b. Materials and workmanship (Article 8).103 This clause provides: that equipment, materials and articles incorporated in the work are to be new and of suitable quality (unless otherwise specified) and that workmanship is to be "first class"; that the contracting officer will be permitted to require the submission of materials, equipment, machinery, etc., for his approval. It also contains several other provisions relating to information concerning and standars of acceptability for materials. One interesting provision of the clause is its last sentence:

The Contracting Officer may in writing require the Contractor to remove from the work such employee as the Contracting Officer deems incompetent, careless, insubordinate, or otherwise objectionable, or whose continued employment on the work is deemed by the Contracting Officer to be contrary to the public interest.

c. Inspection (Article 9).104 This clause secures to the Government rights pertaining to inspection of performance, correction or replacement of defective performance. Generally speaking it resembles the "Inspections" clause for fixed-price supply contracts required by ASPR 7-103.5; however, a provision unique to construction contracts is found in subparagraph "(c)".

(c) Should it be considered necessary or advisable by the Government at any time before final acceptance of the entire work to make an examination of work already completed, by removing or tearing out same, the Contractor shall on request promptly furnish all necessary facilities, labor, and material. If such work is found to be defective or nonconforming in any material respect, due to fault of the Contractor or his subcontractors, he shall defray all the expenses of such examination and of satisfactory reconstruction. If, however, such work is found to meet the requirements of the contract, the actual direct cost of labor and material necessarily involved in the examination and replacement, plus 15 percent, shall be allowed the Contractor and he shall, in addition, if completion of the work has been delayed thereby, be granted a suitable extension of time on account of the additional work involved.

d. Permits and responsibility for work (Article 11).105 This clause provides:

The Contractor shall, without additional expense to the Government, obtain all licenses and permits required for the prosecution of the work. He shall be responsible for all damages to persons or property that occur as a result of his fault or negligence in connection with the prosecution of the work. He shall also be responsible for all materials

103 Art. 7 of former SF 23 (see footnote 103, supra) is substantially similar. See also Art. of WD Form 2 (Construction Contract), WD PR 1302. 104 Art. 6 of former SF 23 is substantially similar; see Art. 6, WD Form 2.

105 Art. 10 of former SF 23, and Art. 10 of WD Form 2 are similar to this clause. WD Form 2 permitted use of an alternate "Permits and Responsibility for Work" clause which subjected the contractor to liability for Government-Furnished Property as provided in the "Liability for Government-owned property" clause (WD PR 365.1) instead of the "Permits," etc. clause.

delivered and work performed until completion and final acceptance, except for any completed unit thereof which theretofore may have been finally accepted.

The first sentence imposes on fixed-price or lump-sum contractor, the duty of obtaining and paying for any state or municipal license or permit necessary for prosecution of the contract work. The contractor may be expected to include the cost of such permits and licenses in his contract price and, if it is subsequently determined that the license or fee was not required, he may retain any amount refunded him.

Illustrative case:106 A construction contractor agreed to build a hospital for the Veterans' Administration upon land the State of Alabama had ceded to the United States, with reservation of the right to tax persons in their exercise of rights, privileges and franchises thereon. Art. 10 of the contract provided that the contractor should obtain all required licenses and permits. The City of Birmingham imposed certain building licenses and fees on the contractor and collected them from him. The Comptroller General held that because the licenses and fees were legally incident upon the owner of the property (the United States), the Government could sue and recover the sums paid by the contractor and that the U.S. was the real party in interest. Subsequently, the contractor sued for the amounts he had paid to the City and he was awarded a judgment, the court observing that the U.S. had no right to sue in its own name or in that of the contractor and that the contractor, not the U.S., was the real party in interest. The contracting agency asked the Comptroller General, whether, in the light of his earlier ruling, the Government should withhold from amounts due the contractor under the contract a sum equal to the license fees he paid to and recovered from the City. Held, That the Government had no right to withhold the mentioned amounts because the Government's obligation under the contract was to pay a fixed sum in return for a hospital building and because the contract contained no provision for price adjustment in the event of recovery of the fees. The Government could have obtained a right to a refund by inserting an express contract provision to that effect (it has led bidders to consider the license cost in submitting their bids), but in this respect it failed to preserve its rights.

Failure to secure permits and licenses should not excuse the contractor from the consequences of any action under the "Termination

108 Ms. Comp. Gen. B-93924, 21 July 1954, reversing 30 Comp. Gen. 28 (1950) as to its holding that the United States could sue as the real party in interest. The contractor in these cases sued the City of Birmingham in the United States District Court for the Northern District of Alabama (unreported) and recovered judgment against the City. The judgment was affirmed by the United States Court of Appeals for the 5th Circuit in City of Birmingham v. F. N. Thompson et al, 200 F.2d 505 (1952).

for Default-Damages for Delay-Time Extensions" clause,107 where he can be lawfully required to obtain such licenses and permits and his failure to do so has interrupted his performance of the contract.108 Speaking generally, the mere fact that a person or firm has contracted with the Federal Government will not serve to exempt such person (or firm) from the regulatory activities of the States or of local Government,109 although, when the contract is to be performed on a military reservation or other land owned by the Federal Government, state and local regulations may be inapplicable in the area if it is subject to exclusive federal jurisdiction.110 State or local regulation may extend to Federally owned military reservations or other land if the agreement by which the Federal Government acquired the land will so permit.111 It would seem that Congress can confer immunity from state and local regulation upon contractors with the Government.112 The Federal Government itself is, of course, immune from state or local regulation; and, if the doctrine of KernLimerick, Inc., et al v. Scurlock,113 is followed, it would seem that this immunity could be conferred upon contractors, to the extent their contracts appoint them agents of the Government. The last sentence of the "Permits and Responsibility for Work" clause is intended to make clear that the contractor bears full responsibility for his work until its completion and until the Government has definitely accepted it as complying with the contract. In older construction contract forms,114 there was an additional sentence at the end of the clause further buttressing the apportionment of responsibility to the contractor: "Upon completion of the contract the work shall be delivered complete and undamaged." While this language is no longer found in the clause, the contractor's responsibility is emphasized in subparagraph “(c)” of the "Payments to Contractors" clause.115 Subparagraph "(c)" provides that material and work covered by partial payments becomes the sole property

107 Art. 5, SF 23A.

108 Cf. Ms. Comp. Gen. B-111102, 4 Sep. 1952, 5 CCF 61,381.

100 Penn Dairies, Inc., et al v. Milk Control Commission of Pennsylvania, 318 U.S. 261 (1943).

110 Pacific Coast Dairy, Inc. v. Department of Agriculture of California, et al, 318 U.S. 285 (1943); see also the annotations at 91 A.L.R. 779, 115 A.L.R. 371; 127 A.L.R. 827.

111 Penn Dairies, Inc., et al v. Milk Control Commission of Pennsylvania, footnote 115; and see City of Birmingham v. F. N. Thompson et al, supra, footnote 111.

113 Cf. Mayo v. United States, 319 U.S. 441 (1943); and Carson v. Roane-Anderson Company, 342 U.S. 232 (1952). These two cases deal with the question of state taxation but the applicability of taxes and regulations to Federal contractors should be decided on the same basis. See in this connection the Mayo case, 319 U.S. 441, 446-448. Chapter 13, infra, discusses the state tax problem in more detail.

113 347 U.S. 110 (1954). This case involves the applicability of a state tax to a Navy contractor who had been created a purchasing agent of the Government by the terms of his contract. The court held that, because of the agency, an attempt by a state to impose tax upon purchases by him was a violation of Federal immunity.

114 Art. 10, SF 23, supra, footnote 103.

115 Art. 7, SF 23A, discussed supra.

of the Government, "but this provision shall not be construed as relieving the contractor from the sole responsibility for all materials and work upon which payments have been made or the restoration of any damaged work, or as a waiver of the right of the Government to require the fulfillment of all of the terms of the contract."116 Because the Government may occupy premises constructed under contract prior to the time the contract is completely discharged by full performance on both sides, the interpretation of the provision discussed above will be important in determining the allocation of liability for damage occurring after occupation and before discharge by full performance. In general, it may be said that mere occupancy of premises by the Government does not relieve the contractor from his responsibility for completion of the work and for turning it over undamaged to the Government at completion. However, if the property is damaged during this period due solely to the negligent act of a Government employee acting within the scope of his employment, risk of loss is borne by the Government.118 Final settlement of the contract is not, of course, a condition precedent to the relief of the contractor; his responsibility will cease whenever "completion and final acceptance" have occurred.

Illustrative case: The Post Office Department occupied a building prior to the time it was fully completed. Within two months of the time of occupation, the building had been completed and formal approval had been given by Government inspectors. Only the furnishing of certain certificates and agreement upon minor financial adjustments remained to be accomplished before final settlement of the contract. While matters were in this posture, explosions occurred in the building due to the igniting of gas (which leaked from a main under a nearby street) probably as a result of the striking of a match by custodial employees or by a spark from an electric switch. Held, the contractor could not be required to repair the damage. In fact, completion and final acceptance had taken place and final settlement was not a condition upon shifting risk of loss to the Government. (15 Comp. Gen. 876 (1936).)

116 This language was also found in the earlier construction contract forms. It should be observed that other terms of the contract may contain recitals of the contractor's responsibility. The following clause (from the contract under discussion in Ms. Comp. Gen. B-121805, 8 Nov 1954) is an example: "32. ACCEPTANCE OF COMPLETED PROJECTS: When all work or materials required by the drawings and specifications for each project for which the amount is stated separately in the contract have been performed and furnished, acceptance of the work will be given by the Contracting Officer. The acceptance of the work will be given in writing and until such acceptance the contractor will be responsible for the work covered by the contract. The contractor's responsibility will cease, except as provided by guarantees, when acceptance of the work is given."

117 Cf. 15 Comp. Gen. 876, 879 (1936); 16 Comp. Gen. 975 (1937); Ms. Comp. Gen. B-121805, 8 Nov. 1954; 6 Comp. Gen. 24 (1926), id. 261 (1926).

118 25 Comp. Gen. 332 (1945).

CHAPTER 9

DISPOSAL OF GOVERNMENT PROPERTY

1. Introduction. This chapter will deal with the principal authorities relating to disposal transactions and some of the problems of general importance that arise in connection with them, but will not cover the subject of furnishing Government property to contractors.1 Article IV, section 3, clause 2, of the Constitution of the United States provides:

The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States; * * *

This provision of the Constitution has been interpreted to mean that no property of the United States may be sold or otherwise disposed of without authority from Congress and that every disposal of Government property must be predicated upon statutory authority.2 Generally speaking, a disposal of property contemplates a transfer of title or a transfer of substantial interest in the property to a third party. The following transactions are considered disposals and must be predicated upon statutory authority: sales, exchanges, donations, destruction, abandonment, leases, and loans.

a. Authority for disposal. Perhaps the most important statute authorizing disposal is the statute dealing with the disposal of surplus and excess property, known as the "Federal Property and Administrative Services Act of 1949." Title II of this Act, as

1 This subject will be treated in Chapter 12, infra.

* United States v. Nicoll, F.C. No. 15,879, 1 Paine 646 (1826); Ashwander v. Tennessee Valley Authority, 297 U.S. 288 (1935); Royal Indemnity Company v. United States, 313 U.S. 289 (1941).

United States v. Hacker, 73 Fed. 292 (S.D. Cal. 1896); cf. 39 Ops. Att'y Gen. 324 (1939), Osborne v. United States, 145 F. 2d 892 (9th Cir. 1944), Royal Indemnity Co. v. United States, footnote 2, supra; Shannon v. United States, 160 Fed. 870 (9th Cir. 1908).

Sec. 502 of the Federal Property and Administrative Services Act (renumbered § 602 by 6 of the act of 5 Sep 1950, 64 Stat. 583) repealed the principal provisions of the Surplus Property Act of 1944 (50 U.S.C. App. §§ 1611–1646) relating to disposals, leaving in effect provisions of the act relating to: utilization of surplus property by Federal Prison Industries, Inc., disposals to local governments and nonprofit institutions, disposal of airport property, and certain disposals outside the United States. The history and present status of these provisions can be found in notes to 50 U.S.C. App. §§ 1622, 1622a, 1622b, 1622c and 1641 (1958), and 18 U.S.C. § 4122 (1958).

The principal provisions of Title II, as amended, may be found in 40 U.S.C. §§ 481– 492 (1958).