TITLE:	Maritime Administration-Disposition of Funds Recovered from Private Party for Damage to Government Building
BNUMBER:	   B-287738
DATE:		   May 16, 2002
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Decision


Matter of:    Maritime Administration-Disposition of Funds Recovered from
Private Party for Damage to Government Building

File:            B-287738

Date:           May 16, 2002


DIGEST

The Maritime Administration may not retain amounts recovered from a private
party representing liability for damage to a government building and
equipment for credit to its own appropriation or deposit into an escrow
account for use by the agency in effecting repairs and replacements. The
Maritime Administration must deposit the amounts recovered into the general
fund of the Treasury as miscellaneous receipts in accordance with 31 U.S.C.
ï¿½ 3302(b).


DECISION

The Acting Chief Counsel of the Maritime Administration (MARAD) requests our
opinion whether MARAD may properly use escrow accounts to hold funds
received from private parties (or their insurers) to settle claims by the
agency for damages to agency buildings and equipment caused by the private
parties.  While the question arises out of a claim made by MARAD against a
contractor, the claim has since been settled.  MARAD has asked us to address
its escrow concept, nevertheless.  As discussed below, we see no reason to
depart from the plain meaning of the miscellaneous receipts statute, which
requires that the money be deposited in the general fund of the Treasury.

Background

In 1996, MARAD awarded a contract for the replacement of garage doors on a
building at the U.S. Merchant Marine Academy (Academy).  Under the contract,
the contractor was required to maintain insurance in the amount of $2
million.  According to MARAD, the contractor negligently caused a fire
resulting in substantial damage to the building and destroying expensive
equipment in the building.  The total damages amounted to $1,080,147.84, of
which the contractor's insurance company initially paid $166,000, leaving a
deficit of $914,147.84.  MARAD made a claim against the contractor for the
balance under the Contract Disputes Act, and the contractor appealed the
contracting officer's adverse final decision to the United States Court of
Federal Claims.  The Department of Justice (Justice) represented MARAD in
the litigation.

During the litigation, the Academy expressed concern that, even in the event
of a favorable judgment for the government, it might not be reimbursed for
the damages it incurred, because the miscellaneous receipts statute,
31 U.S.C. ï¿½ 3302(b), requires that all monies received for the government
from any source be deposited into the Treasury.  To ensure that the Academy
would be reimbursed for all damages, MARAD's counsel proposed that the
Academy and the contractor could stipulate to dismiss the lawsuit with
prejudice and jointly establish an escrow account to operate as an
intermediary between the contractor and the Academy for the purpose of
making necessary repairs and replacements.  As the Academy incurred costs
for replacing the damaged building and equipment, it would submit the
charges to the escrow account agent.  Alternatively, the contractor making
the repairs/replacements would submit charges to the escrow account agent,
who would then bill the contractor that had caused the damage
originally.[1]

Justice attorneys recommended against a settlement involving an escrow
account for several reasons.  First, they concluded that such an arrangement
would contravene the express language of the miscellaneous receipts statute
since, on its face, the escrow account would appear to be established for
the benefit of the Academy.  Second, Justice attorneys believed it unlikely
that the contractor's insurer would accept the proposal since doing so would
virtually assure that the insurer would pay for the entire amount of the
damages rather than settling at some lesser amount.  Third, Justice
attorneys believed that an escrow agreement would give the contractor no
finality to the litigation and would cause the contractor additional costs
above those of the damages, because the contractor would have to monitor the
costs incurred by the Academy in making the repairs long after the parties
agreed to the settlement.  Moreover, Justice attorneys stated that the
proposal would create additional costs for the government and might result
in future litigation related to resolving disputes.

During the course of the litigation, the contractor's insurance company made
several monetary offers to settle the lawsuit on the contractor's behalf.
In due course, Justice and MARAD agreed to accept a cash payment of $730,000
from the contractor's insurer in settlement, and the money was deposited
into the Treasury.

Issue

The Acting Chief Counsel requests our opinion concerning whether an escrow
account similar to the one described above properly could be used by MARAD
in any similar case in which a private party that has damaged MARAD
buildings and/or equipment agrees to make restitution by paying to have the
buildings and/or equipment repaired or replaced.  If the party that caused
the damage were to put the settlement money into an escrow account that is
not controlled by MARAD, the Acting Chief Counsel believes the provisions of
the miscellaneous receipts statute would not be applicable, because MARAD
would not be receiving any money.  The Acting Chief Counsel, therefore,
concludes that MARAD would not have to deposit the settlement money into the
general fund of the Treasury, but would be able to draw on the funds in the
escrow account as needed to make repairs and/or replacements.

Analysis

The general rule concerning the crediting of collections to appropriation
and fund accounts is based on the requirements of the miscellaneous receipts
statute, 31 U.S.C ï¿½ 3302(b), which provides:

"Except as provided in section 3718(b) of this title, an official or agent
of the Government receiving money for the Government from any source shall
deposit the money in the Treasury as soon as practicable without deduction
for any charge or claim."
The requirement that money received from any source be deposited into the
Treasury was enacted to effectuate the Appropriations Clause of the United
States Constitution, which provides that "No Money shall be drawn from the
Treasury, but in Consequence of Appropriations made by Law."  U.S. Const.
Art. I, ï¿½ 9, cl. 7.  The requirement safeguards the separation-of-powers
principle embedded in the Appropriations Clause that is fundamental to our
constitutional structure.  By requiring government officials to deposit
government monies into the Treasury, Congress has precluded the executive
branch from using such monies for unappropriated purposes.  See Scheduled
Airlines Traffic Offices v. Department of Defense, 87  F.3d 1356, 1361
(D.C. Cir. 1996).

Consistent with the statute, we have long held that when a contractor
negligently damages government property and the contractor (or its insurance
company) agrees or is compelled to make restitution by means of cash
payments to the government, the amount recovered cannot be credited to the
agency's appropriations, but must be deposited into the Treasury as a
miscellaneous receipt.  67 Comp. Gen. 129 (1987); 28 Comp. Gen. 476 (1949).
Because agency operating appropriations are presumptively available to make
necessary repairs, to credit such recoveries to the agency operating account
would constitute an unlawful augmentation of the agency's appropriation.
Where the Congress has found it desirable to permit agency retention of
money recovered from a private party or insurer representing liability for
damage to government property, the Congress has provided the necessary
authority by statute.  64 Comp. Gen. 431, 433 (1985); 22 Comp. Gen. 1133
(1943).

An exception to the rule that recoveries for damages must be deposited into
the Treasury occurs when the party that is liable for negligently damaging
government property (or its insurer) agrees or is compelled to make
restitution by either replacing the damaged property "in kind" or arranging
and making direct payment for its repair or replacement to the government's
satisfaction.  In such instances, there are no funds received for the use of
the government that are required to be promptly deposited into the
Treasury.  67 Comp. Gen. 510 (1988); see also B?87636, Aug. 4, 1949, and
14 Comp. Dec. 310 (1907).

In view of the plain language of the statute and the importance of its
underlying purpose (i.e., to preserve congressional control of the
appropriation power), the courts have broadly interpreted the term "money
for the Government from any source" in determining whether money falls
within the scope of the miscellaneous receipts statute.  For example, in
Scheduled Airlines Traffic Offices v. Department of Defense, supra, the
United States Court of Appeals for the District of Columbia Circuit held
that a Defense Construction Supply Center solicitation requirement that the
contractor pay part of its monthly concession fees into a "Morale, Welfare,
and Recreation" fund (a nonappropriated fund instrumentality) violated the
miscellaneous receipts statute.  The court concluded that concession fees
were "money for the Government" within the plain meaning of the statute.
The court noted that the proposed design would divert revenues from the
Treasury to the morale fund and would create incentives for government
officials to reduce the amount of funds that would be deposited into the
Treasury.

Similarly, in Motor Coach Industries, Inc. v. Dole, 725 F.2d 958 (4th Cir.
1984) the court affirmed a district court's ruling that a trust comprised
solely of fees contributed by private airlines and established at the urging
of the Federal Aviation Administration (FAA) to purchase airport transport
buses for Dulles airport was created with public funds.  Finding that the
FAA had engaged in an "end-run around normal appropriation channels" in
order to divert funds from the United States Treasury and effectively to
supplement its budget without congressional action, the court also affirmed
the district court's order directing the FAA to deposit the trust's money
into the Treasury.  Id. at 967.

On at least two previous occasions our Office reviewed agency proposals that
were similar but not identical to the plan proposed by MARAD here.  The
element that was common to each of the proposals was that money received
from a private source would go directly to some entity other than the
federal agency for use in a particular project.  In each case, the agency
asserted that the agency itself would never receive the money.  Both
agencies asked whether using money for a particular project rather than
depositing the money into the Treasury would violate the express provisions
of the miscellaneous receipts statute.  In the first case, the Commodity
Futures Trading Commission wanted us to approve a plan that would allow the
agency to settle litigation concerning violations of the Commodity Exchange
Act by accepting the alleged violators' promises to make donations directly
to educational institutions.  In spite of the fact that the Commission
argued that the donations were voluntary in nature and the government would
not receive the money, we held that the Commission lacked authority to enact
the plan, stating:

"Penalties imposed under [the act] are collected by the Government and paid
into the Treasury as miscellaneous receipts in accordance with 31 U.S.C.
ï¿½ 3302.  The Commission may not circumvent the receipt of a penalty to
accomplish a separate objective."
B?210210, Sept. 14, 1983.

In the second case, the Nuclear Regulatory Commission (NRC) proposed a
similar plan that would permit licensees that had violated agency
requirements to make contributions directly to universities or other
nonprofit institutions to fund nuclear safety research projects in lieu of
paying civil penalties to the agency.  We held that the Commission was
lacking authority to implement its alternative penalty arrangement, stating:

"From an appropriations law perspective, such an interpretation [of the
agency's enforcement authority under the Atomic Energy Act] would require us
to infer that the Congress intended to allow the NRC to circumvent 31 U.S.C.
ï¿½ 3302 and the general rule against augmentation of appropriations.  Section
3302(b) requires the NRC to deposit into the Treasury as miscellaneous
receipts moneys collected under [the act]. . . . The purpose of section
3302(b) is to ensure that the Congress retains control of the public purse,
and to effectuate Congress' constitutional authority to appropriate moneys."
70 Comp. Gen. 17, 19 (1990).  We also stated our belief that the proposed
arrangement would result in augmentation of the NRC's appropriations,
allowing the NRC, in varying degrees, to circumvent the congressional
appropriations process.  Id.

Additionally, we once reviewed a Department of Commerce plan for collecting
money from private parties that had damaged agency property that was similar
to MARAD's proposal.  Under the Commerce plan, money paid in restitution for
damages would be held in special deposit accounts and would be paid to
contractors making the necessary repair/replacements upon receipt of
vouchers from them.  We held that such collections would have to be
deposited into the Treasury as miscellaneous receipts, and advised the
agency that it would have to submit the matter to the Congress for specific
authority if it desired to use money collected as proposed.  A?24076,
June 2, 1931.

As we understand the facts, neither the contractor nor its insurer was
willing or able to make the necessary repairs/replacements in kind, or to
contract directly with any other contractor(s) to make them, or to
administer the MARAD-proposed escrow account.  The contractor and its
insurance company agreed to make a monetary payment to MARAD, and nothing
more, to settle the litigation.  We also understand that MARAD would like to
deposit any money received in the future as restitution for damages into an
escrow account from which contractors could be paid as they effect the
repairs or replacements so as to avoid using its own appropriations to
repair the damage.  In such circumstances, the in-kind replacement exception
to the general rule mandated by the miscellaneous receipts statute would not
be applicable.

In essence, MARAD requests our endorsement of a plan whereby a contractor or
its insurer could make restitution for damages by paying the agreed upon
amount directly to a third-party who would hold the money in an escrow
account.  However, an agency cannot legally avoid the constraints imposed by
the miscellaneous receipts statute by using an escrow account to hold money
designated for repairs to buildings and replacement of equipment damaged by
a contractor.  In our view, because MARAD would effectively control the use
and disposition of amounts held in the escrow account, the money so
deposited would clearly be "money for the Government" within the plain
meaning of the miscellaneous receipts statute in spite of the fact that
MARAD would not receive the money directly.  The proposed plan would divert
revenues from the Treasury to the escrow account for MARAD's benefit and
effectively allow MARAD improperly to supplement its budget without
congressional action.  See Scheduled Airlines Traffic Offices v. Department
of Defense, supra; Motor Coach Industries, Inc. v. Dole, supra.  If MARAD
finds that it needs additional money to make necessary repairs, it must
request the funds of the Congress as part of its budget request.  Moreover,
if MARAD still desires to implement the proposed escrow plan for holding
collections pending repair/replacement work, MARAD should submit the plan to
Congress for specific authority to do so.  A?24076, supra.

Accordingly, consistent with the statute and the cases cited above, we
conclude that MARAD must deposit any money it might receive from a
contractor or its insurer as restitution for damages into the general fund
of the Treasury.




Anthony H. Gamboa
General Counsel

                          -------------------------

[1] As we understand the situation, neither the contractor nor its insurance
company was willing or able to make the repairs/replacements, to oversee the
contractors that would make the repairs/replacements, or to manage the
escrow account.