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As the committee will recall, for more than 3 years we battled claims, totaling nearly $1 million, filed by the McCloskey Co. under the foundations contract for the Rayburn Building, before we were successful in winning our case before the House Office Building Commission's Board of Contract Appeals.

Mr. ANDREWS. Who will determine these claims?

Mr. HENLOCK. We must determine the validity of the claims. If the contractor appeals our rejection of any claims, then they would be heard and determined by the House Office Building Commission's Board of ('ontract Appeals. That Board consists of three members of the staff of the General Accounting Office assigned by the Comptroller to the Commission and answerable solely to the Commission. They do not act as employees of the General Accounting Office during that period, but solely as representatives of the (Commission.

Mr. ANDREWS. If the contractor rejects the decision of the Board of ('ontract Appeals can the contractor go to court?

Mr. STEWART. Yes, sir; to the Court of Claims.

Mr. ANDREWS. And you take the position you do not owe these claims and you oppose them?

Mr. HENLOCK. Mr. Chairman, as Mr. Stewart said, we just received nearly a $1 million claim a few weeks ago. It has been impossible in the interim to analyze it thoroughly. After all, we must be fair in our settlement of claims. Were we to express at this time any conclusions with respect to these claims, before a thorough analysis has been made, we might adversely affect the Government's case. I think you can appreciate that, because anything said prematurely on the record might have an effect on any legal proceedings not only before the Contract appeals board but also before the ('ourt of Claims. Anything we say on the record in that connection might be construed as a preudgment, before we have studied all aspects of the case.


Mr. ANDREWS. I believe you said in the past you had a so-called
pck and key contract for that project?
Mr. ANDREWS. What was the amount of that contract?
Mr. CAMPIOLI. $11,770,000.
Mr. Roor. To date the total amount of the contract is $12,117,516.52.
Wr. ANDREWS. How much of that have you paid?
Nr. Roof. Of that amount we have paid in $11,944,912, leaving a
ulance of $172,605, of which $150,000 is being retained under the
neral retainage provision of the contract.
Mr. ANDREWS. Your original contract was $11,770,000 ?
Ur. HENLOCK. Yes, sir.
Vr. Roof. That means to date we have issued change orders of
Vr. ANDREWS. Of course you approved all of the change orders?
VIr. RooF. Yes, 95, to date of this last voucher.

Ir. ANDREWS. So we are talking about a $12,117,516 contract!
Ir. RooF. At this time, yes.
Ir. ANDREWS. And you have paid him all of that except $172,605?
Ir. Roor. $172,605.


Mr. ANDREWS. Did not the contract provide for penalties in case of an overrun?

Mr. Roof. It did, Mr. Chairman, in so far as the time for performance is concerned.

Mr. ANDREWS. How much? Mr. Roor. $250 a day, I believe. That is one of the reasons we retained $150,000. It covers any possible penalties that might be assessed.

Mr. ANDREWS. When was that work supposed to be completed? Mr. CAMPIOLI. A year ago last April. Mr. ANDREWS. April 1967 or 1966 ? Mr. CAMPIOLI. 1966. Mr. ANDREWS. And to this date you have not accepted it? Mr. CAMPIOLI. Not fully. We have accepted the garages for beneficial occupancy.

Mr. ANDREWS. Did that stop the penalty? Mr. HÆNLOCK. The shops were accepted for beneficial occupancy in July 1967 and the garages in September 1967. Under our contraris. the penalty normally stops when we establish substantial completiori.

Mr. ANDREWS. How many days was he in default at $250 a day?

Mr. RooF. Mr. Chairman, I do not believe we are in a position to answer that question because we have not yet determined how many days he is entitled to as extension because of the change orders. That is a matter that is pending negotiation at the present time.

Mr. ANDREWS. To say the least he did not complete the contract on time?

Mr. STEWART. No, sir.

Mr. ANDREWS. And the contract provided for a $250 a day penalty in case of an overrun?

Mr. STEWART. Yes. Mr. ANDREWS. Can you give us an estimate of how much he is liable for under that clause?

Mr. HENLOCK. No, because under contract procedure, normally the contractor does not submit his final claim and justification for extension of time until all work is completed. Once he submits it, the Government can then proceed to determine the equity of his reques for time extensions. Again, if we made an estimate at this time, me would be prejudging before the final submission.

Mr. ANDREWS. Your contract with change orders amounted to $12,117,500?

Mr. ANDREWS. You paid him all of that $12,117,500 except $172,6051

Mr. Roof. That is true now, but the retainage figure agreed to be the Commission is $150,000.

Mr. ANDREWS. And he is claiming at this time nearly $5 million? Mr. HENLOCK. Nearly $5 million. Mr. ANDREWS. Any questions off the record on this item, because it is a matter in litigation.

(Discussion off the record.)


Mr. LANGEX. On the record.

It just seems to me that that volume of claims is completely out of proportion to the cost of the project in the first instance. To permit or even recognize that a practice such as this is possible is, to me, just inviting trouble because if any substantial amount of these claims is granted every contract that the Government participates in on the Hill from now on you can expect the contractor to file this kind of claim.

Looking over these items that are listed here, it seems to me that many of them are a part of the regular construction problems in putting up a building. I do not think you can put up a building without having a few problems and without running into some element of change in your original plan or design, but if they result in claims of this volume I think that is bleeding the taxpayers of this country in a manner that is unethical.

Mr. HENLOCK. Certainly, this has not occurred under any of our contracts; that is, to say, we have never before had claims amounting to 40 percent or more of the original contract price. Take the contract for the remodeling of the Cannon House Office Building, I don't think there have been any claims there.

Mr. CAMPIOLI. Not that I know of.
Mr. YATES. What are the claims for?
Mr. ANDREWS. The underground garages.

Mr. LANGEN. What about the overtime. I realize the penalties are always inadequate, but to what degree was the contractor obligated because of his failure to complete the contract by the finishing date as originally required ?

Mr. CAMPIOLI. Under the contract he was required to finish the work within a certain time schedule regardless of whether it required one shift or two shifts or three shifts.

Mr. STEWART. That was stated in the invitation for bids.

Mr. HENLOCK. But, as you can appreciate, any time you have changes in the contract you are likely to have requests for time extensions. The amount is another matter. Sometimes it is a matter of several days and sometimes it is longer. I am advised we have not been furnished a satisfactory justification from the contractor yet, so we cannot evaluate the matter of time extension, at this point.

Wr. LANGEN. So you do not know at this point how delinquent he was?

Mr. HENLOCK. We do not know how much of the delay is excusable it this point.

Mr. CAMPIOLI. Up to the end of December we had change orders ind claims approved in the amount of 3 percent of the contract, which s not considered an excessive amount.

Mr. ANDREWS. How many change orders have there been and how nany have been agreed on as to price and approximately what is the alue of those that have not been settled as to price?

Mr. Roof. To the date of the last voucher there have been 95 change rders issued and they total $351,116.

Mr. LANGEN. What are the protective steps that can be taken to revent these kinds of claims? Are these contractors bonded!

92-655- 6820


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 the case they have any

he had only hacial provisiose

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 prorisions 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 legal 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 bid 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 you ad? $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.)

Mr. ANDREWS. This committee has been receiving a lot of bad pubity about operations on (apitol Hill and I am getting tired of it. o 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 specificaons. Mr. YATES. And he signed a contract to which the time schedule d 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 mpany on the bond ? Mr. CAMPIOLI. No, sir. Mr. YATES. Why not? Vr. CAMPIOLI. We have protection under the liquidated damages use. Mr. YATES. What is the purpose of getting a performance bond if en the contractor does not comply you fail to seek payment from

insurance company ? \r. CAMPIOLI. If he fails to do the work we can have the work done somebody else and recover from the bonding company. Ir. ANDREWS. But you paid him $12 million, which was $350,000 re than the original contract; you paid him all except $172,605. y don't you go after the bonding company and determine how ch he owes under this penalty clause of the contract? Ir. HENLOCK. The amount withheld is enough to cover the penalty. ír. ANDREWS. $172,605 ? Ir. HENLOCK. Yes. Ir. Yates. What is the penalty? [r. HENLOCK. $250 a day. [r. YATES. How many days was he late on the contract ? Ir. HENLOCK. It was due to be completed, originally, in April 1966. Ir. Roof. April 7, 1966, was the contract completion date originally. Ir. YATES. Was that extended by agreement? (r. RooF. A new completion date has not been established, but we e agreed to $352,000 in changes, a total of 95 change orders. We

not yet agreed with him on how much time we can extend his ract for those change orders. r. YATES. Did you notify the bonding company of the changes he contract ? r. RooF. Each time we have reduced his retainage we have gone ne House Office Building Commission and received approval, and Iso get approval from the bonding company. r. YATES. For each of the change orders ? r. RooF. For each of the reductions in retainage. r. YATES. We are not talking about the same thing. r. Roof. We do not need to go to the bonding company until we

a claim against the contractor. r. YATES. I was under the impression there was a performance I that provided in the event the contractor was in default under contract you could recover from the bonding company.

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