[Senate Report 110-319]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 671
110th Congress                                                   Report
                                 SENATE
 2d Session                                                     110-319

======================================================================



 
 SUBCONTRACTORS PAYMENT AUTHORIZATION FOR SERVICES AT THE GRAND CANYON 
                             NATIONAL PARK

                                _______
                                

                 April 10, 2008.--Ordered to be printed

                                _______
                                

   Mr. Bingaman, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 1191]

    The Committee on Energy and Natural Resources, to which was 
referred the Act (H.R. 1191) to authorize the National Park 
Service to pay for services rendered by subcontractors under a 
General Services Administration Indefinite Deliver/Indefinite 
Quantity Contract issued for work to be completed at the Grand 
Canyon National Park, having considered the same, reports 
favorably thereon without amendment and recommends that the Act 
do pass.

                                PURPOSE

    The purpose of H.R. 1191 is to authorize the Secretary of 
the Interior to make payments to subcontractors who performed 
work at Grand Canyon National Park in 2002 and 2003 but were 
not paid by the primary contractor.

                          BACKGROUND AND NEED

    H.R. 1191 would authorize the Secretary of the Interior to 
pay approximately $1.4 million from appropriated funds to 
subcontractors who worked on authorized construction projects 
at Grand Canyon National Park in 2002 and 2003, but who were 
not paid by the primary contractor, Pacific General, Inc. 
(PGI). After working on several projects for the park, PGI 
defaulted, leaving many of its subcontractors unpaid. Although 
PGI certified that it was making payments to its 
subcontractors, approximately $1.4 million was never paid. 
National Park Service contracting policy required PGI to obtain 
payment and performance bonds; however it never did so.
    The National Park Service paid PGI in full for all of the 
work orders. The Park Service contends that because it has made 
payment, and because it has no direct contractual relationship 
with the subcontractors, it has no legal authority to make 
additional payments to the subcontractors. Most of the 
subcontractors are small businesses and default has caused them 
significant economic hardship. In light of the equitable 
circumstances, H.R. 1191 would authorize the Secretary of the 
Interior to pay all of the subcontractors the remaining unpaid 
amounts.

                          LEGISLATIVE HISTORY

    H.R. 1191, sponsored by Congressman Renzi, passed the House 
of Representatives by voice vote on April 17, 2007. (S. Hrg. 
110-282.) The House of Representatives passed a similar measure 
in the 109th Congress, H.R. 3961. That bill was not considered 
in the Senate.
    The Subcommittee on National Parks held a hearing on H.R. 
1191 on November 8, 2007. At its business meeting on January 
30, 2008, the Committee on Energy and Natural Resources ordered 
H.R. 1191 favorably reported, without amendment.

                        COMMITTEE RECOMMENDATION

    The Committee on Energy and Natural Resources, in open 
business session on January 30, 2008, by a voice vote of a 
quorum present, recommends that the Senate pass H.R. 1191.

                      SECTION-BY-SECTION ANALYSIS

    Section 1 defines key terms used in the bill.
    Section 2 authorizes the Secretary of the Interior, subject 
to the appropriation of such funds as may be necessary, to pay 
the amount owed to subcontractors of Pacific General, Inc. for 
work performed at Grand Canyon National Park in 2002 and 2003, 
if the primary construction contract between the Park Service 
and PGI is terminated; if the amount owed to the subcontractors 
is verified; where the subcontractors have exhausted all 
reasonable legal avenues to recover the amounts owed directly 
from PGI; and where the subcontractors provide a written 
statement that the verified amount due represents payment in 
full for the work performed.

                   COST AND BUDGETARY CONSIDERATIONS

    The following estimate of costs of this measure has been 
provided by the Congressional Budget Office:

H.R. 1191--An act to authorize the National Park Service to pay for 
        services rendered by subcontractors under a General Services 
        Administration Indefinite Deliver/Indefinite Quantity Contract 
        issued for work to be completed at the Grand Canyon National 
        Park

    H.R. 1191 would allow the National Park Service (NPS) to 
make payments to certain subcontractors associated with Pacific 
General, Inc. (PGI), a California-based firm for construction 
work performed in 2002 and 2003. The NPS has paid about $10 
million to PGI through a General Services Administration 
contract for numerous construction projects in Grand Canyon 
National Park; $1.4 million of that amount was owed but not 
paid to the firm's subcontractors. PGI has since gone out of 
business. The legislation would authorize the appropriation of 
such sums as may be necessary to pay the amount owed to the 
subcontractors.
    Assuming the availability of appropriated funds, CBO 
estimates that implementing the legislation would cost the NPS 
$1.4 million in 2008 to pay the subcontractors for their 
previous work. The legislation would not affect direct spending 
or revenues. The legislation contains no intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act and would not affect the budgets of state, local, or 
tribal governments.
    The CBO staff contact for this estimate is Matthew 
Pickford. The estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis.

                      REGULATORY IMPACT EVALUATION

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out H.R. 1191. The Act is not a regulatory measure in 
the sense of imposing Government-established standards or 
significant economic responsibilities on private individuals 
and businesses.
    No personal information would be collected in administering 
the program. Therefore, there would be no impact on personal 
privacy.
    Little, if any, additional paperwork would result from the 
enactment of H.R. 1191, as ordered reported.

                   CONGRESSIONALLY DIRECTED SPENDING

    H.R. 1191, as reported, does not contain any 
congressionally directed spending items, limited tax benefits, 
or limited tariff benefits as defined by rule XLIV of the 
Standing Rules of the Senate.

                        EXECUTIVE COMMUNICATIONS

    The testimony provided by the National Park Service at the 
November 8, 2007 subcommittee hearing on H.R. 1191 follows:

    Statement of Katherine H. Stevenson, Acting Assistant Director, 
  Business Services, National Park Service, Department of the Interior

    Mr. Chairman, thank you for the opportunity to present the 
views of the Department of the Interior on H.R. 1191, a bill 
that would authorize the National Park Service to pay for 
services rendered by subcontractors under a General Services 
Administration Indefinite Deliver Indefinite Quantity Contract 
issued for work to be completed at the Grand Canyon National 
Park.
    The Department appreciates the subcommittee's efforts to 
address this situation but opposes H.R. 1191. The Department 
also testified in opposition to H.R. 3961, a similar bill, in 
testimony before the House Subcommittee on National Parks on 
March 30, 2006.
    H.R. 1191 would authorize payment, through the 
appropriation of such funds as are necessary, to subcontractors 
who completed work under task orders to Pacific General, 
Incorporated (PGI) for which PGI was paid, but subcontractors 
were not. The work was completed under National Park Service 
(NPS) task orders issued against PGI's Indefinite Deliver 
Indefinite Quantity (IDIQ) contract with the General Services 
Administration.
    PGI's default has created a financial burden on the 
affected firms. The NPS had a contractual relationship with the 
prime contractor, PGI. The NPS does not have a contractual 
relationship with the subcontractors and NPS does not have the 
legal authority to pay subcontractors who completed work under 
PGI's IDIQ contract for which PGI failed to render payment.
    H.R. 1191 would authorize the Secretary to pay these 
subcontractors under certain conditions. The bill would 
authorize payment if: 1) the task orders issued to PGI by NPS 
have been terminated, 2) the amount owed to the subcontractors 
is verified, 3) all reasonable legal avenues or recourse have 
been exhausted by the subcontractors to recoup amounts owed 
directly from PGI, and 4) the subcontractors provide a written 
statement that payment of the amount verified represents 
payment in full by the United States for all work performed at 
the park under PGI task orders issued by NPS between Fiscal 
Years 2002 and 2003.
    Between Fiscal Years 2002 and 2003, the Grand Canyon 
National Park (park) issued approximately 40 task orders to PGI 
under this IDIQ contract. Those task orders totaled an 
estimated $17 million for various construction projects 
throughout the park. Invoices sent to the park indicated that 
PGI certified payments were being sent to subcontractors and 
suppliers. The NPS paid more than $10 million to PGI, of which 
approximately $1.4 million, based on our most recent estimates, 
was owed, but never paid, to subcontractors. PGI has been 
indicted by the U.S. District Attorney's Office in Arizona on 
26 counts of fraud involved with these task orders.
    In January 2004, the park began receiving complaints from 
subcontractors citing lack of payment by PGI. In February 2004, 
the NPS suspended further payment to PGI and issued a 
suspension notice ordering PGI to cease activity, followed by 
termination for default of 17 remaining task orders. PGI has 
had every reasonable opportunity to resolve the situation, but 
has since ceased doing business.
    Following PGI's default, the NPS withheld payment to PGI 
and began paying subcontractors directly for work completed on 
PGI task orders, valued at $906,335. Contract law generally 
prohibits payments directly to subcontractors because of the 
lack of a direct, contractual relationship between the parties. 
However, in this case, NPS consulted with the Government 
Accountability Office (GAO) and with their approval, began 
paying subcontractors directly for these claims. NPS has used 
approximately 92% of the withheld funds to pay 41 claims of an 
estimated total of 76 claims submitted.
    The impact of PGI's default was compounded by lapses in the 
contracting operations at Grand Canyon National Park. An 
acquisition management review conducted by the NPS Washington 
Contracting and Procurement Office, determined that the park 
had failed to obtain payment and performance bonds from PGI 
required by the IDIQ contract and the Miller Act (40 U.S.C. 
Sec. 3131). To prevent future lapses, we have strengthened 
internal controls both at the park and regional level. For 
example, the park superintendent is now annually evaluated for 
management of the park's contracting program. In addition, the 
NPS Intermountain Region will be conducting periodic 
acquisition management reviews of the Grand Canyon contracting 
program.
    The Department understands the hardships PGI's default and 
NPS' actions have placed upon the involved subcontractors. The 
payment bonds required of the contractor under the Miller Act 
are designed to protect subcontractors who do not have the 
recourse of placing a lien on the property at issue, since 
liens cannot be placed on government property. The courts have 
held that, while the contractor has an obligation to provide 
such bonds, the Miller Act places no affirmative obligation on 
the federal government to ensure the bonds have been obtained. 
The Department recognizes that H.R. 1191 is intended to be an 
equitable resolution to a difficult situation. However, it 
singles out one situation for relief not available to others 
under the Miller Act and would effectively have NPS pay for the 
same services twice.
    Although we are sympathetic about the position of the 
subcontractors, the Administration is concerned about the 
precedent that would be set by requiring the federal government 
to assume the liability for the contractor's default, 
particularly in a situation where no contractual relationship 
exists.
    Mr. Chairman, this concludes my prepared remarks. I will be 
happy to answer any questions you or other members of the 
subcommittee might have.

                        CHANGES IN EXISTING LAW

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee notes that no 
changes in existing law are made by the Act H.R. 1191, as 
ordered reported.

                                  
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