH A VALID LIEN IN FAVOR OF THE UNITED STATES IN AN AMOUNT AT LEAST EQUAL TO THE PAYMENT. 1 COMP. GEN. 143, 17 COMP. DEC. 894; 29 OP. ATTY. GEN. 46. AND, WHERE SUCH PROCEDURE WOULD BE IN THE INTEREST OF THE GOVERNMENT, AND, WHERE SUCH PROCEDURE WOULD BE IN THE INTEREST OF THE GOVERNMENT, AN EXISTING CONTRACT MAY BE MODIFIED TO PROVIDE THAT TITLE TO ARTICLES TO BE FURNISHED THEREUNDER WILL PASS TO THE UNITED STATES, AND PARTIAL PAYMENTS MAY BE MADE UNDER A CONTRACT SO MODIFIED. SEE ALSO 21 OP. ATTY. GEN. 12. UNDER THE PROPOSED MODIFICATION, TITLE TO THE EQUIPMENT IN QUESTION PASSES TO THE UNITED STATES UPON THE MAKING OF PARTIAL PAYMENTS THEREFOR AND THE CONTRACTOR AGREES TO CLEAR THE SAID EQUIPMENT OF ALL LIENS AND ENCUMBRANCES UPON RECEIVING THE PAYMENTS FOR THE EQUIPMENT. IN THIS CONNECTION, IT APPEARS THAT THE CONSENT OF THE SURETY TO THE EXECUTION OF THE PROPOSED MODIFICATION IS TO BE SECURED, AND IT WOULD APPEAR THAT THE AMOUNT OF THE SURETY'S BOND IS SUFFICIENT TO PROTECT THE INTEREST OF THE UNITED STATES IN THE EVENT THAT THE CONTRACTOR SHOULD FAIL TO CLEAR THE EQUIPMENT OF ALL LIENS AND ENCUMBRANCES. IT IS SUGGESTED THAT IT SHOULD BE PROVIDED IN THE PROPOSED MODIFICATION THAT THE CONTRACTOR SHALL BE RESPONSIBLE ABSOLUTELY, AND NOT AS A MERE BAILEE, FOR THE TRENCHING MACHINE WHILE IT REMAINS IN HIS POSSESSION.

UPON THE ADDITION TO THE PROPOSED MODIFICATION OF THE PROVISION SUGGESTED HEREINABOVE, THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT TO THE EXECUTION OF SAID MODIFICATION.

COPIES OF THE CONTRACT AND PROPOSED SUPPLEMENTAL AGREEMENT ARE RETURNED HEREWITH.