DAB Decision 49
October 31, 1978 Southern Illinois University-Carbondale; Docket No.
78-5; Decision No. 49 DeGeorge, Francis D.; Dukes, David V. Mason,
Malcolm S.
SUMMARY
(The following summary is prepared on the responsibility of the
Executive Secretary of the Board as a convenience to the interested
public. It is not an official part of the decision and has not been
reviewed by the Panel. Similar official summaries of earlier cases
appear in 45 CFR Part 16 Appendix.)
Grantee appealed a determination by the Commissioner of Education
requiring it to repay funds expended under a Veterans'
Cost-of-Instruction grant prior to the discovery that it did not have
the 10 percent increase in the number of veteran students required by
statute as a condition of eligibility. The determination was made
two-thirds of the way into the grant year when Grantee found that it had
incorrectly calculated the relevant enrollment figures and promptly and
voluntarily advised OE of the error. Grantee's commitment to its
veterans program was demonstrated by the fact that it made a non-Federal
contribution not required as a condition of the grant and continued the
program at its own expense for over three years. OE, which had
described grantee's conduct of the program as "exemplary," recommended
that the appeal be granted if legally permissible.
The Board recognized that the Comptroller General has held in several
instances that the government must recover funds awarded from grantees
subsequently determined to be ineligible for a grant, but noted that he
has never taken an absolute and unqualified position regarding such
recoveries and has always stated that in an appropriate case a different
result might be reached, and concluded that, on the facts of this case,
to enforce such a recovery would be unduly harsh and contrary to the
best interests of the government and the presumed intent of the
Congress. The Board held that repayment of the funds was not required
since the mistaken determination of eligibility resulted from excusable
error, there was a firm assurance of good faith, the central purposes of
the program were achieved, and grantee's behavior with respect to the
grant was scrupulous and deserving of encouragement.
DECISION
Southern Illinois University - Carbondale was awarded a grant under the
Veterans' Cost-of-Instruction Program for the period July 1, 1973
through June 30, 1974 for the establishment of an office of veterans'
affairs which was to provide a range of services to veterans, including
outreach, recruitment, counseling, and special education. Such grants
were available "during any fiscal year" to any institution of higher
education which submitted an application showing an increase of at least
ten percent in the number of undergraduate students receiving certain
veterans educational benefits under Title 38 of the U.S. Code "during
any academic year, over "the preceding academic year." (42 U.S. C.
Sec.
1070e-1(a)(1).) The term academic year was apparently intended to refer
to the July 1-June 30 period in keeping with the federal fiscal year
then in force. Literally read this would seem to require a comparison
of FY 1974 enrollment with FY 1973 enrollment as a basis for a FY 1974
grant. The University prepared its grant application, however, in
accordance with 45 CFR Sec. 189.2, then in proposed form, which required
the comparison of the veteran enrollment on April 16 of 1972 and 1973 in
order to determine eligibility for a grant for the academic year ending
June 30, 1974.
The grant-funded program operated by the University has been described
by a former Commissioner of Education who held that position at the time
the University received its grant and by the current Deputy Commissioner
for Higher and Continuing Education as "exemplary." The Region V
Veterans Program Coordinator described the program as "one of the most
comprehensive and best designed programs in Region V." The University's
program coordinator, at HEW's request, ran workshops at several
institutions on how to establish a campus veterans' program. Two-thirds
of the way into the year, however, the University discovered that the
veteran enrollment figures which it had included in its grant
application were incorrect and that it had in fact experienced a a
decline in veteran enrollment of 9.64 percent for the relevant period.
The University promptly notified the Office of Education that it did not
meet the statutory eligibility criterion, and at OE s request, ceased
making expenditures under the grant in early April 1973 and refunded all
unexpended funds.
OE subsequently made the determination that the University was' required
to refund to the government $86,663 expended under the grant prior to
its discovery that the enrollment figures on the basis of which the
grant was
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awarded were incorrect. The ground for OE's determination was that the
University did not meet the statutory eligibility criterion and that the
Commissioner of Education had no authority under the statute pursuant to
which the grant was awarded to waive the eligibility criterion.
The University in its appeal to this Board acknowledged that it was not
eligible for the grant, but asserted as mitigating factors that: (1)
The University used grant funds to provide services to veterans
consistent with the goals of the grant; (2) the grant was awarded as
the result of a technical and honest error which the University itself
reported; (3) the University furnished free space, equipment and
support personnel for the 1973-74 grant program even though no matching
share was required; (4) the University continued the veterans' program
with its own funds at an annual level of approximately $55,000 after
grant support was withdrawn; and (5) the University met the statutory
eligibility criterion but did not apply for grants for the 1974-75,
1975-76, and 1976-77 academic years because it had been led to believe
(as the file tends to confirm) that OE, although it had no informal
appeals procedure, might reconsider its decision to require the refund,
and the University thought that it was ineligible for further assistance
while the 1973-74 dispute remained unsettled.
In its response to the appeal, OE requested that the Board "waive the
government's right to reimbursement" on many of the same grounds urged
by grantee.
The University's conduct is the type of conduct that the government
might well wish to encourage in all its grantees, and it would be
unfortunate if the University were, in effect, punished for it.
Although the University's case is a compelling one from the point of
view of equities, however, the Board cannot disregard settled law in its
decision-making process.
The Comptroller General has held that the government must recover all
funds awarded from grantees subsequently determined to be ineligible for
a grant under applicable law and regulations, except in certain unusual
situations such as where the statutory or regulatory provisions
governing eligibility are unclear. (51 Comp. Gen. 162 (1971), B-146285;
B-146285, B-164031(1) April 13, 1972). An Order to Develop Record
issued by the Board in this case on May 24, 1978, raised the question
whether the statutory provision governing eligibility might not, in
fact, have been ambiguous. It asked the parties to brief the issue
whether that provision could reasonably be interpreted as requiring that
an institution use its best efforts to increase veteran enrollment in
the year for which the grant is awarded by 10 percent or that it
reasonably project in good faith a 10 percent increase in that year. In
its response to the Order, OE took the position that its program
regulations correctly interpreted the statute as requiring an increase
in fact in the year prior to grant award. The University, on the other
hand, indicated that it found the statute ambiguous, and stated that
although it had relied on the regulations (then in proposed form as
noted above) in
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order to determine whether it was eligible for the grant, it had also
made a good faith effort to increase its veteran enrollment during the
1973-74 academic year.
The Board's Order to Develop Record also raised the question whether,
even if the University was ineligible for the 1973-74 grant, the amount
required to be refunded was offset by funds to which the University was
entitled but for which it did not apply in the three succeeding years as
a result of the pending dispute. The University operated a veterans'
program in academic years 1974-75, 1975-76, and 1976-77 although it
received no federal assistance. All services initiated under the grant
were continued with the exception of outreach activities directed at
counseling veterans not enrolled in an institution of higher education
but who could benefit from such education. Both the University and OE
have agreed that the University met the statutory eligibility criterion
in those three years, although the precise amount it would have received
in each year has not been determined. OE has indicated, however, that if
the University maintained the same enrollment as was reported in May
1974, it would have been eligible for a total of $163,065, which would
more than offset the $86,663 which it was requested to refund.
The Order to Develop Record suggested as a possible argument against the
propriety of such an offset, however, the fact that the statute provides
that an institution shall be eligible to receive the entitlement "only
if it makes application therefor to the Commissioner." (42 U.S.C. Sec.
1070e-1(c)(1).) But on that point, the Order noted also the possible
argument that because the purpose served by the application requirement
had been satisfied, it remained only a technicality which should not bar
the setoff of funds. The statute requires that an application shall (A)
include the necessary showing of eligibility and (B) "set forth such
plans, policies, assurances, and procedures as will insure that the
applicant will make an adequate effort" (i) to maintain a full-time
office of veterans' affairs, (ii) to carry out programs designed to
prepare educationally disadvantaged veterans for postsecondary
education, (iii) to carry out active outreach, recruiting and counseling
activities through the use of funds available under federally assisted
work-study programs, and (iv) to carry out an active tutorial assistance
program. With respect to (A), the Order noted that both parties agreed
that the University was eligible for grants for the three years after
the 1973-74 grant. With respect to (B), the Order indicated that there
was the evidence of grantee s actual performance in lieu of assurances.
Although certain counseling activities were omitted, the Order suggested
that if an institution which had actually received a grant had failed to
include such activities in its program, at most some proportionate share
of the funds might have been disallowed.
Both parties were given an opportunity to submit briefing on whether
there could properly be a setoff of funds. OE did not comment on this
issue, while the University essentially agreed with the argument
suggested in the Order.
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Since, however, the statute appears to require an application and,
however understandably, none was made after the initial year, and
general grant law requires an award (cf. Current Trends in Federal Grant
Law Fiscal Year 1976, 35 Fed. Bar. Jour. 163, 166 (1976)) and none was
made after the initial year, we do not rest upon the ground of offset.
OE appears inclined and properly so to take whatever steps are necessary
to authorize retention of those funds, if legally permissible. Although
under appropriate circumstances a retroactive award is not forbidden, it
would be most unusual to make one retroactively over several fiscal
years. The Board in any case does not undertake to direct the making of
an award.
We return, therefore, to the position of the Comptroller General on this
subject. The Comptroller General has expressly considered a number of
situations having a more or less close analogy to the present one and
has ruled on several occasions in favor of mandatory recovery of amounts
pa id to an ineligible grantee. In spite of these decisions of which we
are aware, we believe that the appropriate result in this case is to
permit grantee to retain funds which it has received in good faith and
has, in fact, applied to the purposes of the grant award consistently
with the basic purposes of the statute.
We reach this result on the following grounds. First, the Comptroller
General has never taken an absolute and unqualified position regarding
such recoveries. He has always noted that there was room to consider the
specific facts of specific cases and that in an appropriate case a
different result might be reached. We believe that this is such a case.
In one decision, the Comptroller General advised the Secretary of HEW
that "while there may be some instances where your Department would not
be required to seek repayment from a technically ineligible grantee,'
each case must be decided on its merits." (51 Comp. Gen. 162, 166
(1971), B-146285). A subsequent decision also recognized the
possibility of "exceptional or unusual instances in which recovery might
not be required," although it did not find that that case presented such
circumstances. (B-146285, B-164031(1), April 19, 1972, at p.1). These
comments clearly did not intend a wide-open door, but do allow quite
deliberately for exceptional cases like this one that meet sufficiently
strict tests.
In this connection, a recent decision of the Comptroller General (South
Carolina State College, 57 Comp. Gen. 459 (1978), B-190847) gives
concrete illustration of the principle that requirement of recovery is
not absolute. The Department of Agriculture, having made a 1975 grant to
South Carolina State College, subsequently, in fiscal year 1976, changed
the scope of the project. The original obligation of 1975 funds was not
de-obligated but was carried forward to fund the substitute project.
The Comptroller General concluded that the old obligation had been
extinguished and a new obligation chargeable to the 1976 appropriation
had been created. Thus, with respect to the carryover funds, grantee in
substance held them and applied them to the purposes of the project as
amended in 1976 by virtue of an award which
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for those purposes was not a valid award. The Comptroller General
commented as follows:
"We are also asked to decide whether the funds involved must be
recovered from the grantee. Under our decision in this case, the
original grant project terminated with an unexpended balance from
fiscal year 1975. Any unexpended funds in the hands of the
grantee or unallowable costs attributable to the original project
should normally be returned by the grantee. However, the
substitute grant created a new obligation in fiscal year 1976 that
should have been charged against fiscal year 1976 appropriations.
The grantee has used at least some of those funds on its new
(fiscal year 1976) grant. In these circumstances, it would appear
that no funds should be recovered from the grantee as a result of
the replacement of the original grant with the substitute or new
grant."
It is true that the Comptroller General directed that the Department of
Agriculture appropriately adjust its 1975 and 1976 appropriations
accounts. It does not appear, however, that the Comptroller General
contemplated that this matter could necessarily be adjusted merely by a
bookkeeping correction since this was said in the context of the
realistic possibility that "the Department s unobligated fiscal year
1976 appropriations are not sufficient to make the adjustment," in which
case "a reportable Anti-Deficiency Act violation occurred." Thus,
this
is a decision in which, on the special facts of this case and having in
mind the goals of agricultural research funding to colleges eligible
under the 1890 Land Grant Colleges program, funds held and applied in
good faith by the recipient were not required to be recovered even
though the Department had unintentionally exceeded its statutory and
appropriations act authority.
We note secondly that the Comptroller General's decisions have been
written primarily in the context of traditional contract law applicable
to purchase of goods. The Comptroller General's position is that unlike
contract procurement, no quantum meruit ("what he deserves") allowance
may be made in a grant situation because, in the latter case, tangible
benefits do not accrue to and services are not performed directly for
the government. This view appears unnecessarily harsh and rests at least
in part on authority concerning the similar but different common law
doctrine of quantum valebat ("what it is worth"). Quantum valebat
relates to goods had and delivered and naturally requires tangible
deliveries (United States v. Mississippi Valley Generating Co., 364 U.S.
520, 566, n.22 (1961). Quantum meruit relates to services rendered and
traditionally may well include services rendered by plaintiff to third
parties at the request of defendant (or, here, the government). Cf.
American Law Institute, Restatement of Contracts, Sec. 348, comment a at
592 (1932):
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"Service or forbearance rendered at the defendant s request is
regarded as having been received by him; and the fair price that
it would have cost to obtain this service or forbearance from a
person in plaintiff's position can be recovered."
Accord, 5 Corbin on Contracts 573, Sec. 1107 (1964) at 574-575. Cf.
American Law Institute, Restatement of Restitution, Sec. 110, comment b
at 457 (1937):
"A person who has failed to perform a promise has a duty of
restitution...irrespective of the fact that the consideration for
his promise is...a payment or transfer to a third person. The fact
that performance has been given to the third person and not to the
promisor does not prevent the promisee from obtaining from the
promisor by way of restitution the value of what he gave."
Cf. 5 Corbin on Contracts 629, Sec. 1117 (1964) at 633:
"A promises to convey land to B and the latter promises to support
A s parents for a year. After B has rendered the promised
support, A refuses to convey the land. B has the following
remedies: ...restitution of the value of support received. This
support, although not received by A in person, is exactly what he
bargained for; and for purposes of the restitutional remedy, he
has received
Cf. Winston v. Amos, 255 U.S. 373, 393 (1921); Restatement of
Restitution, Sec. 107(1) (1937).
In a procurement of goods case, of course, there can be no quantum
valebat recovery where the government has not, in fact, received goods
of value and retained them for its use. Carrying this test over to the
quantum meruit situation where services are called for, provides a
somewhat artificial and inappropriate test which we believe the
Comptroller General should, and we believe in a suitable case would,
reconsider. Since traditional doctrine in the field of restitution
permits such recovery where services are rendered by a plaintiff to
third parties at the request of defendant, the Comptroller General's
decisions denying such recovery in the case of grants to technically
ineligible grantees acting in good faith carry the doctrine beyond the
applicable precedents into an area where the results are inappropriately
harsh and, we believe, contrary to the best interests of the government.
The possibility that the Comptroller General's view might be
reconsidered in an appropriate case was recognized in 51 Comp. Gen: 162
(1971), B-146285, which stated that "...we do not believe that the
quantum meruit doctrine would be applicable in cases involving grants,
at least in the kinds of circumstances presently in question." (p.166.)
That case involved a somewhat
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parallel maintenance of effort clause where the grantee relied in good
faith on a program officer's determination of eligibility. It was later
found that grantee was ineligible, although it was otherwise "fully
congruent with Congressional and program purposes." (p.164.) It does not
appear, however, that the case was as extreme as this one in its facts
or in its appeal to equity and discretion, the error here being an error
in computation made in good faith, scrupulously reported by the grantee
when discovered, the program performance by grantee being outstanding,
the grantee having voluntarily continued the program at its own expense
for over three years to honor its commitment to the program, and the
Congressional purpose being directed more to the quality of the program
than to the arithmetic of numbers served (although we do not suggest
that that element is to be ignored).
It is understandable and appropriate that the Comptroller General would
wish to establish a rather strict rule because a loosely stated position
would, indeed, encourage and facilitate abuse. We believe, however,
that the Comptroller General, as shown by his careful recognition of the
possibility of exceptions, did not intend to apply a completely
unqualified rule with no area for judgment, and we believe that a rule
of reasonable strictness which is yet not completely unqualified can and
should be framed. Since our Board proceeds on a case-by-case basis, it
is not appropriate for us at this time to write a rule of legislative
character. We suggest, however, that a rule can be developed which
makes clear that a decision in favor of the grantee is possible only in
cases where the mistaken determination of eligibility results from
excusable error, where there is firm assurance of good faith, where the
central purposes of the program have been achieved, in this case several
years of excellent veterans' education largely paid for out of the
grantee's own funds, and where the grantee s behavior with respect to
the grant has been scrupulous and exemplary and deserving of
encouragement, as is true in this case. This need not invite a loose
standard permitting grants to be made to ineligible grantees and then
allowed to stand on the ground of error.
Another element to be taken into consideration and which is persuasive
here is an assessment of the fundamental purpose of the grant. In this
case it was clearly a desire to encourage, stimulate, support efforts to
supply special education to veterans so as to assist their readjustment
to civilian society and to make up for a portion of the handicap they
may have suffered by the interruption of their education and careers by
military service. (118 CONG. REC. 5798 (1972) (Remarks of Senator
Cranston).) The statute for reasons that are readily understandable and
customary in this field requires an increase of effort on the part of
the grantee, stated, however, in the form of a somewhat mechanical rule.
That test, of course, since it is part of the statute, must not be
ignored, and it is that test which turns out to have been violated.
Nevertheless, we have no doubt as to the relative importance, in fact,
of the educational achievement as compared with the increase of effort
requirement. We are unable to believe that the Congress, if the issue
had been explicitly presented to it, would not have placed more weight
and
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more value on the educational achievement than on the requirement of the
meeting of an increase of effort clause in the precise and mechanical
form set forth in the statute. We are fully satisfied that while
Congress intended to direct an increase of effort, it did not intend
that on facts as extreme as those presented here there should be no room
for a discretionary judgment since that would clearly tend to defeat the
purposes not only of this statute in this case but of good grants
management and wise government more generally.
The increase of effort test as stated in the statute seems virtually
unworkable because it requires as a preliminary to grant application a
comparison of figures that cannot be available at the time of the
application. The grant regulations resolve this problem but to that
extent provide a different test from that in the statute. That fact
reinforces the view that the unworkable increase of effort test was a
marginal point which the statute cannot have intended to be served at
the expense of the basic educational purpose. It also adds to the range
of facts that tend to make grantee's error more excusable and more
exceptional.
Accordingly, with full awareness of the Comptroller General's decisions
in this area, we conclude that they do not necessarily exclude a
decision in favor of grantee on these very exceptional and very
persuasive facts and do not exclude the possibility that the rule
hitherto applied by the Comptroller General will be, as we think it
should be, re-examined and stated in a somewhat modified, although still
very strict, fashion.
CONCLUSION
The appeal is granted. In view of the University's exemplary services
rendered to veterans, fulfilling as they did in an outstanding manner
the purposes of the grant award and of the statute, and in view of the
additional equities resulting from grantee's scrupulously proper
behavior in reporting the error in computation promptly and voluntarily
and in continuing the program for the benefit of veterans at its own
expense not only for the balance of the grant year but for three
succeeding potential grant periods, the University should not be
required to refund the amounts received and expended in good faith for
the grant purposes before discovery of the error. We do not intend by
this decision to give any countenance or support to a rule that would
loosely authorize waiver of recovery in cases less extreme on their
facts than the present. D11 May 7, 1992