A-98157, A-96059, OCTOBER 12, 1938, 18 COMP. GEN. 330

A-98157, A-96059, OCTOBER 12, 1938, 18 COMP. GEN. 330

CONTRACTS - BIDDER AND SURETY'S QUALIFICATIONS - PRIOR CONTRACT DEFAULT AND INDEBTEDNESS - EFFECT ON NEW CONTRACT AWARD AND PROGRESS PAYMENTS AWARD MAY BE MADE TO THE LOW BIDDER ON PUBLIC BUILDING CONSTRUCTION WORK NOTWITHSTANDING A POSSIBLE GOVERNMENT INDEBTEDNESS OF THE BIDDER AND THE PROPOSED SURETIES UNDER ANOTHER AND PRIOR CONTRACT AWARD, IF THE FINANCIAL RESOURCES, ETC., OF THE CONTRACTOR AND PROPOSED SURETIES ARE FOUND SUFFICIENT UNDER THE CIRCUMSTANCES, BUT THE BIDDER CANNOT BE REQUIRED, WITHOUT HIS CONSENT, TO FURNISH SURETIES ON HIS PAYMENT AND PERFORMANCE BONDS OTHER THAN AS SPECIFIED IN HIS BID, NOR MAY PROGRESS PAYMENTS BE MADE TO THE CONTRACTOR UNDER THE NEW CONTRACT AWARD AFTER THERE HAS BEEN FOUND, AND BEFORE THERE HAS BEEN LIQUIDATED, THE GOVERNMENT DEBT ARISING OUT OF THE PRIOR CONTRACT DEFAULT.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF THE TREASURY, OCTOBER 12, 1938:

THERE WAS RECEIVED YOUR LETTER OF SEPTEMBER 22, 1938, AS FOLLOWS:

ON SEPTEMBER 13, 1938, BIDS WERE OPENED FOR THE CONSTRUCTION OF THE GREENVILLE, MICHIGAN, POST OFFICE, AND THAT OF HENRY DATTNER, 1515 BARLUM TOWER, DETROIT, MICHIGAN, IN THE AMOUNT OF $52,000, WAS THE LOW BID. THE SECOND BID, IN THE AMOUNT OF $54,787, WAS BY CARL WESTBERG AND CO., INC., 6234 S. OAKLEY AVENUE, CHICAGO, ILLINOIS, AND TEN OTHER BIDS WERE RECEIVED.

THE ACCEPTABILITY OF DATTNER'S BID TURNS UPON FACTS PREVIOUSLY REPORTED TO YOU BY DEPARTMENT LETTERS OF AUGUST 5 AND SEPTEMBER 10, 1938, YOUR FILE:A-96059, CONCERNING A LOW BID SUBMITTED BY HIM FOR CONSTRUCTION OF THE POST OFFICE AND COURT HOUSE AT ST. JOSEPH, MISSOURI, AND ALSO A CLAIM OF THE UNITED STATES AGAINST HIM IN THE AMOUNT OF $152,799 FOR EXCESS COST RESULTING FROM HIS DEFAULT UNDER CONTRACT TLPW-4762, AWARDED JUNE 29, 1936, FOR THE EXTENSION AND REMODELING OF THE POST OFFICE AND COURT HOUSE AT INDIANAPOLIS, INDIANA. THE LAST MENTIONED LETTER SUBMITTED THIS CLAIM TO YOUR OFFICE FOR SETTLEMENT.

THE SITUATION PRESENTED HERE IS QUITE SIMILAR TO THAT INVOLVED IN THE ST. JOSEPH, MISSOURI, CASE AS DATTNER HAS STATED IN THE "STATEMENT OF FACTS" ACCOMPANYING HIS BID, AS TO THE SURETIES TO BE FURNISHED FOR THE PERFORMANCE AND PAYMENT BONDS UNDER THE CONTRACT: "PERSONAL SURETIES ONLY, THE SAME AS USED ON ERIE, PA. COURT HOUSE.' THE BID BOND IS EXECUTED BY CLARENCE E. LEHR AND F. P. SADOWSKI, AND PRESUMABLY THESE INDIVIDUALS ARE THE INTENDED SURETIES, AS THEY WERE FOR THE ERIE CONTRACT, NO. TLPB-2559, DATED JULY 31, 1937. THERE IS NO INDICATION THAT DATTNER EXPECTS TO FURNISH ADDITIONAL SECURITY IN THE FORM OF GOVERNMENT BONDS, EXCEPT FOR THE POSSIBILITY THAT THE REFERENCE TO THE ERIE CONTRACT WAS SO INTENDED. AS YOU WERE ADVISED BY THE ABOVE MENTIONED LETTER OF AUGUST 5TH, LEHR AND SADOWSKI ARE NOT REGARDED AS ACCEPTABLE SURETIES ON FURTHER BONDS UNTIL THE MATTER OF THEIR LIABILITY UNDER THE $28,000 BID BOND IN THE INDIANAPOLIS CASE IS DISPOSED OF.

A FURTHER DIFFICULTY IS OCCASIONED BY THE POSSIBILITY THAT YOUR OFFICE WOULD REQUIRE THE WITHHOLDING OF ALL AMOUNTS BECOMING DUE UNDER THE CONTRACT, IF AWARDED, UNTIL IT IS DETERMINED WHETHER THEY SHOULD BE APPLIED IN PARTIAL SATISFACTION OF THE GOVERNMENT'S CLAIM IN THE INDIANAPOLIS CASE, UPON SETTLEMENT THEREOF. IN THIS CONNECTION, THE DEPARTMENT'S ABOVE MENTIONED REPORTS OF AUGUST 5 AND SEPTEMBER 10, 1938, WERE INACCURATE IN STATING THAT GOVERNMENT BONDS OF A CURRENT APPROXIMATE VALUE OF $101,666.83 ARE NOW HELD AS ADDITIONAL SECURITY FOR THE PERFORMANCE AND PAYMENT BONDS FOR DATTNER'S RECENT CONTRACTS. THIS SUM INCLUDES $30,000 OF THE RETAINED PERCENTAGES UNDER THE ERIE CONTRACT, WHICH, UNDER ARTICLE 16 (D) THEREOF, AT PAGE 8, ARE TO BE WITHHELD BY THE GOVERNMENT FOR A PERIOD OF ONE YEAR FROM THE DATE OF FINAL SETTLEMENT, OR UNTIL THE DISPOSITION OF ANY SUIT BROUGHT WITHIN THAT PERIOD UNDER THE MILLER ACT, 49 STAT. 793, U.S.C. TITLE 40, SEC. 270 B. THE ASSETS IN THE HANDS OF AN APPROXIMATE VALUE OF $71,666.83, THE $28,000 BID BOND, AND THE RETAINED PERCENTAGES UNDER THE ERIE CONTRACT, AT PRESENT AGGREGATING $36,450; AND THE TOTAL FALLS SHORT OF THE AMOUNT NEEDED, EVEN ASSUMING THE COLLECTIBILITY OF THE BID BOND AND THE FULL AVAILABILITY OF THE GOVERNMENT BONDS AND RETAINED PERCENTAGES UPON THE EXPIRATION OF SURETYSHIP OBLIGATIONS FOR WHICH THEY ARE PLEDGED.

THE DEPARTMENT'S VIEWS WITH RESPECT TO THE CONSEQUENCES OF WITHHOLDING PROGRESS PAYMENTS UNDER CONSTRUCTION CONTRACTS ARE CONTAINED IN LETTERS DATES MAY 9 AND 28, 1938, SET FORTH IN YOUR DECISION OF MAY 23, AND JUNE 6, 1938, A-92202, RELATIVE TO THE CONTRACT FOR CONSTRUCTION OF THE METAL DEPOSITORY BUILDING AT WEST POINT, NEW YORK. THE PRESENT CASE IS DISTINGUISHABLE ONLY IN THAT THE CONTRACT, IF AWARDED, WILL HAVE BEEN MADE WITH KNOWLEDGE OF AN ANTECEDENT CLAIM. IT WOULD SEEM THAT A CONTRACT BY WHICH THE GOVERNMENT PROMISES TO MAKE PARTIAL PAYMENTS SHOULD NOT BE AWARDED IF THE PAYMENTS ARE TO BE WITHHELD, OR, IF THE CONTRACT IS AWARDED, THAT THE PROMISED PAYMENTS SHOULD BE MADE.

UNDER THE CIRCUMSTANCES, THE DEPARTMENT WOULD APPRECIATE AN EARLY DECISION ON THE FOLLOWING QUESTIONS:

1. MAY DATTNER'S BID IN THIS CASE BE ACCEPTED WITH THE UNDERSTANDING THAT YOUR OFFICE WILL NOT REQUIRE THE WITHHOLDING OF ANY PAYMENTS UNDER THE CONTRACT FOR THE COLLECTION OF THE GOVERNMENT'S CLAIM IN THE INDIANAPOLIS CASE?

2. IF YOUR ANSWER TO THE FIRST QUESTION IS IN THE AFFIRMATIVE, MAY THE DEPARTMENT REQUIRE DATTNER TO FURNISH ADEQUATE ASSURANCES, PRIOR TO AWARD, THAT PERFORMANCE AND PAYMENT BONDS WITH SATISFACTORY SURETY OR SURETIES WILL BE FURNISHED FOR THE CONTRACT WITHOUT RESORT EITHER TO LEHR AND SADOWSKI OR TO THE GOVERNMENT BONDS NOW HELD BY THE DEPARTMENT? INVOLVED IN THIS QUESTION IS THE SUBSIDIARY ONE, WHETHER DATTNER'S BID IN THIS CASE IS QUALIFIED BY THE ABOVE-QUOTED STATEMENT AS TO THE SURETIES WHICH HE WILL FURNISH.

3. IN THE EVENT THAT YOUR ANSWER TO THE FIRST QUESTION IS IN THE NEGATIVE, OR IN THE EVENT THAT DATTNER SHOULD FALL OR REFUSE TO FURNISH ASSURANCES OF THE NATURE INDICATED IN THE SECOND QUESTION, MAY THE DEPARTMENT PROPERLY FIND IN VIEW OF THE CIRCUMSTANCES THAT HE IS NOT FINANCIALLY QUALIFIED TO UNDERTAKE THE CONTRACT, AND THEREUPON MAKE AWARD TO THE SECOND BIDDER?

THE TIME FOR ACTION ON THE BIDS WILL EXPIRE OCTOBER 28TH, AND THE DEPARTMENT WILL APPRECIATE A DECISION SUFFICIENTLY IN ADVANCE OF THAT DATE TO PERMIT ANY NECESSARY ADMINISTRATIVE ACTION.

THERE ARE ENCLOSED FOR CONSIDERATION A COPY OF THE ADVERTISED SPECIFICATIONS, AN ABSTRACT OF THE BIDS, AND PHOTOSTATIC COPIES OF THE BID, BID BOND, AND STATEMENT OF FACTS SUBMITTED BY DATTNER.

IN INSTANT MATTER YOU QUESTION THE RESPONSIBILITY OF HENRY DATTNER,WHOSE BID OF $52,000 IS THE LOWEST BID RECEIVED FOR THE CONSTRUCTION OF THE UNITED STATES POST OFFICE BUILDING AT GREENVILLE, MICHIGAN. UNDER EXISTING STATUTES CONTRACTORS FOR PUBLIC BUILDINGS OR WORKS ARE REQUIRED TO GIVE PERFORMANCE AND PAYMENT BONDS WITH GOOD AND SUFFICIENT SURETIES NOT ONLY TO PROTECT THE UNITED STATES BUT TO PAY FOR LABOR AND MATERIAL ENTERING INTO THE WORK. ONE OF THE PURPOSES OF THESE BONDS IS TO SUPPLY SOME ASSURANCE THAT THE CONTRACTOR POSSESSES, OR IS IN A POSITION TO SECURE, BOTH THE MEANS AND THE TALENT TO CARRY OUT HIS UNDERTAKING. HOWEVER, IT WOULD NOT BE PROPER OR IN THE INTERESTS OF THE UNITED STATES TO MAKE AN AWARD OF A CONTRACT TO A BIDDER LACKING THE ESSENTIAL QUALIFICATIONS AND THE MEANS OF FAIRLY AND SUCCESSFULLY PERFORMING ITS OBLIGATIONS UNDER A CONTRACT FOR THE CONSTRUCTION OF A PUBLIC BUILDING OF ANY CONSIDERABLE MAGNITUDE. SEE 8 COMP. GEN. 252; 14 ID. 78.

IN INSTANT MATTER THE SURETIES ON THE BID BOND OF HENRY DATTNER, THE LOW BIDDER, ARE CLARENCE E. LEHR AND F. P. SADOWSKI, WHO APPEAR TO HAVE HERETOFORE BEEN SURETIES ON MANY BID AND PERFORMANCE BONDS OF SAID HENRY DATTNER IN CONNECTION WITH PRIOR GOVERNMENT BUILDING CONTRACTS, AS SHOWN IN YOUR ABOVE-QUOTED LETTERS. BY LETTER OF SEPTEMBER 10, 1938, SUPRA, THERE WAS ADMINISTRATIVELY REPORTED AN INDEBTEDNESS OF $152,799 TO BE CHARGED AGAINST THE LOW BIDDER, HENRY DATTNER, AND THE SURETIES ON HIS BID BOND, RESULTING FROM HIS DEFAULT UNDER TREASURY DEPARTMENT CONTRACT NO. TLPW-4762, AWARDED TO HIM ON JUNE 29, 1936, FOR THE EXTENSION AND REMODELING OF THE UNITED STATES POST OFFICE AND COURTHOUSE BUILDING AT INDIANAPOLIS, INDIANA, NECESSITATING THE SUBSEQUENT RELETTING OF THE CONTRACT FOR THE WORK TO THE GREAT LAKES CONSTRUCTION COMPANY AT AN INCREASED PRICE OF $152,799 IN EXCESS OF THE DEFAULTING BIDDER'S SUBMITTED PRICE THEREFOR. THE BID BOND OF SAID DEFAULTING CONTRACTOR FOR REMODELING THE INDIANAPOLIS POST OFFICE AND COURTHOUSE BUILDING WAS DATED FEBRUARY 14, 1936, AND PROVIDED THAT HENRY DATTNER, AS PRINCIPAL, AND CLARENCE E. LEHR AND F. P. SADOWSKI, AS SURETIES, WERE BOUND TO THE UNITED STATES IN THE PENAL SUM OF $28,000 UNDER CONDITIONS THEREIN STATED AS FOLLOWS:

NOW, THEREFORE, IF THE PRINCIPAL SHALL NOT WITHDRAW SAID BID WITHIN THE PERIOD, SPECIFIED THEREIN AFTER THE OPENING OF THE SAME, OR, IF NO PERIOD BE SPECIFIED, WITHIN SIXTY (60) DAYS AFTER SAID OPENING, AND SHALL WITHIN THE PERIOD SPECIFIED THEREFOR, OR IF NO PERIOD BE SPECIFIED, WITHIN TEN (10) DAYS AFTER THE PRESCRIBED FORMS ARE PRESENTED TO HIM FOR SIGNATURE, ENTER INTO A WRITTEN CONTRACT WITH THE GOVERNMENT, IN ACCORDANCE WITH THE BID AS ACCEPTED, AND GIVE BOND WITH GOOD AND SUFFICIENT SURETY OR SURETIES, AS MAY BE REQUIRED, FOR THE FAITHFUL PERFORMANCE AND PROPER FULFILLMENT OF SUCH CONTRACT, OR IN THE EVENT OF THE WITHDRAWAL OF SAID BID WITHIN THE PERIOD SPECIFIED, OR THE FAILURE TO ENTER INTO SUCH CONTRACT AND GIVE SUCH BOND WITHIN THE TIME SPECIFIED, IF THE PRINCIPAL SHALL PAY THE GOVERNMENT THE DIFFERENCE BETWEEN THE AMOUNT SPECIFIED IN SAID BID AND THE AMOUNT FOR WHICH THE GOVERNMENT MAY PROCURE THE REQUIRED WORK AND/OR SUPPLIES, IF THE LATTER AMOUNT BE IN EXCESS OF THE FORMER, THEN THE ABOVE OBLIGATION SHALL BE VOID AND OF NO EFFECT, OTHERWISE TO REMAIN IN FULL FORCE AND VIRTUE.

IT APPEARS, HOWEVER, THAT HENRY DATTNER AND THE SURETIES ON HIS BID BOND HAVE DENIED LIABILITY FOR ANY PART OF THE REPORTED INDEBTEDNESS OF $152,799, INASMUCH AS THE CONTRACTING OFFICER BY LETTER OF AUGUST 25, 1936, WITHDREW THE PRIOR ACCEPTANCE OF MR. DATTNER'S BID ON THE INDIANAPOLIS, INDIANA, FEDERAL BUILDING PROJECT AND CANCELLED SUCH ACCEPTANCE. SUCH DISPUTED CLAIM NOW IS PENDING IN THIS OFFICE FOR CONSIDERATION AND SETTLEMENT IN DUE COURSE. IF IT SHOULD BE DETERMINED, HOWEVER, BY PROPER SETTLEMENT OR DECISION OF THIS OFFICE THAT THE DEFAULTING BIDDER IS LIABLE FOR ANY PART OF SUCH REPORTED $152,799 INDEBTEDNESS, IT WOULD SEEM THAT THERE CAN BE NO QUESTION EITHER OF THE AUTHORITY OR THE DUTY OF THIS OFFICE TO COLLECT SUCH DAMAGES FOUND TO HAVE RESULTED FROM THE DEFAULTING CONTRACTOR'S BREACH FROM AMOUNTS OTHERWISE DUE THE DEFAULTING CONTRACTOR UNDER OTHER GOVERNMENT CONTRACTS. SEE KEITH V. UNITED STATES, 72 CT.CLS. 236-244; AMERICAN SANITARY RUG MANUFACTURING CO. V. UNITED STATES, 84 ID. 817.

IN CONNECTION WITH THIS MATTER IT IS NOTED THAT SUBSEQUENT TO YOUR REPORT OF AUGUST 5, 1938, SUPRA, RELATIVE TO THE LIABILITY OF SAID HENRY DATTNER AND HIS BID BOND SURETIES FOR THE $152,799 INDEBTEDNESS REPORTED AS RESULTING FROM HIS FAILURE TO FURNISH SATISFACTORY PERFORMANCE BOND FOR THE FEDERAL BUILDING AT INDIANAPOLIS, INDIANA, AS REQUIRED BY HIS BID BOND, SAID DEFAULTING BIDDER WAS INVITED TO SUBMIT A BID IN INSTANT MATTER FOR CONSTRUCTION OF THE FEDERAL POST OFFICE BUILDING AT GREENVILLE, MICHIGAN. HAVING SUBMITTED HIS BID WITH ACCOMPANYING BID BOND, IN ACCORDANCE WITH THE INVITATION THEREFOR, SAME IS FOR ADMINISTRATIVE CONSIDERATION WITH THE OTHER SUBMITTED BIDS FOR THE PROJECT. IN AWARDING THE CONTRACT FOR SUCH WORK, HOWEVER, THERE MAY BE TAKEN INTO CONSIDERATION THE FINANCIAL RESOURCES OF THE CONTRACTOR SUFFICIENT TO ENABLE HIM TO FINANCE SUCH PART OF THE WORK AS IS NOT FINANCED BY THE UNITED STATES, AND THE FINANCIAL RESOURCES AND REAL ESTATE HOLDINGS OF THE CONTRACTOR AND HIS PROPOSED SURETIES ON THE PERFORMANCE BOND.

UNTIL SUCH TIME, OF COURSE, AS BY PROPER SETTLEMENT OR DECISION OF THIS OFFICE IN THE MATTER THE LIABILITY OF SAID DEFAULTING BIDDER AND HIS BID BOND SURETIES ON THE INDIANAPOLIS, INDIANA, PROJECT HAS BEEN DETERMINED, THIS OFFICE WILL NOT OBJECT TO THE MAKING BY YOUR DEPARTMENT OF OTHERWISE PROPER PROGRESS PAYMENTS UNDER A CONTRACT AWARDED HEREIN TO THE LOW BIDDER, IF SAME BE SO AWARDED.

ACCORDINGLY, YOU ARE ADVISED SPECIFICALLY ON THE THREE QUESTIONS SUBMITTED IN YOUR LETTER OF SEPTEMBER 22, 1938, AS FOLLOWS:

1. THE BID MAY BE ACCEPTED IF OTHERWISE CORRECT BUT NOT WITH THE UNDERSTANDING SUGGESTED.

2. IF DATTNER'S BID IS ACCEPTED, THE ACCEPTANCE MUST BE IN ACCORDANCE WITH THE TERMS THEREOF AND DATTNER CANNOT BE REQUIRED TO FURNISH SURETIES ON HIS PAYMENT AND PERFORMANCE BONDS CONTRARY TO ANY SURETIES HE MAY HAVE SPECIFIED IN HIS BID THAT HE WILL FURNISH.

3. IN VIEW OF THE ANSWER TO THE FIRST TWO QUESTIONS, AN ANSWER TO THE THIRD QUESTION IS NOT REQUIRED EXCEPT TO SAY THAT THE UNITED STATES IS NOT REQUIRED TO ACCEPT ANY BID WHEN THE SURETIES OFFERED ON THE PERFORMANCE AND PAYMENT BONDS ARE NOT SATISFACTORY TO THE GOVERNMENT AND THE BIDDER DECLINES--- BEFORE ACCEPTANCE--- TO AGREE TO FURNISH SATISFACTORY SURETIES.