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


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

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/


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.


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.