UNITED STATES GOVERNMENT PRINTING OFFICE BOARD OF CONTRACT APPEALS Appeal of the Assignees for the Benefit of the Creditors of A. Hoen & Co., Inc. October 21, 1983 Panel 9-82 DREW SPALDING, Chairman, Panel 9-82 ROBERT B. HOLSTEIN, Member ROBERT E. RAMSEY, Member Background This timely appeal is filed by Charles M. Tatelbaum and Edward F. Shea, Jr., Court-designated Assignees for the Benefit of the Creditors of A. Hoen & Co., Inc., Baltimore, Maryland. A. Hoen was declared insolvent by the Circuit Court of Baltimore City on April 10, 1981. Shortly thereafter, on April 15, 1981, the Contracting Officer notified A. Hoen that its contracts under five separate programs (Program Nos. C237-M, B365-M, B644, B312-S and B321-S) were terminated because of its inability to perform and that excess costs would be assessed. (Appeal File, Exhibit 14)1 Approximately a year later, on April 1, 1982, GPO assessed excess costs in the amount of $77,061.86 for Program B312-S, and $45,640.52 for Program B321-S, or a total of $122,702.38. This amount was set-off in the amount of $98,460.45 by non-payment by GPO against vouchers submitted by the contractor for completed work under these two contracts, as well as under two additional contracts, Program Nos. B-315-S and B365-M, which GPO had entered into with this contractor. Taking the set-off into consideration, this left a balance due GPO of $24,241.93.2 In a letter to the Contracting Officer, the Assignees, through counsel, asserted that the "assessment of reprocurement costs was in error" and that they were appealing the Contracting Officer's determination. (Exh. 20) The Contracting Officer responded in a Final Decision dated September 20, 1982, that the decision regarding excess costs was appropriate and that he could see no reason for reversal of the earlier decision. (Exh. 21) This appeal followed. (Exh. 1) Assignees' Position on Appeal The position of the Assignees is set out in a letter dated December 10, 1982. (Exh. 1) As described above, the Government aggregated the excess costs under Programs B312-S and B321-S ($122,702.38) against all of the funds then due A. Hoen by GPO ($98,460.45). In so doing, Assignees argue, the Government has arrogated to itself a preference over other unsecured creditors of the Hoen estate. Assignees submit that a more appropriate accounting would be as follows: Amount Reprocurement Net Amount Program Withheld Costs Owing To Hoen 315-S $24,393.31 --------- $24,343.31 3/ 365-M 9,637.48 --------- 9,637.48 Subtotal $34,030.79 $33,980.79 312-S $53,304.57 $77,061.86 -23,757.29 321-S 11,125.09 45,640.52 -34,515.43 Subtotal $64,429.66 122,702.38 -58,272.72 Grand Total $98,460.45 Following this breakdown, Assignees contend that A. Hoen would be entitled to $34,030.79 (or $33,980.79) from Programs B315-S and B365-M, and GPO would have a claim against A. Hoen in the amount of $58,272.72.4 Assignees argue that each contract must be treated separately otherwise GPO will have a preference in recovering its debts from the estate, as opposed to other unsecured creditors. 5/ Discussion As noted above, the Board proceeds on the basis that there is no dispute between the parties with regard to the basis for the default termination, the amounts withheld by the Government under the four contracts or in the amount of excess costs assessed against A. Hoen. The Contracting Officer took his action against A. Hoen pursuant to the provisions of the Default clause of U.S. GPO Contract Terms No. 1, which were incorporated by reference into both programs B312-S and B321-S. (Exhs. 1, 2, and 8) This clause reads in relevant part: "Article 17. Default (a) The Government may . . . by written notice of default to the contractor, terminate the whole or any part of the contract . . . (b) In the event the Government terminates the contract in whole or in part as provided in paragraph (a) of this article, the Government may procure, upon such terms and in such manner as the Contracting Officer may deem appropriate, supplies or services similar to those so terminated, and the contractor shall be liable to the Government for any excess costs for such similar supplies or services." (Emphasis added.) Apart from the contractual basis for assessing excess costs, it has long been recognized that the Government has a right, unlike those of other creditors, to set-off the amounts due it against any funds due the contractor by the Government. See United States v. Munsey Trust Co., 332 U.S. 234, 239 (1947); Project Map, Inc. v. United States, 203 Ct. Cl. 52, 486 F.2d 1375 (1973); Madden v. United States, 178 Ct. Cl. 121, 122-23, 271 F.2d 469, 470 (1967). This right has been held to be an inherent right in the United States. See Comp. Gen. Dec. B-176791, September 8, 1972 (unpub.). In this decision, the Comptroller General wrote, ". . . where a person is both a debtor and a creditor to the Government in any form, the accounting officers are required by law to consider both the debts and credits and to set-off one indebtedness against the other, and certify only the balance. Taggert v. United States, 17 Ct. Cl. 322 (1881). Furthermore, the Government's right to set-off a contractor's debts against contract proceeds extends to debts owed by the contractor as a result of separate and independent transactions." [Citing U.S. v. Munsey Trust Co., supra.] In the instant case, there is a clear basis for the Government's set-off against the amounts owed A. Hoen by GPO. It appears to have been the result of a valid determination of the appropriate amount owed by the debtor. That the debtor has been declared insolvent by a State court, does not, in our view, prevent the Contracting Officer from proceeding as he has in this case. Conclusion For the foregoing reasons, the Board denies the Assignees' appeal in its entirety. _______________ l/ Hereafter all references to the Appeal File will be designated simply by their exhibit number. No other evidence was considered in rendering this decision other than the 27 numbered exhibits in the Appeal File. 2/ On Program B321-S, GPO determined the excess costs by calculating the difference between A. Hoen's price and the cost of the work as performed by the second low bidder for this program during the remainder of the contract term. For Program B312-S, the GPO rebid the contract, but for a period of one year from the date this new contract was formed. GPO assessed A. Hoen only those excess costs which accrued under the new contract during the original term of Program B312-S. As we read the Appeal Letter (Exh. 1), Assignees raise no dispute with the manner in which GPO calculated the excess costs. 3/ The figure for the "Amount Withheld" under Program 315-S is different from the figure indicated for "Net Amount Owing to Hoen". This may only be a typographical error, however, the documents in the Appeal File do not provide the basis for reconciling the figures. Notwithstanding this discrepancy, the absence of precise figures does not prevent the Board from coming to a decision. The principle, regardless of the dollar amounts involved, is the same. 4/ Somewhat strangely, Assignees also claim "the net amount owing GPO is the identical $24,241.93 that [GPO] now claims." (Exh. 1) This is incorrect. GPO's claim is either $24,241.93, or under Assignee's breakdown, $58,272.72. 5/ In none of the material submitted by the Assignees is there any reference to the provisions of State law under which A. Hoen was declared insolvent. In addition, there has been no citation to any Federal or State law or cases which support their position. As a result, the Board has proceeded on the basis that this case may be decided absent consideration of the potential impact of other statutory or case law, except that which is cited in its decision.