Mr. STEWART. Yes.

Mr. LANGEN. Do you have any recourse under a bond system to collect in the case they do not perform as the contract required originally?

Mr. CAMPIOLI. We require a bid bond and a performance bond with our contracts and in the event of failure to fulfill the contract the Government is covered.

Mr. HENLOCK. I do not believe there is any essential difference between our contract provisions in this regard and contracts throughout the Government. We use essentially the same general provisions and similar special provisions. When Mr. Stewart became Architect, he not only had us draw up a uniform set of general provisions but he had them reviewed by the Comptroller General before they were put in effect.

Mr. LANGEN. I was raising the question whether there is a lega way that future contracts can be so designed to prevent this kind of situation. I think this is deplorable.

Mr. HENLOCK. Take, for instance, the remodeling of the Cannon Building. We followed the same procedure in that case and yet no claims have been filed under that contract and the job is substantially completed.

Mr. ANDREWS. Much depends on the contractor.

Mr. LANGEN. I think it serves to identify some of these contractors who are not responsible. There is no protection against that, really. Is a contractor checked out before you enter into a contract with him on the basis of past performances, private or public?

Mr. HENLOCK. This is a contractor who, a careful check revealed. had successfully fulfilled other Government contracts. After all, you cannot reject a bid without fully-supported evidence of prior nonsatisfactory performance or for other serious cause. As you know, Congress, from almost the beginning of the Government, has rigidly regarded section 3709 of the Revised Statutes requiring open competitive bidding, and no one can be disqualified as a responsible low bidder under competitive bidding unless there is a sound basis for disqualifying him. As you may recall, in the case of the underground garages contract, the Comptroller General ruled that the low b should be disregarded because of a bid bond deficiency. After award of the contract to the second lowest bidder, (Baltimore Contractors Inc.), the low bidder appealed the award to the Comptroller General. After the Comptroller General sustained the award, the low bidder appealed the case, first to the U.S. District Court and then to the Court of Appeals. Both of these courts upheld the award as made. There was just a $35,000 difference between the low and second low bids. This award is explained more fully on pages 93 and 94 of the 1968 hearings on the Legislative branch appropriation bill.

Mr. LANGEN. How much lower was this contractor's bid than the next lowest bidder?

Mr. CAMPIOLI. $35,000.

Mr. LANGEN. That would be an insignificant amount if $5 million to it now. That was an expensive low bid.

Mr. CAMPIOLI. May I go off the record?

Mr. ANDREWS. Off the record.

(Discussion off the record.)

you adi

Mr. ANDREWS. This committee has been receiving a lot of bad publicity about operations on Capitol Hill and I am getting tired of it. Do you have any more questions?

Mr. LANGEN. No.

Mr. YATES. Was this contract completed on time by the contractor? Mr. CAMPIOLI. Not in accordance with our schedule in the specifications.

Mr. YATES. And he signed a contract to which the time schedule and specifications were attached?

Mr. CAMPIOLI. Yes, sir.

Mr. YATES. Did he put up a performance bond?

Mr. CAMPIOLI. Yes, sir.

Mr. YATES. Have you tried to collect anything from the insurance company on the bond?

Mr. CAMPIOLI. No, sir.

Mr. YATES. Why not?

Mr. CAMPIOLI. We have protection under the liquidated damages. clause.

Mr. YATES. What is the purpose of getting a performance bond if when the contractor does not comply you fail to seek payment from the insurance company?

Mr. CAMPIOLI. If he fails to do the work we can have the work done by somebody else and recover from the bonding company.

Mr. ANDREWS. But you paid him $12 million, which was $350,000 more than the original contract; you paid him all except $172,605. Why don't you go after the bonding company and determine how much he owes under this penalty clause of the contract?

Mr. HENLOCK. The amount withheld is enough to cover the penalty. Mr. ANDREWS. $172,605?

Mr. HENLOCK. Yes.

Mr. YATES. What is the penalty?

Mr. HENLOCK. $250 a day.

Mr. YATES. How many days was he late on the contract?

Mr. HENLOCK. It was due to be completed, originally, in April 1966. Mr. Roof. April 7, 1966, was the contract completion date originally. Mr. YATES. Was that extended by agreement?

Mr. Roof. A new completion date has not been established, but we have agreed to $352,000 in changes, a total of 95 change orders. We have not yet agreed with him on how much time we can extend his contract for those change orders.

Mr. YATES. Did you notify the bonding company of the changes in the contract?

Mr. RooF. Each time we have reduced his retainage we have gone to the House Office Building Commission and received approval, and we also get approval from the bonding company.

Mr. YATES. For each of the change orders?

Mr. Roof. For each of the reductions in retainage.

Mr. YATES. We are not talking about the same thing.

Mr. Roor. We do not need to go to the bonding company until we have a claim against the contractor.

Mr. YATES. I was under the impression there was a performance bond that provided in the event the contractor was in default under he contract you could recover from the bonding company.

Mr. Roof. To date he has not been held to be in default. We have accepted the garages for beneficial occupancy.

Mr. YATES. I thought he did not finish on time. Didn't somebody tell me that?

Mr. HENLOCK. Yes, sir; pending determination of time extensions to which he may be entitled. That is one reason for retaining some money until we determine the amount of any liquidated damages.

Mr. YATES. But this gentleman tells me you agreed to the extensions. Mr. ROOF. Agreed to the reductions of money being retained. Mr. YATES. Was there an agreement on extending the completion date?

Mr. ROOF. Not as such; but we know from our own studies by our field office that when you have 95 change orders and agree to give him $350,000 for the change orders that means you have to extend his time

some.

Mr. YATES. Have you extended his time in writing?

Mr. Roof. No; we have not extended his time in writing, except in one specific instance. On each change order we will say it is subject to equitable extension of time and the equitable extension of time has not yet been determined.

Mr. YATES. How can you hold a bonding company under that sort of agreement?

Mr. Roor. They have agreed to every reduction in retention we have made, as I have said. The bonding company wrote its bond wit full knowledge of the contract which provided for the Government's right to issue any changes determined to be necessary.

Mr. LANGEN. Will the gentleman yield?

Did you say you accepted the building?

Mr. Roor. We accepted the building for beneficial occupancy, sub ject to punch list items.

Mr. LANGEN. Were the claims filed at that time?

Mr. Roof. Not this big claim. We just got that a month ago.

Mr. LANGEN. Those claims came after the acceptance of the project! Mr. Roof. This large claim for $3.5 million we just got the last of February.

Mr. LANGEN. What about the $350,000 involved in these other clains or change orders? Have they been paid?

Mr. ROOF. Yes, partially. Naturally when a man does the work you pay him for it. These changes go back to the beginning of the jo Mr. LANGEN. Doesn't there come a time in the acceptance of the building and the completion of the contract when somewhere yo agree on the total cost, agree that the building has been completed ir compliance with the standards set up for the building in the first place! Do you accept the building before you know what the total cost wi be including claims?

Mr. ROOF. You accept it for beneficial occupancy; yes.

Mr. YATES. What does that mean, accept it for beneficial occupan Does it mean you waive claims against the contractor?

Mr. ROOF. No; it does not affect the claims at all. It means Congres has a right to go in and use that garage before punch list items ha been finished.

Mr. ANDREWS. When you accept a building for beneficial occupa"? does that stop the penalty of $250 a day from running?

Mr. Roof. It does, provided that, at the time, all work has been substantially completed. In the instant case, we found substantial completion on September 18, 1967, at which time the penalty stopped.

Mr. ANDREWS. What I want to know is how many days in default was the contractor from the day the work was to be completed on April 7, 1966, until the day you accepted that building for beneficial occupancy? Can somebody give us that answer? How many days?

Mr. HENLOCK. The shops were accepted for beneficial occupancy in July 1967 and the garages in September 1967.

Mr. ANDREWS. Let us assume when you accepted the building for beneficial occupancy by the shops that the penalty clause became inoperative. That was what date for the shops?

Mr. HENLOCK. July 1967. However, the penalty clauses did not become inoperative until September 1967 when the garages, themselves were accepted for beneficial occupancy, at which time all work under the contract was found to be substantially completed.

Mr. ANDREWS. The building under the contract was to be completed April 7, 1966?

Mr. HENLOCK. Yes, sir.

Mr. ANDREWs. That is 15 months?

Mr. Roof. Right.

Mr. ANDREWS. How many days was the penalty clause applicable; 5 days a week?

Mr. RooF. No; it is on calendar days. That would be 185 days. Mr. YATES. How do you get 185 days? I get 450 days on an average of 30 days a month.

Mr. Roor. You are right.

Mr. YATES. So it is 450 times $250.

Mr. Roof. Yes. On the basis you are illustrating.

Mr. YATES. That would be $112,000.

Mr. ANDREWS. And you are holding back $172,605.

Mr. HENLOCK. Last year in the hearings we made the following statenent in respect to this matter:

Before we make final settlement of the contract, we will issue a change order xtending the original contract completion date of April 1966 to whatever time he Government deems the contractor is entitled to as an extension. The differnce between that extended date, which will be determined at the conclusion f the contract, and the actual completion date, will be the period we will claim quidated damages for.

Actually, under the terms of a Government contract, we do not ake final acceptance of all work required under such contract, when e accept a building, or any part thereof, for beneficial occupancy. Mr. YATES. Then weren't you inviting these claims by the contractor then you did not come to an agreement as to what the change orders ould be? You said you would arrive at an equitable amount later

n.

Mr. HENLOCK. It is almost impossible to determine final time exten*ons prior to completion of a contract. A contractor has a right to ake his presentations and I believe in Government agencies generally e procedure occurs whereby the contractor at the completion of the ›ntract submits his final claims.

Mr. Roor. Because you always have overlaps in these things. For istance, if you give him 10 change orders the time required for their erformance sometimes overlaps, or runs concurrently.

CLAIMS

Mr. LANGEN. How much longer time do they have to file claims in now?

Mr. HENLOCK. Until the contract is closed and final payment voucher and release are executed. We cannot close it until every punch list item is completed.

Mr. LANGEN. That means they can continue to file claims for 2 or 3 years?

Mr. HENLOCK. Yes, sir; unless the contract is closed and a release of claims is executed at an earlier date. You will find it the same with respect to other Government contracts too, and with respect to private contracts as well.

Mr. CAMPIOLI. The same generally applies.

Mr. YATES. I must say it is a very unhappy situation that is presented here. I do not think the committee was aware, when you were before us last year, that the extent of the claims would be of this order. Mr. HENLOCK. We had no idea either, Mr. Yates.

Mr. YATES. What is your feeling about the claims? Do they seem valid to you?

Mr. HENLOCK. The large claim is a very voluminous claim that could not be analyzed from an engineering, or legal standpoint in the short time since we have received it.

Mr. LANGEN. In view of the discrepancies stated here and the amount involved, I will suggest that this committee should instigate a full exploration of all the elements involved in this claim and the extent to which the taxpayers have become obligated above and beyond what was submitted to the committee as a bona fide contract in the first place. I think there is altogether too much money involved in these claims and altogether insufficient evidence to sustain a justification for the amount that runs to $5 million or $6 million. Mr. ANDREWS. We will discuss it in executive session.

CHANGE ORDERS

Now, let me ask you, why were there 95 change orders? Who authorized the change orders?

Mr. CAMPIOLI. Our office.

Mr. ANDREWS. Isn't that an excessive number of change orders? Mr. CAMPIOLI. No, sir. They total about 3 percent of the contract and normally today change orders in that amount are within a reasonable range of a construction contract. Many jobs run as high as 3 percent or more.

Mr. ANDREWS. The amount involved is roughly $350,000?

Mr. CAMPIOLI. Yes, sir.

Mr. ANDREWS. I know nothing of construction work, but my offhand opinion is that that is a reasonable amount of change orders on a $12 million contract.

Mr. LANGEN. I can understand change orders in the amount of $350,000 but $5 or $6 million is something else again.